It all started with a Boom and Bust
This year marks the 10th anniversary of the global financial crisis, the event which changed the course of our economy and inspired the creation of EconStories, starting with “Fear the Boom and Bust."
Ten years later, what caused the crisis, what should have been done to address it, and what should be done to prevent another one remain hotly contested questions, with Nobel Prize-winning economists coming down on every imaginable side. But one thing is clear, the financial crisis and the Great Recession that followed are two of the most impactful events of our lifetime. So I thought I’d reflect on the past 10 years a bit as we prepare for an exciting 2018 at EconStories.
I have no formal training in economics and, like most people, I didn’t have much of an incentive to learn about the subject until I started to grapple with the personal economic challenges of life. I graduated college in 1999 and began working at MTV that fall. Like any entry-level position in a competitive industry, I was working all hours of the day and night, barely making enough to afford rent, and struggling to get on my feet. Two years later, in early 2001, I lost my job when my division of MTV was eliminated in the wake of the collapse of the stock market, the bursting of the “dot com bubble”, and the recession that followed.
From the beginning, my working life was scarred by the boom and bust.
Fast forward to 2004, my wife Lisa and I bought our first apartment. This was my first real experience confronting the impact of interest rates and financial policy in a serious, personal way. We were both working at Nickelodeon as producers and we could just barely afford to qualify for a mortgage. But prices were rising fast and everyone we knew was encouraging us to secure a place before it became impossible. Two years later, at the peak of the real estate boom, prices had risen by more than 25% in our building and it became impossible to ignore that something bizarre was going on.
As the boom turned to bust in 2006 and every conversation shifted from frenzy to fear, I turned my daily commute into an ad-hoc economics education in the hope of understanding what the heck was going on. I read The Black Swan by Nassim Nicholas Taleb and was mesmerized by his insights about the outsized impact of rare events and our natural human struggle to comprehend probability. As I sought out more material from Taleb, I discovered a podcast called EconTalk, hosted by economist Russ Roberts. And down the rabbit hole I went. I’ve since listened to every episode of EconTalk, going back to 2006.
My hunger for economics understanding accelerated in 2007 and 2008 as the presidential election itself was consumed by the unfolding financial crisis. 2008 Republican candidate Ron Paul seemed to be the only one with a story about what was happening that made any sense to me. He, almost alone, was putting forward the “Austrian perspective” of the business cycle and urging people to explore the ideas of economists Ludwig von Mises and Friedrich Hayek.
What I Learned from the Austrians
In the Austrian view, money and credit played the central role in generating boom and bust, in part because money is the only good which runs through the entire economy, being half of every transaction.
Economic booms driven by an easy money policy from the central bank would inevitably plant the seeds of their undoing as inflation drove up prices and, eventually, interest rates, rendering large swaths of the economy unprofitable. In an Austrian boom, the underlying problems are the bad investment decisions made by businesses as a result of the unsustainable boom. Easy money also encouraged excessive debt, making the economy more fragile in the event of a downturn.
In contrast, the mainstream conversation among most politicians and commenters reflected the views of economist John Maynard Keynes. In this view, the cause of the boom was essentially irrelevant. The solution was all that mattered: borrow and spend even more! The Keynesian view was of course more popular with politicians who were anxious to direct increased government spending in ways that would benefit them. Keynes' logic was simple, but circular.
Keynes' logic was simple, but circular.
In the Keynesian view, businesses shrink and lay people off because they don’t have enough revenue to be profitable. His is a story focused on consumer spending and it’s compounded by fear and uncertainty, a waning of Keynes famed “animal spirits”. The simple solution is to increase spending in the economy as a whole, which in turn created more income for businesses, so that workers can spend more. This is the Keynesian “circular flow”. Spending begets more spending.
While I continued to find the Austrian perspective more persuasive, the political process didn’t. In early 2009, President Obama made his first major legislative priority the passage of the largest Keynesian “stimulus” plan in US history. Our solution to a debt-driven boom and bust was to borrow and spend at even more unprecedented levels.
What I came to understand was that Keynesianism wasn’t merely popular because it was well-suited to the desires of politicians. Every single introductory macroeconomics course teaches the Keynesian model. I didn’t realize this because I never had these classes in school. Moreover, popular news and media embeds this Keynesian status quo in all of it’s reporting. We’re inundated with the idea that consumer spending is the engine of the economy every three months, when quarterly GDP numbers are released. Rarely do economists or pundits explain the classical “law of markets”, which stipulates that before someone can consume they must first earn the money by producing something for someone else. As a result, Americans have at best a partial picture of our own economic system.
The Birth of EconStories
And so, in the early spring of 2009, I cold-called the host of EconTalk, Russ Roberts, and made a proposition.
I told him that I was a creative director at Spike TV, that I wanted to team up and put our combined skills to the task of offering an alternative approach to mainstream economics education. If I could learn economics from audiobooks, podcasts, and YouTube video lectures, I bet millions of other people could too! As someone working in the entertainment industry, I thought the best way to do it was through content that’s both educational AND entertaining. Russ and I began to brainstorm ideas for a project pitting Keynes against Hayek on equal footing in their debate over the boom and bust…and with the launch of our first Keynes vs. Hayek rap video on NPR’s All Things Considered in January of 2010, EconStories was born.
Since then, we’ve produced more rap videos, a holiday special, a web series that explores economics in the movies, a silly Star Wars parody of the sharing economy and other content. We’ve partnered with various non-profit organizations for support along the way, including The Mercatus Center at George Mason for the Keynes vs. Hayek videos, the Moving Picture Institute for EconPop and Artists4America on Share Wars.
In 2011, I teamed up with my wife Lisa and best friend Josh, both Viacom alums, to start a company devoted to producing content and creative projects like EconStories. Inspired by Hayek’s most essential idea, we called our company Emergent Order. Since then, EO as been the engine driving our EconStories projects. Our latest project is a series of animated shorts devoted to exploring the concept of emergence.
EconStories is a labor of love, and this year I want to give it more love than ever!
We’ve got a number of big ideas taking shape for 2018 and beyond. Having spent the past 7 years building our company, I’m excited to focus my energy on the fundamental economic ideas that started me on this journey a decade ago. This is my econ story, but I’ll be sharing many more in the weeks and months ahead.