Economics By Cartoon

Current Events

The best commentary on Fed policy currently out there is a do-it-yourself animated short called Quantitative Easing Explained.

By Amity Shlaes, 01.17.11, 6:00 PM ET
http://www.forbes.com


The best commentary on Fed policy currently out there is a do-it-yourself animated short called Quantitative Easing Explained. The 6-minute, 48-second cartoon features two stuffed animals, drawn in Pokémon style, talking about monetary policy. Specifically, the bears--or are they dogs?--point out the illogic in the official Federal Reserve position that today the danger of deflation is greater than that of inflation. The animals also criticize the Fed officials' recent pursuit of QE2, the acronym for its decision to inject $600 billion into the economy. More than 3.5 million people have watched the video, and it was posted on YouTube in November.

The big question is why a home movie gets through to people in a way that a million words of news commentary have not. The answer is that news commentary has been corrupted, perhaps irreversibly, by an attachment to economic theory. The first kind of theory at issue here is Keynesianism, which assumes that stimuli from government, a category that includes QE2, are beneficial. Keynesianism also assumes a tradeoff between unemployment and inflation. Finally, Keynesianism emphasizes the consumer (demand) at the expense of business (supply). Here are several typical Keynesian sentences that you hear or read in the traditional news.- Consumer spending makes up 70% of the economy.- Growth is coming, so that means we can expect inflation.- Federal spending or the Fed's easing will stimulate the economy.

Monetarism, another theory, has alsodone its share of corrupting. This theorysays that if something seems wrong inthe economy, the solution lies in adjusting the amount of money pumped into it.

These theories do not suffice to explain current events. If many prices are going up--as the video asks--why do we still call our money problem "deflation"? The vanity that is economic discourse puts a high penalty on appearing ignorant or stupid. After all, economists are supposed to be super-smart, smarter than everyone but physicists and mathematicians. John Maynard Keynes and Milton Friedman preached different philosophies but shared one thing: a withering contempt for students who couldn't keep up with the rest in a seminar. There is a lively debate about whether Friedman himself would have supported QE2. I believe not. But the Friedmanian emphasis on monetary policy helped to make Ben Bernanke's QE2 possible.

The seminar culture carried over to the salon of general economic discussion. Journalists don't clarify. Instead, they become graduate students, journeymen who pander to the masters, professional economists. No one dares to suggest that if high-end theory is so difficult to understand it may not be the best theory. No one dares admit he is less than 100% sure, to quote Mr. Bernanke in his recent 60 Minutes appearance. To talk in anything other than Keynesian or monetarist terms is to ensure you'll be shut out of the salon.

Hence the cartoon. This medium calls the academics' bluff. Cartoons do not even aspire to the salon. What a cartoon video says, in effect, is: "I don't care if I'm called stupid; I'm a cartoon. What I care about is trying to discuss the economy in plain English." Readers and viewers are so relieved to be free of the obligation to appear erudite that they turn to the cartoon in droves. The same phenomenon has produced another unlikely economic messenger: a rap video. A mock rap debate between John Maynard "Let-the-Spending-Soar" Keynes and the Austrian School economist Friedrich "Too-Much-Aggregation" von Hayek has received 1.7 million hits on YouTube.

Switching media represents a sacrifice in content. My own effort in a new medium is a graphic novel version of my economic history book, The Forgotten Man. Starting out at 100 pages, The Forgotten Man Graphic has to date more than doubled. That's because, as the artist, Paul Rivoche, notes, the old truism has it backwards: A picture isn't worth 1,000 words; in fact, it often takes 1,000 pictures to convey a word.

What the national leap to these new media tells us is that many Americans are desperate. They want to know what must be changed--or kept the same--in the U.S. economy. Professional economists may be on the trail of the answer, but to find it they have to dedicate more time to inquiry and less to self-important obfuscation. Seminars were tolerable at 4% unemployment. At over 9% they're too expensive. That's arithmetic anyone can understand, whether in the classroom, in the newsroom or when looking at a cartoon.

Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations; Paul Johnson, eminent British historian and author; Lee Kuan Yew, minister mentor of Singapore; and David Malpass, global economist, president of Encima Global LLC, rotate in writing this column. To see past Current Events columns, visit our Web site at www.forbes.com/currentevents.