Too Big to Bail

No doubt I may well be the thousand and umpteenth person to blog this, though I thought I may as well do my bit to help spread this noteworthy video:

\”Fear the Boom and Bust\” a Hayek vs. Keynes Rap Anthem

Aside from the inaccurate portrayal of both men’s personalities (I think Hayek was much more of a lady’s man, while Keynes was a homosexual and not extraordinarily attractive to either men or women…), the video was excellent.

Keynes’s theory is portrayed fairly accurately as not much more than a scam based on the facile idea that keeping the money “moving around” lowering interest rates and boosting expenditure is somehow boosting the economy.

Hayek (or “Freddy H”) is then able to move in and flatly crush the theory, first pointing out that the policy consequences of credit expansion, thereby aritificially lowering interest rates then causes a false investment boom into certain projects that appear profitable, though this an illusion. The illusion is due to the fact the lowered interest rates result from central bank inflation of the money supply, and not increased saving and lowered consumption by the population at large. When this mismatch is finally communicated y the price system and the fact business owners can no longer find customers or returns to their long term investment projects a bust ensues. And we can thank “Lord Keynes” for that.

But hey, don’t take my word for it, here’s Freddy H!

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.

It would have been nice to have a shout out to Mises and Rothbard too, but I guess you can’t have everything, perhaps a sequel is in store.  Kudos to John Papola and Russ Roberts in any case!