A pertinent reminder that financial crises tend to share similar features, yet we keep on repeating the mistakes of the past
A seemingly endless number of post-crisis studies have been released in recent years. These have ranged in format, from accessible feature films (J.C. Chandor’s Margin Call) to documentaries (Michael Moore’s Capitalism: A Love Story) to a heap of books, some academic (This Time Is Different by Carmen Reinhart and Kenneth Rogoff) and others targeted at a slightly wider audience (Andrew Ross Sorkin’s Too Big to Fail, Michael Lewis’s The Big Short on which the recent film of the same name was based), as well as a flurry of media long reads, blogs, podcasts, and interviews.
Boom Bust Boom brings together some of the best elements of its predecessors. It explores the factors that led to the most recent financial crisis in an accessible manner without shying away from examining the complex theory which underpins some of those failures – and even the absence of satisfactory theory in neoclassical economics to account for such events. In a panel debate after the film, its creators were asked how they initially aimed to make a documentary about economics fun (a question we also grapple with at ECON+), and told us using puppets was the first idea they came up with. They weren’t kidding. A puppet version of J.K. Galbraith pops up several times in the film as an economic soothsayer who understood the follies of human behaviour well before anyone else.
Singing ‘Muppets’ are just one of the imaginative devices used to account for the causes of the financial crisis. Monty Python’s Terry Jones narrates, while the film switches between animation, clips from broadcast news, TV shows, and films, and interviews with economists and behavioural psychologists.
We are reminded of economists whose theories were abandoned as a consequence of group think; Hyman Minsky and his financial instability hypothesis is the stand-out example. There is a bizarre scene with Minsky as a puppet talking to his real-life son Adam about his belief that “financial crises are a normal function in a capitalist economy”. (Bedtime was fun at Minsky’s). This is followed by interviews with experts who elaborate on why his views were so prescient. “Stability is destabilising”, we are told, as financial system stability leads to optimism, which creates overconfidence, resulting in deregulation, out of which emerges a fragile structure.
The excessive focus on the neoliberal branch of economics, from the classroom to central banks to government treasuries to trading floors, was one of the most original features of the film. The panel discussion following picked up on this, with Victoria Waldersee from Rethinking Economics, an international organisation seeking change in the way economics is taught and understood, observing that not only Minsky has been omitted from the curriculum of economics.
There are interviews with a number of big-name talking heads in economics, including George Magnus, Andy Haldane, Paul Mason, Paul Krugman, and several other academics. They each remind us that lessons from history about how bubbles form in the system were there, but the irrationality of human behaviour tends to result in us quickly forgetting those lessons and thinking ‘this time is different’ – the boom really will go on and the financial system is safe. Paul Mason argues that dominant economic theory assumes our ‘collective rationality’, whereas past crises in fact reveal our collective irrationality.
There were some omissions. First, the lack of explanation as to how financial crises can feed through into real economy recessions but don’t always necessarily. (There are many examples from history whereby recessions have not followed financial crises, but it is true that when financial crises are the precedent then depressions tend to be longer and more painful, as Reinhart and Rogoff demonstrated). Secondly, how banks and sovereigns tend to be joined at the hip. That is, why governments felt they needed to bail out the banks in 2008—not only because they had no other ideas and were fearful of what would happen to ordinary people holding deposits in retail banks, but because they need banks more than anyone – since banks (as well as other investors) buy a substantial amount of their debt.