Tuesday, April 20, 2010

Randy Marsh and the Paradox of Thrift

A greatful world (myself included) has learned so much from South Park over its fourteen seasons and (now) 200 episodes. We have learned that: pig and elephant DNA just don't splice, the true nature of God, Canadians and their flappy heads are not to be trusted, the rainforest sucks, Bono is really a living piece of shit, Family Guy is really "written" by trained manatees, clouds of "smug" are far more dangerous than smog and that Kyle's mom is a big, fat, fucking bitch.

This is but a small sample of the lessons taught by Messrs. Marsh, Broflovsky, Cartman and McCormick and the other denizens of that hick-assed, redneck, white bread mountain town. South Park has really been a cultural touchstone, entering the debate on issues and ideas in a way that few other animated shows ever have.

So, when I saw the episode, "Margaritaville" last year (you can watch it here), I saw another "teachable moment" in their treatment of the economic crisis of 2007-whenever.

We educators love stuff like this, when pop culture intersects with academic topics. Is this just our lame attempt to "connect" with our students? I really don't care much. I thought it was funny and insightful, so in it goes.

Randy Marsh and Kyle the (Sort Of) Keynesian

Here's the story (for those who didn't watch it or forgot the particulars): Randy thinks that Stan should learn about saving his money. They go to a local bank and Stan deposits $100 in a mutual fund, which is immediately wiped out. Stan is understandibly pissed off.

At home, Randy tries to explain that the economy is so bad because people are spending their money on frivolous luxuries. Ironically, in the middle of this tirade about conspicuous consumption, Randy mixes himself a margarita in an expensive Margaritaville drinks blender, the sound of which ends up drowning out his voice.

The people of South Park are generally unhappy about the economy and are casting about, looking to place blame somewhere. Predictably, Cartman blames Kyle and the other Jews in town for hiding all the money in a secret "Jew cave." Randy, however has other ideas.

He claims that the economy is angry and to appease it, people should limit their spending to bare essentials. In typical South Park fashion, this gets blown way out of proportion, with people wearing bed sheets and riding llamas. This is all to try and appease the angry economy, so that it will treat the people better.

All the while, Kyle keeps insisting that the economy is just a construct, not a living, angry being. He says that, rather than saving their money, people should just have faith in the economy and spend their money. Randy and his followers then decide that they must kill Kyle and enlist the help of (who else?) Cartman, bribing him with a copy of Grand Theft Auto: Chinatown Wars.

Kyle then sacrifices himself for the town, paying everyone's bills with an American Express Platinum Card, Stan tries to return the Margaritaville mixer, only to find out that it has been bundled and sold to the Federal Reserve and is now worth $90 trillion. Stan breaks the mixer as the Fed officials decide on another bailout using a headless chicken. The economy recovers, but President Obama gets all the credit, not Kyle.

Great stuff, if you ask me.

Randy seems to be reacting rationally when he wants people to save their money in hard economic times. Kyle, however, presents the opposite perspective, and what might be explained as a Keynesian one.

The Paradox of Thrift Explained and Challenged

In times of economic hardship, Keynes and his followers advocate not less spending, but more, by individuals and government. Aggregate demand must rise, so the government must create more money, spend more of it and keep the "circular flow of capital" moving to stimulate the economy. Another part of this is lower interest rates, making money and credit easier and more accessable.

Keynesians argue that increased saving rates, while they might benefit the individual, hurt the economy in general. The government creates new money through inflationary policies, but that money is stuck in the banks through peoples' savings, thus creating a liquidity trap. This is the paradox of thrift, that saving can be detrimental to the general economic health of a system even while benefiting individuals.

So, then, Kyle was right. Have faith and get out there and spend your money, right? Or was he?

Randy Was Right...Kind Of

According to critics, Randy got the action right but the reason wildly wrong. According to these same critics, Kyle misunderstood how spending and saving influence the general health of the economy.

If more of us take Randy's advice and save money (not so much on the bedsheets and llamas bit), this will cause the amount of money in the coffers of banks to rise. This money represents real loanable funds for banks, will encourage the banks to lend and in time, bring interest rates down. So, to put it in other words, the less people spend on Margaritaville blenders, the more is available to lend.

In another sense, both Kyle and Randy got it wrong. If you consider prices and inflation being driven by the ratio of consumption to investment, all that the demand for money (or lack of demand) tells you is how much people prefer money over the goods and services that it can purchase. The market for money (and other goods) functions primarily as an informational system, transmitting peoples' preferences. If this sounds familiar, it comes from the ideas of this guy.

Consumers don't cause recessions. Misalignments in the complex web of monetary and industrial inputs and outputs cause recessions, and consumers have to adjust as these misalignments are, well, realigned. Consumers don't choose to spend or save. They really choose to spend now or spend in the future. They consider time in their spending decisions.

Changes in spending patterns are temporary; I think both consumers and producers understand this. This is why businesses expand even in times of economic contraction. If they do not expand capacity, they will not be able to handle demand when spending corrects and people want to buy again. It seems simple to me.

Here, Kyle misses the point. What we have to have faith in is that the cycle will come around again as surely as it tanked. We may decide to curb our spending now, but it is only to support our spending later.


In closing, I suppose the real point is that there really is no paradox to thrift. People convey information through their resource allocation decisions. This changes in the short term, but never for very long.

See? You can learn something watching cartoons.

Except Family Guy.

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