8 minutes of the most informative economic training ever made into video.

I recently came across a 1934 cartoon rendition of the the Aesop Grasshopper and the Ants fable.   Here is the YouTube link.   While I recall having seen it in my youth, the full understanding of it had to wait until I'd gotten more experience with the world.  Here are the things I have gotten out of it past the basic lesson of you have to work for what you get:

• It's a cartoon.  Cartoons are generally thought of as entertainment and oftentimes funny.  At the same time, many a truth has been said in jest.
• At the start of the video, the grasshopper is depicted as a good looking, colorfully and well dressed individual.  In fact, compared to the bland colors found in the ant population you might consider that the grasshopper is wearing a veritable rainbow of colors.
• He's well spoken and has an engaging way about him.  Some might even call this "charismatic".
• He's musically gifted and flamboyant.  He loves to play for an audience.  In fact, he goes around actively seeking an audience.
•  He wears a top hat which is historically a symbol of high society, politics and international society. In fact, if you just type "top hat symbol of" into Google today without clicking the search icon, you will see the following:

• His theme is that the world owes him a living.  Not because it makes any sense that it should be like that, mind you, and not because history, math or logic support his views but simply because it seems to have been working for a while.  I guess the fact that bamboo grows quickly should lead us all to believe that it will eventually touch outer space.
• Instead of just keeping this thought to himself and enjoying the easy life, he seems to know that it is really a temporary illusion.  People are a herding species.  We do not like to be alone in anything.  We seek positive feedback in our direction.  We seek to create groups of like minded people and to surround ourselves with them.
• In order to do this, we form a good sounding story for our sales pitch.  When it comes to bubbles,  the pitch really doesn't vary much between the foolishly conservative and the foolishly liberal.  In both cases it is little more than a song and dance.  It has no logical basis but our brains somehow find it compelling.  The more things change, the more they stay the same it seems.  This sales pitch generally plays on people's weak mindedness and short memories.  It promises great fun and rewards without doing any work - the concept of something for nothing.  In fact, those doing these pitches work very hard at avoiding the traditional concept of productive labor.
• Early on, the ant shows himself to be wasteful.  He grabs a leaf from a tree, takes one bite and throws it away.  Then he grabs another one.
• He happens across the ants who are working in a factory.  They are very efficient and very productive.  He finds one worker who is by himself (without the support of his herd) and laughs at him for working so hard.  Out comes the song and dance.  He is very persuasive and before long he has convinced the worker to stop his productive enterprise and to emulate the charismatic leader.  Of course the ant knows this is wrong.  When the queen ant confronts him, he scurries back into place.  The grasshopper tries his song and dance on the educated queen but it fails.  The song and dance only works on the weak minded.  She doesn't even tap her foot one time to his music before storming off.
• Shortly after, the winter arrives, the grasshopper has made no preparations and is near death. 
• The grasshopper finds the ants and looks in upon them.  They practiced hard work during times of plenty and so they are now at play.  Work hard, play hard.
• He throws himself upon the mercy of the ants who, despite his prior mocking of them, take him in and give him health from their store of plenty.
• In the final scene, the grasshopper is thoroughly contrite as the queen approaches.  He expects harsh justice given his treatment of her during the summer but she allows him to stay as long as he contributes.  Music and dance are not, after all, the sole property of the charismatic, flamboyant liberal or (the charismatic, evangelic hyper conservative!).   The queen believes that the music and dance have economic value or she would not be willing to trade food and warmth for it. 

A lesson here is that proper conservatives like to have fun too but they want it at the right time, not instead of work.  Also, you can only have so many charismatics in the herd at a time (be they of the liberal or hyper conservative leaning) because if they become too many in number then they overwhelm the productive capacity of the middle of the road conservatives.

Back in 1934 there were only a few of this liberal bent relative to the larger population.  Wealth is measured in dollars and people had little wealth.  The scarcity of societal wealth is the feedback mechanism that keeps unproductive liberalism in check.  But with fiat currency, real commodity money is replaced with fake, un-backed paper and electronic currency.  And then with fractional reserve banking, a few dollars (real or fiat) are expanded into thousands of fake debt dollars.  While the artificial wealth that this debt represents is fake wealth (AKA paper wealth), it appears to be real wealth for a time.  After all, debt spends like cash in the market place. People begin to believe that numbers representing wealth in some account are the same thing as wealth in your hands.

The problem with this is that it sends a false feedback signal to society.  It makes society think that it is richer than it really is.  This brings out the liberals in force.  This brings out the freeloaders, the "world owes me a living" crowd.  More to the point, it enhances and feeds the liberal side of us that lives in everyone.   Those who are liberal in nature become over the top liberals and those who are conservative by nature reduce their standards and become tolerant of it even in their own actions.  The result is more net debt and less real savings (i.e. stored wealth for the coming economic winter).

Politicians sense this and they begin to pander to it with debt funded "society programs".  It becomes a self reinforcing upward spiral which drives the creation of more and more debt in in the name of creating more and more fake, unsustainable Keynesian prosperity.  Money that is obtained easily is often wasted, just like the easy availability of leaves enabled the grasshopper to take one bite and then throw the rest away.
But these self reinforcing debt bubbles are like tornadoes.  They can grow to tremendous size, height and power but they cannot maintain it forever.  They need a constant influx of energy.  Because of this, they are not sustainable.  They burst into life, play out in dramatic fashion and then collapse.

Because of the fractal nature of the universe, this is true not only of the individual storm but of storm season in general.  As you can see from the graph, tornado season in Kansas is cyclic.  They happen during the transition from spring to summer.  Their energy source is the sun.  The amount of sun energy that this region absorbs rises and falls per the above graph.

The US and the whole world are now in the topping stages of a historically significant debt bubble.  The energy source of this expanding credit has been confidence. The easy credit has distorted the economy in so many ways.  It has the liberal nature in our herd out in force telling us that life owes us a living.  It has grown so large and powerful that it has completely corrupted our leadership and the entire global political landscape.  It has gotten so out of control that it now threatens to overwhelm the productive conservative nature of the herd.  If you want a graph of it then I will give you two of them.   Neither of them have begun the big down turn but rest assured that these downturns are coming.  Credit storm season does not last forever.  It is cyclical just like everything else in this universe.
 Here is a link to the first graph.  The second one is shown at left.  Notice that, after smoothing, the DJIA graph is clearly an exponential function.  Exponents do not exist in economics.  When you see them you know that extreme leverage is at play.

Having said that, the following graph shows that changes in the the New York Stock Exchange margin debt slightly precede stock market booms and busts.  The stock market is mainly leverage driven.  Take away the easy leverage and it will revert to the mean, just like a tornado does.

Right now, we have a big bubble of boomers who have paid a little into the system.  All of them are expecting a massive return on this investment.   They all want something for nothing.  But pension funds are massively underfunded and therefore are chasing yields with debt at the same time that liberalism is peaking and interest rates are rising.  The true cost of credit is going up and because of this, the value of paper assets will go down.  Again, if you don't understand this relationship, look to the graph.  Despite what most financial pundits say, the reason a 1-2% rise in interest rates threatens to move money out of stocks is NOT because the market suddenly decides that bonds with a 2% higher yield are really attractive over stock yields.  Bonds have risk too!!  No, the real reason is because stock valuations are all propped up with debt and a 2% increase in interest rates applied to a few $ trillion in overall market debt starts to add up to real money (the graph above is only the NYSE margin). Yield chasers are going to get screwed by this.  Pensions, 401ks, you name it will all be massively hair-cutted in the carnage.

At the same time, the relative value of real financial assets will go up.  By "financial assets" I mean the value of anything that can be used as the basis for the creation of credit.  The collapsing credit Ponzi will not die easily.  Those running the show will do whatever they can in order to restore confidence in the system just like Paul Volcker did when he raised interest rates to 17% in the US to create calm in the years just after the dollar was de-linked from gold.  Paper assets will collapse in value simply because there is not enough credit to buy them with while gold and silver will eventually skyrocket simply because they are real capital upon which confidence can be based. In fact, they too will eventually overshoot and become bubbles. 

By the way.  I saw another version of this cartoon when I was young.  It was made in 1944.  Here is the YouTube of  it.  The main difference in theme between the two comes at the end of the new one.  After the lazy shiftless grasshopper gets bailed out in the earlier video, he is contrite.  He also actually pitches in to the common good via his music and dance.  In the new version of the cartoon, the bums show up at the door of the hard working with fake contrition.  They go in, suck up all the benefits they can as fast as they can and then leave in a rush as soon as good times roll around again.  It seems that the cartoons are matching society.

Today, the bums are demanding free cell phones and free health care.  They no longer are apologetic about their sorry ass condition in life.  They completely believe that life owes them a living.  As a result, I fear that the next iteration of the cartoon will have a completely different ending.  After years of abuse, the conservatives will answer the knock of the door with a gun.  There will be no free dinner this time for the "useless eaters" because the conservatives will have learned from past experience that liberals did not really learn from their lesson of being bailed out.  In fact, the more you bail them out, the more they come to rely upon it and to expect it.

You can't fool all the people all the time.  The next time the economy crashes hard, it will indeed be hard-hearted.  As I've written in other posts, I think the pendulum will swing too far to the ultra conservative right:  if you didn't make it, you can't have any.  I think we will see it at the levels of individuals, cities, states, and of sovereign nations.  It will not end well.