Isegoria

John Papola and Russ Roberts have created a shockingly good hip-hop video about macroeconomics. Really. Fear the Boom and Bust.

Sing along:

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No, it’s the animal spirits

[Keynes Sings:]
John Maynard Keynes, wrote the book on modern macro
The man you need when the economy’s off track, [whoa]
Depression, recession now your question’s in session
Have a seat and I’ll school you in one simple lesson

BOOM, 1929 the big crash
We didn’t bounce back — economy’s in the trash
Persistent unemployment, the result of sticky wages
Waiting for recovery? Seriously? That’s outrageous!

I had a real plan any fool can understand
The advice, real simple — boost aggregate demand!
C, I, G, all together gets to Y
Make sure the total’s growing, watch the economy fly

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No, it’s the animal spirits

You see it’s all about spending, hear the register cha-ching
Circular flow, the dough is everything
So if that flow is getting low, doesn’t matter the reason
We need more government spending, now it’s stimulus season

So forget about saving, get it straight out of your head
Like I said, in the long run — we’re all dead
Savings is destruction, that’s the paradox of thrift
Don’t keep money in your pocket, or that growth will never lift…

because…

Business is driven by the animal spirits
The bull and the bear, and there’s reason to fear its
Effects on capital investment, income and growth
That’s why the state should fill the gap with stimulus both…

The monetary and the fiscal, they’re equally correct
Public works, digging ditches, war has the same effect
Even a broken window helps the glass man have some wealth
The multiplier driving higher the economy’s health

And if the Central Bank’s interest rate policy tanks
A liquidity trap, that new money’s stuck in the banks!
Deficits could be the cure, you been looking for
Let the spending soar, now that you know the score

My General Theory’s made quite an impression
[a revolution] I transformed the econ profession
You know me, modesty, still I’m taking a bow
Say it loud, say it proud, we’re all Keynesians now
We’ve been goin’ back n forth for a century

[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Keynes] I made my case, Freddie H
Listen up , Can you hear it?

[Hayek sings:]

I’ll begin in broad strokes, just like my friend Keynes
His theory conceals the mechanics of change,
That simple equation, too much aggregation
Ignores human action and motivation

And yet it continues as a justification
For bailouts and payoffs by pols with machinations
You provide them with cover to sell us a free lunch
Then all that we’re left with is debt, and a bunch

If you’re living high on that cheap credit hog
Don’t look for cure from the hair of the dog
Real savings come first if you want to invest
The market coordinates time with interest

Your focus on spending is pushing on thread
In the long run, my friend, it’s your theory that’s dead
So sorry there, buddy, if that sounds like invective
Prepared to get schooled in my Austrian perspective
We’ve been going back and forth for a century

We’ve been goin’ back n forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No,it’s the animal spirits

The place you should study isn’t the bust
It’s the boom that should make you feel leery, that’s the thrust
Of my theory, the capital structure is key.
Malinvestments wreck the economy

The boom gets started with an expansion of credit
The Fed sets rates low, are you starting to get it?
That new money is confused for real loanable funds
But it’s just inflation that’s driving the ones

Who invest in new projects like housing construction
The boom plants the seeds for its future destruction
The savings aren’t real, consumption’s up too
And the grasping for resources reveals there’s too few

So the boom turns to bust as the interest rates rise
With the costs of production, price signals were lies
The boom was a binge that’s a matter of fact
Now its devalued capital that makes up the slack.

Whether it’s the late twenties or two thousand and five
Booming bad investments, seems like they’d thrive
You must save to invest, don’t use the printing press
Or a bust will surely follow, an economy depressed

Your so-called “stimulus” will make things even worse
It’s just more of the same, more incentives perversed
And that credit crunch ain’t a liquidity trap
Just a broke banking system, I’m done, that’s a wrap.

We’ve been goin’ back n forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No,it’s the animal spirits

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”
John Maynard Keynes
The General Theory of Employment, Interest and Money

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
F A Hayek
The Fatal Conceit

Download the song in MP3 or AAC.

I haven’t read much Dickens, and I hadn’t read any in years — decades, really — but I recently finished reading a beautifully annotated version of A Christmas Carol that I received as a gift.

Now, even as a kid in school I understood that Dickens was a social reformer — which was presented as an unalloyed good, by the way — but reading A Christmas Carol as an adult, I can’t help but dwell on the fact that the whole thing is a transparent effort to prop up a conservative straw man and to knock him back down again — and light him on fire, too, I suppose.

Scrooge is a miser and a misanthrope, and Dickens makes every effort to associate miserliness and misanthropy with conservatives like Edmund Burke, with economists like Thomas Malthus, and with anyone else who might dare to suggest that the world does not run on wishful thinking.

It does not take long for him to get down to it. In the second paragraph of the first chapter — Stave 1, in Dickens’ “carol in prose” — he makes a sarcastic reference to the wisdom of our ancestors. That’s a not-so-subtle jab at Edmund Burke‘s Speech on Conciliation with the American Colonies:

I set out with a perfect distrust of my own abilities, a total renunciation of every speculation of my own, and with a profound reverence for the wisdom of our ancestors, who have left us the inheritance of so happy a Constitution and so flourishing an empire, and, what is a thousand times more valuable, the treasury of the maxims and principles which formed the one and obtained the other.

Apparently Dickens had a series of fake books made up for his own Wisdom of Our Ancestors library shelf: Ignorance, Superstition, The Block, etc.

When Scrooge’s nephew invites him to dinner, Scrooge says that he will indeed come to see him — in Hell. This is censored, of course, but you get the idea:

Scrooge said that he would see him — yes, indeed he did. He went the whole length of the expression, and said that he would see him in that extremity first.

This is all just a set-up though:

But why? cried Scrooge’s nephew. Why?

Why did you get married? said Scrooge.

Because I fell in love.

Because you fell in love! growled Scrooge, as if that were the only one thing in the world more ridiculous than a merry Christmas. Good afternoon!

In an era before modern contraception — and “loose” morals — not getting married was birth-control, and “sensible” people understood that a man should not marry until he could support a family.

But that kind of cold, economical thinking gets ascribed to a man who tells his nephew to go to Hell for inviting him to Christmas dinner.

We’re just getting warmed up though for the visit from the warm-hearted souls collecting charity for the poor:

At this festive season of the year, Mr Scrooge, said the gentleman, taking up a pen, it is more than usually desirable that we should make some slight provision for the Poor and destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir.

Are there no prisons? asked Scrooge.

Plenty of prisons, said the gentleman, laying down the pen again.

And the Union workhouses? demanded Scrooge. Are they still in operation?

They are. Still, returned the gentleman, I wish I could say they were not.

The Treadmill and the Poor Law are in full vigour, then? said Scrooge.

Both very busy, sir.

Oh! I was afraid, from what you said at first, that something had occurred to stop them in their useful course, said Scrooge. I’m very glad to hear it.

Under the impression that they scarcely furnish Christian cheer of mind or body to the multitude, returned the gentleman, a few of us are endeavouring to raise a fund to buy the Poor some meat and drink, and means of warmth. We choose this time, because it is a time, of all others, when Want is keenly felt, and Abundance rejoices. What shall I put you down for?

Nothing! Scrooge replied.

You wish to be anonymous?

I wish to be left alone, said Scrooge. Since you ask me what I wish, gentlemen, that is my answer. I don’t make merry myself at Christmas and I can’t afford to make idle people merry. I help to support the establishments I have mentioned: they cost enough: and those who are badly off must go there.

Many can’t go there; and many would rather die.

If they would rather die, said Scrooge, they had better do it, and decrease the surplus population. Besides — excuse me — I don’t know that.

But you might know it, observed the gentleman.

It’s not my business, Scrooge returned. It’s enough for a man to understand his own business, and not to interfere with other people’s. Mine occupies me constantly. Good afternoon, gentlemen!

Dickens seems to feel that the poor are innocent victims and that there’s nothing to be gained by punishing them for being poor — which is interesting in light of his own early life experience:

John Dickens’s tenuous prosperity as a clerk in the Navy Pay Office afforded a few years of private education of the young Charles at William Giles’s School, in Chatham.

This period came to an abrupt end after John Dickens had spent beyond his means in entertaining and otherwise maintaining his social position, and was imprisoned in the Marshalsea debtor’s prison. [...] Dickens later used the prison as a setting in Little Doritt.

Just before his father’s arrest, 12-year-old Dickens had begun working ten-hour days at Warren’s Blacking Warehouse, on Hungerford Stairs, near the present Charing Cross railway station. He earned six shillings a week pasting labels on jars of shoe polish. This money paid for his lodgings with Mrs. Roylance and helped support his family.

Mrs. Roylance, Dickens later wrote, was “a reduced old lady, long known to our family”, and whom he eventually immortalized, “with a few alterations and embellishments”, as “Mrs. Pipchin”, in Dombey & Son. Later, lodgings were found for him in a “back-attic…at the house of an insolvent-court agent, who lived in Lant Street in The Borough…he was a fat, good-natured, kind old gentleman, with a quiet old wife; and he had a very innocent grown-up son; these three were the inspiration for the Garland family in The Old Curiosity Shop.

The mostly unregulated, strenuous — and often cruel — work conditions of the factory employees (especially children) made a deep impression on Dickens. His experiences served to influence later fiction and essays, and were the foundation of his interest in the reform of socio-economic and labour conditions, the rigours of which he believed were unfairly borne by the poor.

More than anything, he seems bitter that he went from studying to be a little gentleman to working as a common labourer — when it wasn’t his fault.

Anyway, the whole “carol” recoils at the conclusions of Malthus, while nonetheless centering on a family without the means to support its many children. Bob Cratchit apparently has no better options than to work for Scrooge — which seems odd, for a finance clerk working in London — and Scrooge does not pay him enough to feed and clothe his family. At his current salary, he cannot afford to keep all six children, including the crippled Tiny Tim, alive and well. Thus, Tiny Tim is destined to die — despite asking God to bless us, every one — until Scrooge has his change of heart and increases Cratchit’s pay.

I guess we’re not supposed to ask, What if the Cratchits had waited a year or two to get married?, as Scrooge must certainly have suggested. Then they would have had five children, not six, all well fed and well clothed, and we wouldn’t have had to wipe away the tears thinking about poor Tiny Tim.

But I guess it’s better to feel bad, gloriously bad, about the Poor, than to avoid the problem in the first place. Avoiding the problem is heartless and cruel.