Friday, February 13, 2009

Why I Love "This American Life"

Leave it to great storytellers to educate us about the financial crisis. Ira Glass and his gang of radio reporters have done a stellar job explaining the crisis in plain English. Their first segment "The Giant Pool of Money" provided a vivid portrait of the people involved in and affected by the sub-prime mortgage meltdown. The sequel, called "Another Frightening Show About The Economy" jolted me to slash my budget by 25%.

Earlier this year, the team reported on a brief examination of how Keynesian economic theory is influencing the stimulus package (skip to about 40 mins into the program). A couple things stuck out:

First, today's economic conditions are so unique that monetary policy (aka the Fed raising or lowering interest rates) has run its course, leaving the government the only lifeline for human intervention.

Second, there's a school of thought that the recession itself is the cure to bring us back to normal. Left untouched, the crappy economy will lower prices and home values to the point of affordability again. Very Darwinian. I wonder if it would work. Doing nothing is suicidal for politicians, but is human intervention doing more harm than good?

Third, this is the first time that a major country like the U.S. will apply Keynesian theories to correct the economy. True, FDR increased spending on public projects, but he also raised taxes and tightened the economy (which apparently drove Keynes nuts). Obama will be known as the first president to truly use Keynesian principles to right the economy. It's never been tested, so buckle your seat belts.

1 comment:

  1. Enjoying your new blog. Keep the posts coming! Given your appreciation for economics explained in plain English, thought you might enjoy this visual take on the credit crisis: