Two Inside Jobs

One is the great animated film about the sort-of dentist who pulls off a jaw-dropping heist while musing on “The Secret of the Sierra Madre”.

The other is the near-great documentary about the financial crisis now showing in small-capacity art houses in scattered American cities. Economists have fixated on the section near the end that lampoons Fred Mishkin, John Campbell and Glenn Hubbard, the latter somewhat too aggressively for my comfort. (Even the evildoers deserve to have their responses to attacks by interviewers not edited out.)

Overall, I think the film does a fine job explaining the profound malfeasance of the financial sector, finance’s lock on government, and government’s enabling of the whole thing. What’s missing from its purview, however, is economics—not the profession but the dimension.

This shows up in the way economists are criticized: they are denounced for their venality and policy recommendations, but not for the intellectual constructs they have promulgated that have made it almost impossible to think clearly about finance and macroeconomic risk. Just to take one example, it is remarkable that the filmmakers could devote an entire segment to the sins of economists and never mention the efficient market hypothesis. OK, maybe I am asking for the sort of treatment that would appeal to a handful of dissident economists and would be of no interest at all to the millions Ferguson and his colleagues are hoping to reach.

Nevertheless, the lack of economic perspective (which is reinforced by the list of individuals thanked in the closing credits) shows up in two particularly important ways. First, while income inequality is recognized as a cause of the rapid increase in household debt, no mention is made of current account deficits (global imbalances). This topic does not have to be presented scholastically; on the contrary, it lends itself to catchy animations, ominous music (of which there is already a lot), and expressions of outrage.

Second, the critique of the 2008 bailouts offered by the film is entirely moralistic: bad people were rescued at our expense and allowed to profit handsomely for their crimes. Yes, but there is another point of increasing importance: the decision of governments to assume the full burden of private financial losses has stretched public treasuries to the breaking point. This is already visible in Ireland and beginning to emerge in Portugal and Spain. The process of writing off bad debt is still at an early stage in the US, but it is possible we will experience similar tensions. At the least, the attempt to postpone or sidestep writedowns will prolong deleveraging and lead to many years of anemic economic performance.

On a positive note, and despite the cheesiness of the final shot of ol’ Lady Liberty, I welcome the closing message, which echoes the point I’ve tried to make as well: this disaster was the result of the political hegemony of the financial sector, and until those bums are thrown out no meaningful public action is possible.