Keynes vs. Hayek Rap Faceoff

If you’re looking for the lighter side of economics (is there one?), hip-hop over to YouTube and check out the hilarious rap video faceoff pitting John Maynard Keynes versus Friedrich Hayek over what causes booms and busts — and what to do about it.  Director John Papola, who used to work at MTV, and Russ Roberts, an economics professor at George Mason University, have done a fantastic job conveying complex but incredibly relevant ideas in an entertaining way.  It really is must-see.  For anyone who has trouble following the lyrics, you can find them at the original site here.

Besides the sheer creativity of the effort, what I found really astonishing was how well Hayek’s “rap” captured the essence of my arguments (familiar to readers of this blog) concerning China’s stimulus projects, bank lending boom, apparent GDP growth, real estate bubble, and rising inflation: 

 

The place you should study isn’t the bust

It’s the boom that should make you feel leery, that’s the thrust

Of my theory, the capital structure is key.

Malinvestments wreck the economy

 

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.

 

Whether it’s the late twenties or two thousand and five

Booming bad investments, seems like they’d thrive

You must save to invest, don’t use the printing press

Or a bust will surely follow, an economy depressed

 

Your so-called “stimulus” will make things even worse

It’s just more of the same, more incentives perversed

And that credit crunch ain’t a liquidity trap

Just a broke banking system, I’m done, that’s a wrap.

 

While I have a lot of respect for Keynes as a thinker, the message of Hayek and the Austrian School — that ultimately, real wealth creation is what matters — has always resonated with me.  But to give Keynes his due, I have to note that he was one of the few economists in history who made a fortune from market speculation.  He had a shrewd grasp on what drives markets in the very short term.