Profits not lending will see us out of the recession

I blogged earlier today about the 200 economists who placed an advert in the NYT's rallying against Barack Obama's fiscal recovery plan

Over at Atlantic magazine, Arnold Kling writes of the thoughts of of Hyman Minsky,whom he calls a heterodox Keynesian economist.

Minsky believed that:

risk tolerance is cyclical. Investors will be risk averse for a while, and then gradually they will loosen up. Eventually, they become more and more complacent, until euphoria sets in, leading to bubbles and manias. This continues until a crash takes place, after which investors revert to being highly risk averse.

Sounds familiar doesn't it?

But Kling thinks that beacause of this

we need to step over the corpses in the financial sector. A revival of business investment will come from profits, not from lending.

and thus

Economic recovery will not come from bank bailouts. It will not come very quickly from the various public works projects in the pending stimulus proposal. The fastest way to recovery would be to inject more profits into the system.

Now try telling that to Gordon Brown