Stabilizing Influence

I tried so hard to rearrange your mind
But after while I realized you were disarranging mine
--Rolling Stones

Although I can't relate to Nobel laureate Hyman Minsky's Keynesian roots, his theories on financial market instability certainly resonate.

The basic idea is that periods of stability sow seeds for subsequent periods of instability. Stability causes folks to take on more risk and become complacent about the chances that the risks will be realized.

When policymakers seek to 'calm' markets down, the resulting moral hazard creates even more risk taking as decision makers perceive that someone has their back if things turn out poorly.

Intervention that is stabilizing in nature pushes out, and likely increases, the degree of instability in the future.