Tue Jan 26th, 2010 at 01:31:56 AM EST
About the video:
Econstories.tv is a place to learn about the economic way of thinking through the eyes of creative director John Papola and creative economist Russ Roberts.
In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there's a "boom and bust" cycle in modern economies and good reason to fear it.
Lyrics and a mp3 are available at the website of EconStories and in case it wasn't obvious from the video and lyrics about whose side the video skews toward, Papola and Roberts position becomes clear when they were interviewed by NPR about the economists' rap battle.
Papola's growing interest in the influential but little-known economist eventually led him to discover libertarian economist Russell Roberts, co-author of the popular blog Cafe Hayek and host of the EconTalk podcast.
Papola was an executive producer at Spike TV and "in 2009, he cold-called Roberts and left a 'long, ranting message' about how he was interested in the business cycle and monetary policy." Papola and Roberts oppose governments using economic stimulus as a means to revive an economy that has collapsed into a recession.
As Hayek fans, this didn't make Papola and Roberts too happy. They wanted to find a way to critique Keynes' theories and give Hayek the attention they thought he deserved... The resulting 6 1/2-minute music video tells the story of Keynes and Hayek going out for a night on the town. While drinking and rolling with their homies, they lay out the basics of their theories.
Just when Keynes was starting to regain some ground lost to the Chicago School in the last half-century, the free marketeers lay down some catchy, heavy rhymes. I admit that the video does "dive into economics using visuals and entertainment value" and I'm left with the impression that Keynes can't hold his liquor.
But, from my own non-economist perspective, it seems that Papola and Roberts twisted some of the recent economic happenings and dumped them undeservedly in Keynes' lap. Having the financial "markets set free", what Hayek proposes, a large part of the cause of the recent bubble that led to the global financial collapse.
In December, PBS News Hour talked with Roberts and Keynes' biographer, Robert Skidelsky, and looked at the late economists' hip-hop legacy. Here's Roberts:
Well, my claim is that, in our attempts to engineer our economy from the top down, we have actually made, in many -- many cases, the world less secure, workers less secure, and lowered our prosperity, and hurt people...
What markets do is, they punish you if you systematically make the same mistakes over and over again. When you destroy the punishment system that markets naturally perform, you're going to see more myopia, more hubris, more overconfidence.
Yes, but it's interesting, the word you; they punish you.
If it was just that you made a mistake and the markets punished you, because you were out of a job, that's fine. But they actually punish millions of people for the mistakes of a quite a few people. And no government, no democratic government, is going to allow that degree of punishment...
Unemployment and the bankruptcy of lots of companies who are not making mistakes. They're just affected by the people that have made the mistakes.
Then Roberts complains that economic stimulus that Keynes proposes gives "solace to politicians who want to spend money wastefully on special interests, rather than on things that would help us." Which is what I think Alan Greenspan, former chair of the U.S. Federal Reserve, brought the United States in the 2000s with his cheap money, bubble-inflating, low interest rates policies.
It seems like "markets set free" and misguided stimulus on things that do not help us, the economically lethal combination that Greenspan's low interest rates and George W. Bush's tax cuts for the wealthy, takes the worst of both Hayek and Keynes. Greenspan, a market libertarian, ignored that "business is driven by the animal spirits" in that people are greedy and do not always make the best decision.
"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms," Greenspan said in October 2008 during U.S. Congressional testimony.
Bush, of course, was doing the job his people sent him to do: make the wealthy even richer.
My own view is when Keynesian stimulus is provided directly to private individuals or corporations, rather than by direct governmental spending on improving infrastructure or creating public service jobs such those funded by the New Deal-era Works Progress Administration, especially in a deregulated, lawless business environment as currently exists in the United States and much of the west, then Hayek is correct that the stimulus will just make things worse, create a bigger crash in the future. Public stimulus into private, free markets is a catalyst for catastrophe as was witnessed by the collapse between 2007-2008.
Is this a fair assessment? How would Keynes and, for that matter, Hayek respond?