Boom Bust Boom
By now, anybody who can sit through an economics lesson knows how the 2008 financial meltdown happened.
Banks assumed that housing prices would continue to go up forever, so they lent money to new homeowners who couldn’t afford the loans. Then the banks sold the loans to other banks and to private investors. This insured that a drop in housing prices would affect every financial institution and take down the entire economy. Then housing prices dropped…
It’s easy to play Monday Morning Quarterback and blame who you want to blame for the meltdown. You can blame the naughty banks. You can blame the lax regulators. You can blame the materialists who wanted to live in McMansions that they couldn’t afford.
People on the Right can blame big bad government for forcing lenders to make loans in poor communities. People on the Left can blame big bad Reagan and/or Bush for trusting the private sector with so much power and money.
Monty Python’s Terry Jones has a completely different take.
Jones achieved the impossible. He made a documentary about economics that is apolitical, upbeat, and easy to follow. And full of singing puppets.
The film’s hero is 20th Century economist Hyman Minsky. (As a puppet), Minsky explains his ground-breaking theory about business cycles.
First, there is a painful panic. After a panic, people become cautious and responsible. They take fewer risks. They do not invest on margin or using credit. Governments pass and enforce sensible regulations.
This responsibility leads to stability. And this starts the downward cycle over again. Stability leads to optimism and rising prices. Rising prices leads to euphoria. In the euphoria of ever-rising prices, investors use credit again and ignore regulations. Finally, inflated prices suddenly drop and a painful panic ensues.
This explains the 2008 Mortgage Crisis. According to Terry Jones, it explains every financial crisis.
Jones’s solution isn’t Socialism. Or more regulation. It is acceptance.
Terry Jones doesn’t blame anyone for the 2008 meltdown. “Boom Bust Boom” claims that cycles of boom then bust aren’t flaws in the Capitalist system – they are flaws in our nature.
If there are villains in “Boom Bust Boom,” they aren’t the capitalists – they are the mainstream economists. Jones states that the study of economics rests on a fundamentally flawed theory: the notion that people in the open market are rational.
When it comes to money and trading, Terry Jones asserts, we are irrational to our very core and always will be.
Jones illustrates his theory of irrationality with an experiment using Rhesus Monkeys.
A colony of monkeys was given coins that could be exchanged with humans for food. Food dealer #1 showed a bowl containing one grape. When the monkey gave him a coin, the human gave the monkey two grapes. Food dealer #2 showed a bowl containing three grapes. When the monkey gave him a coin, the human gave the money two grapes.
If the monkeys made decisions based on rationality, they would shop with dealer #1 as often as dealer #2.
But monkeys, like us, are emotional idiots when it comes to money. The monkeys all wanted to buy from Food dealer #1 and avoided dealer #2 like the plague.
When it comes to investment decisions, we are all monkeys. When our investment goes up, we feel pride and joy and euphoria. When our investment goes down, we feel shame and disgust and panic. The smartest among us know that our feelings are irrational, but we feel them anyway.
“Boom Bust Boom” is the exact opposite of a muckraking documentary. It presents a serious problem that plagues humanity. But there is no blame and there are no solutions. Just monkeys and puppets.