southpark

The Triumph of South Park Economics? (part 2)

As the title indicates, this post is the follow up to a previous post. I recommend reading it before jumping into this one.

Enter Stan Marsh, just trying to return his family’s margarita maker. If there is any redemptive part of “Margaritaville” it is here.

First Stan attempts to return it to the retailer. The store can’t accept it because they no longer own the payment plan the machine was bought with. They send Stan to the finance firm that extended loans to consumers to buy margarita makers. They too cannot return the money, as they bundled the loan payment plans into securities and sold them to banks on Wall Street.

The banks on Wall Street also cannot return the money because it turns out people could not afford the margarita makers in the first place, so they defaulted. To keep banks solvent, the government bought the now-worthless securities. Stan is pointed to the US Treasury Department.

Here Stan finally sees the inner workings of the economy. After being offered a $90 trillion refund, Stan barges into the department for answers. What he finds is a dart of satiric wit: the floor is covered with various policy solutions such as ‘lower interest rates’ or ‘bailout’ or ’$90 trillion.’ The government has been cutting a chicken’s head off, allowing it to careen around the room, and make policy based on where its body collapses.

Even though I find Randy and Kyle’s spending story unpalatable the stuff here is the gold standard of economic analysis. Suppose we accept that governments theoretically could do something about the boom-bust cycle. That still does not mean governments are capable of fixing the problem. The government is plagued by partisanship, bureaucracy, and countless other inefficiencies.

The government system necessary to coordinate the economy on a macro level is the modern Tower of Babel. How are governments supposed to calculate the real price of an asset if not the market clearing price? This is the exact situation Stan encounters at the Treasury Department- they offer him 90 trillion for a margarita mixer and think they underpaid.

This scene asks all the questions I would love to ask Chairman Bernanke: Why is the Fed trying to reinflate the economy by propping up asset values? How does the government know the price they’re paying for toxic assets is more accurate (or better) than the market price? The simple fact is that it does not and cannot know, and South Park captures it perfectly.

We can also now see the real concern of austerity. It is not a decrease in spending per se (although that’d help too), the problem is government manipulated interest rates. “Margaritaville” leads the viewer to ask is why so much credit was offered to consumers in the first place. If the Fed lowers interest rates, credit becomes cheaper so more people borrow. The problem is interest rate manipulation.

The story of how that leads to a self-fulfilling bust must be told in another post. For now, it is enough to wonder why an inherently bureaucratic and inefficient system tries to play God with interest rates. As long as the Fed continues to control rates it will continue to create the need for economic salvation.

“Margaritaville” uses Kyle, the consistent mouthpiece for common sense, to mock a caricature of economists preaching austerity. Disappointing but oh well, South Park consistently mocks pretty much anything and everything. In the same breath the South Park writers ridicule austerity they laugh at the U.S. Treasury Department. If nothing else, I can join in laughing at that.

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