The housing related financial crisis caused devastation on a major scale and sent many people into homelessness and ruin. As a result, it has spawned a number of excellent films, both documentary (Requiem for the American Dream (2015), Inside Job (2010)) and feature (The Big Short (2015), Margin Call (2011)) that have sought to understand the causes and pin the blame.
This latest effort Boom Bust Boom belongs in the must-see category. It starts with the history of bubbles, then goes on to explain why the housing crash occurred, and what needs to be done to prevent them in the future. The film is co-written, co-directed, and presented by Monty Python alum Terry Jones and as one might expect, it uses humor to explain a grim story in an entertaining way with the aid of animation and muppets mixed in with live action
The films says that the Achilles heel of of capitalism is that it creates cycles of bubbles and panic that end up ruining the lives of people. The film introduced me to the ideas of economist Hyman Minsky whose work had predicted this some time ago. There apparently is a good reason why I had not heard of Minksy before. It seems like his work is not taught widely in economics departments so even many professional economists are unaware of him.
Minsky’s theory is that stability breeds instability because in times of prosperity, people forget that it was the regulations imposed after the previous bubble burst that produced the stability and growth, and they think that we have entered a new era where the old rules don’t apply and start relaxing all those controls leading to new bubbles. Staunch advocates of deregulation like Ayn Rand devotee Alan Greenspan (and leading politicians of both parties) must take a great deal of the blame for the last crash for advocating the deregulations that led to it.
The film says that the teaching of economics is awful in that they focus on neoclassical economic theory that does not reflect the real world because it says that capitalism is stable and that people are rational actors and that if left unfettered by the state, their collective actions will lead to rational outcomes. There is sound evidence that people do not make rational decisions and thinking that they will, as individuals, learn from the crises of the past and act rationally in the future is false. The film takes a detour into evolutionary biology and the study of monkeys to suggest that the tendency to make irrational decisions has deep evolutionary roots and cannot be willed away. The only way to help bring about rational behavior is to have institutions (both government and private) set up structures to minimize the risk of people making poor choices.
Here’s the trailer.
Back on April 15, 2009, in an appearance on The Daily Show, Elizabeth Warren in her first appearance on the show and before she became a US senator, pretty much outlined Minsky’s ideas about the cyclical nature of capitalism (without naming him) and Jon Stewart quotes her as saying “Capitalism without bankruptcy is like Christianity without hell”