Monday, November 15, 2010

Musical Monday - Fear the Boom and Bust by EconStories

Okay, so there's this long-standing philosophical conflict in the world of economics between John Maynard Keynes (author of The General Theory of Employment, Interest, and Money), the most famous economist of the twentieth century and possibly of all time, and F.A. Hayek (author of The Road to Serfdom and The Fatal Conceit), a relatively obscure, but highly influential figure who is mostly only well-known among economists. Well, Spike TV executive John Papola and George Mason University economics professor Russ Roberts teamed up to produce a rap video titled Fear the Boom and Bust that gives a surprisingly comprehensive account of the two contrasting views of the economy. The video, in which Hayek clearly wins the debate (this should be unsurprising, as Roberts is a proponent of the Austrian school of economic thought, which stems from Hayek's writing) shows Keynes engaged in a wild night of partying and drinking and Hayek serving up some harsh reality during the inevitable hangover the next morning. The video includes several nice small touches, including Hayek showing up with a metro pass while Keynes hires a limo, and the bartenders' name tags showing as Ben (and in Bernake) and Tim (as in Geithner). There is also a pretty good clip where John Papola discusses how the video was made at a meeting of the Mises Institute.

John Maynard Keynes
The most interesting thing to me is that Keynes has become something of a superstar whereas Hayek languishes in obscurity. As Steven Kates points out in this presentation, there has never been a Keynsian stimulus that has seems to have worked. Even more damaging, as Kates points out, most of Keynes' ideas were not original to him, and relied upon economic ideas that had been discarded by most economists prior to the 1930s. But Keynesian ideas dominate because they are appealing. The implication of the Keynesian theory is that the boom phase of the business cycle is not only good, but it is the natural state the economy should be in, and a recession is an aberration that should be cured. And a recession should not only be cured, it should be cured by government action, which makes it attractive to politicians who want to be seen as doing something when economic downturns happen. Hayek, by comparison, offers no comforting vision of reality, rather taking the position that recessions are simply a natural part of the economic cycle and that governments action generally only serves to make them worse. Given these political incentives to favor his ideas, it seems natural that Keynes would be loved by governments, and Hayek would be ignored (and it seems almost a miracle that Hayek is as modestly well-known as he is).

F.A. Hayek
Even though I have some reservations about the Austrian school of economics (it's aggressively anti-empirical stance bothers me from a philosophical standpoint), their arguments certainly seem more cogent than the ones advanced by many other schools of economic thought. But, despite Roberts' own ideological leanings, the video gives a comprehensive (and quite fair) account of Keynes' theory before Hayek's rebuttal. The video is simply as brilliant an economics lesson as one could pack into seven minutes and thirty-three seconds (its not actually that long, after about six minutes, the remainder is credits). With governments around the world recovering from their scramble to pour stimulus money into their national economies and the Federal Reserve set for a second round of quantitative easing, this video is as timely an economics primer as one could hope for.

"Prepare to get schooled in my Austrian perspective." - F.A. Hayek

Previous Musical Monday: The Arlington Rap by Remy Munasifi
Subsequent Musical Monday: We Are All Connected by Symphony of Science

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