It’s not often than a song gets writ­ten for an eco­nom­ics pro­fes­sor. It’s so bad that it’s actu­al­ly good. Add that to the sound­track for the Col­lapse.

Image via Wiki­me­dia Com­mons

Once the Fed’s tool­box proved unable to stop the cas­cad­ing glob­al finan­cial melt­down, the US gov­ern­ment turned to the one strat­e­gy that it had left. It dust­ed off the old eco­nom­ic play­book of John May­nard Keynes and began intro­duc­ing mas­sive stim­u­lus plans and oth­er forms of gov­ern­ment inter­ven­tion. Since our col­lec­tive fate now depends on Key­ne­sian the­o­ry hold­ing water, it seems worth bring­ing you a primer on Keynes and his style of eco­nom­ic think­ing. And that’s what you get with this seg­ment from This Amer­i­can Life. The seg­ment (get the full episode here and then move to the 38th minute) tells you a lit­tle about his com­plex per­son­al­i­ty. (As they put it, you could make two movies about him — one that fea­tures “Keynes the states­man, advis­ing pres­i­dents and prime min­is­ters, furi­ous­ly writ­ing up papers that changed the direc­tion of mod­ern intel­lec­tu­al thought. Anoth­er movie would pret­ty much be a gay porno …” He was sex­u­al­ly too “out there” for even the enve­lope-push­ing Blooms­bury Group.) Through inter­views with var­i­ous econ­o­mists, the pro­gram then overviews the cen­tral tenets of Key­ne­sian eco­nom­ics, and dis­cuss­es Keynes’ influ­ence over lat­er gen­er­a­tions of econ­o­mists. Dur­ing the 1940s, 50s and 60s, Key­ne­sian­ism was all the rage, then it declined and almost dis­ap­peared dur­ing the 70s. Now it’s back, per­haps stronger than ever. My com­plete­ly intu­itive guess is that Key­ne­sian­ism will alle­vi­ate some of the finan­cial strains — it will keep more peo­ple work­ing, which is good — but it will also length­en the reces­sion, bring about new prob­lems (infla­tion and new bub­bles), and pre­vent us from seri­ous­ly address­ing the prob­lems that got us into this mess. Key­ne­sian­ism may be the humane and nec­es­sary way to go, but don’t expect per­fec­tion, or any­thing close. In the mean­time, if you want more blogs and pod­casts that track the finan­cial cri­sis, then please see our handy list.

Last week, we cre­at­ed a handy list of blogs & pod­casts that reg­u­lar­ly cov­er the finan­cial cri­sis. And so it seemed worth flag­ging the lat­est episode of This Amer­i­can Life. It’s called “Bad Bank” (MP3 — iTunes — Feed). It just came out this week­end. And it takes a close and enter­tain­ing look at what hap­pens when a bank goes bad/insolvent. The show gets into the real nit­ty grit­ty of the cri­sis and, once you’ve lis­tened, you’ll bet­ter under­stand bet­ter the pros and cons of solu­tions being tried out by the gov­ern­ment.

The episode fol­lows two oth­er insight­ful pro­grams by This Amer­i­can Life: The Giant Pool of Mon­ey (May 2008), and Anoth­er Fright­en­ing Show about the Econ­o­my (Novem­ber 2008). All three pro­grams are now added to our list of finan­cial cri­sis blogs and pod­casts.

The new Trea­sury Sec­re­tary unveiled his plan this morn­ing, and appar­ent­ly the mar­kets hate it, which pret­ty much guar­an­tees that we’ll be liv­ing with our finan­cial mess for a good while longer. As we know, this cri­sis could have been avoid­ed. But greed got the bet­ter of us. So, I won­der what read­ers think when they see Mil­ton Fried­man’s 1979 defense of cap­i­tal­ism and greed. Is it a mod­el, a line of argu­ment, that’s now dis­cred­it­ed? Or do we grudg­ing­ly con­cede his points and say that cap­i­tal­ism is the worst eco­nom­ic mod­el except for all the oth­ers that have been tried (a cheap play here on Churchill), and then fig­ure out how to mop it up?

via Andrew Sul­li­van’s Dai­ly Dish

NPR’s Plan­et Mon­ey pod­cast has done an excel­lent job of track­ing the ongo­ing glob­al finan­cial cri­sis. In its lat­est install­ment (Stream — iTunes — Rss Feed), they get down to an impor­tant ques­tion: Does his­to­ry offer solu­tions to the cur­rent cri­sis? And if so, does it make sense to look back at the Depres­sion of the 1930s? Or does 1990s Japan offer a bet­ter exam­ple?

One of Plan­et Mon­ey’s guests, econ­o­mist Adam Posen, argues that we should keep our eyes on Japan. Dur­ing the 1980s, Japan­ese banks and investors exploit­ed loose mort­gage lend­ing and gen­er­at­ed a sub­stan­tial real estate bub­ble, which popped in the ear­ly 90s once Japan’s gov­ern­ment start­ed tight­en­ing cred­it. From there, all oth­er assets and mar­kets fell apart, and a long reces­sion began. Sound famil­iar?

For Posen, the actions of the Japan­ese gov­ern­ment help illus­trate which anti-reces­sion poli­cies worked, and which did­n’t. The upshot is that Japan’s cri­sis could have been lim­it­ed to three years. But it went on for a decade instead. And that’s because Japan nev­er passed a major stim­u­lus pack­age until the very end, and because the gov­ern­ment nev­er forced the banks to change their prac­tices. This all sug­gests that Amer­i­can pol­i­cy can make a dif­fer­ence. The Oba­ma admin­is­tra­tion has a big stim­u­lus pack­age com­ing. But will it get the banks under con­trol? I’m less than san­guine about that, and it could make the dif­fer­ence between a short, sharp reces­sion and anoth­er lost decade.

PS The con­ver­sa­tion men­tioned above starts about 3 and 1/2 min­utes into the pod­cast.