“Let Me School You in My Austrian Perspective”

Remember this? 

Watch it again.

With no hyperbole at all, Cato says it “may be humanity’s greatest contribution to the fields of music, theater, and political economy all at once.”  And with no hyperbole whatsoever, I can say that it makes rap watchable, and good economics memorable.  And since being released into the wild just over three weeks ago, it’s pulled down over half-a-million views worldwide in just three weeks—that’s half-a-million views of some good economics, and growing.

If you want to know why it’s so good, then Jeffrey Tucker is your man. Let him school you in our Austrian perspective:

    As with the classical music show on public radio that takes apart a symphony to explain "why it is great," I want to explain why this video is great. To begin with, the character depiction is fantastic. . .
    “Keynes is popular and beloved by all, promoting a high lifestyle, parties, and living it up — the future be damned. Hayek's personality here is more intellectual, sober, and even a bit puritanical, with a focus on reality and the long-term good.
    “The theme of the party animal vs. the sober economist continues throughout the story. The terms of the argument are laid out very clearly. Hayek says business cycles are caused by "low interest rates" born of intervention, whereas Keynes wants to blame "animal spirits" loose in a market crying out for management.
    “Keynes then gets his turn at explaining depression. It is caused by sticky wages and can only be cured by boosting aggregate demand through government spending and the printing press. He favors public works, war, and broken windows, warns against the liquidity trap, favors deficits, brags that he has changed the economics profession, and concludes, "Say it loud, say it proud, we're all Keynesians now!" All the while, the viewer is witness to wild antics of drunken partying.
     “It is left to Hayek to restore reality to the discussion. He dismisses Keynes on the grounds that there is too much aggregation in his equations, which ignore human action and motivation. Hayek compares post-recession stimulus to drinking the "hair of the dog" to cure a hangover. He points out that there can be no prosperity without saving and investment, and he proceeds to school Keynes in the Austrian perspective.
    “He begins by changing the focus from the bust to the boom, which he regards as having planted the seeds of disaster. The boom starts with an expansion of credit. The new money is confused with real, loanable funds and is invested in new projects like housing construction.
    “But sufficient resources to complete these projects are lacking. They are malinvestments. The "grasping for resources reveals there's too few" and the boom turns to bust. As for the liquidity trap, that is only evidence of a broken banking system. The lesson: "You must save to invest, don't use the printing press."
    “This entire explanation takes place against the backdrop of Keynes trying to sleep off a hangover and then hurrying to the bathroom to throw up — the after-effects of partying the night before.
    “What Hayek is discussing in the video is his own theory of the structure of production. But note here that there is a structure of production working in the world of ideas too. The first pieces of the Austrian business-cycle theory were being put together 100 years ago, while Mises was working on his first book, which appeared in 1912.
    “Here we have the first treatise that puts together interest and production theory with the theory of money. Mises's main point is that central banking will end up causing more cycles, not fewer. Hayek followed up in the 1920s and 1930s with a series of studies on the topic. Later came Mises's own improvements in his 1949 book Human Action. Roger Garrison's studies in the 1990s provide some of the language that appears in the video. Still later, there is Jesus Huerta de Soto's book on economic cycles, which explains the role of fractional-reserve banking — a book that builds on insights from Rothbard from the 1960s.
    “What we see in this video, then, is the culmination of many threads of thought that began a century ago. That's a long and complex production structure for ideas, but it is precisely what is necessary to build a theory of this complexity that can be reduced to a rap video anyone can view and learn from.”

Great stuff. Send a copy to Bill English.

And for those who are after a more technical description of the debate and its consequences, get hold of John Cochrane & Fred Glahe’s The Hayek-Keynes Debate-Lessons for Current Business Cycle. You’ll see that nearly eighty years after their debate began, on every important point but one Hayek has been proved right, and Keynes wrong.

(Great stuff too. Send a copy to Alan Bollard.)

And that one point?

That the “animal spirits” of politicians, which Keynes understood, would always head for a high-spending agenda, no matter how big a hangover it causes in the long terms. 

That’s the same hangover we’re suffering right now—and however much they try to wriggle out of it, they’re too blame.

Hayek told them so nearly eighty years ago.  They just haven’t been listening.