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As YouTube and other digital media move beyond computer-savvy young people into the ranks of even stodgy businessmen, these subversive outlets become serious problems for the ruling elite. This trend is epitomized by the radical change in the Federal Reserve's image. In just a few short years, the Fed has transformed in public opinion from a mysterious, wise, and boring institution into a fascinating engine of corruption and comedy.

Challenging Bernanke

The chinks in the Fed's armor of legitimacy are multiplying, all made possible by the ease of producing and distributing high-quality critiques. An early example was the spoof of The Police's "Every Breath You Take" that Columbia Business School students made in "honor" of Ben Bernanke's ascent to Fed chairman over their own dean, Glenn Hubbard.

It's true, the satirical music video really wasn't a critique of Bernanke's policies; after all, he had only just been given the keys to the printing press. Nonetheless, it illustrated the new power of the Internet. Creating the video took a lot of effort, and it would probably not have been worth doing had the students only been able to distribute it through, say, copying it on VHS cassettes.

At the same time, although the potential market — people who would have appreciated geeky references to "bips" (basis points) and the like — was substantial, it was dispersed throughout the population. Saturday Night Live certainly wouldn't have run such a video, and even higher-brow shows such as Bill Maher's wouldn't have done it either, simply because the niche was too limited.

The Internet, and specifically YouTube, solved these problems. As of this writing, the video has been watched some 1.7 million times, making it an obvious hit. The creative students were rewarded for their efforts in terms of esteem and fame, and hundreds of thousands of financially savvy people got a good laugh or two.

Laughing At "The Bernank," Not With Him

If the music satire was all in good fun, the more recent animated video, "Quantitative Easing Explained" was anything but. Relying on the same Xtranormal technology that I used for launching my debate challenge to Paul Krugman, this video features two bears discussing the Fed's program of massive bond purchases.

The tone of this video is much edgier and harsher than that of the music-video spoof. While the fake Sting dreams of punching Bernanke in the face, it is clearly in jest. In contrast, when the cute bears curse and accuse Bernanke of lying in order to shovel billions into the hands of his rich buddies, the creator really means it.

The Importance of "Common Knowledge"

As a grad student at NYU, I once listened to a fascinating presentation in the Austrian Colloquium on the importance of multiple levels of knowledge. The presenter argued that in certain areas of life, it wasn't enough for people to know (or believe) something, it was important that they know others know it too.

For example, if an advertiser buys a 30-second TV spot on the Super Bowl, it's not merely that tens of millions of people will see the ad. Beyond that is the crucial fact that tens of millions of people will know tens of millions of people are seeing the same ad. The presenter argued that this explains why advertisers push "network goods," such as smart phones or Macs versus PCs, during the Super Bowl and other events with high ratings.

In other words, if a particular good's value to a user depends not just on its intrinsic properties, but also on how many other people are using it, then (this presenter claimed) its producers tend to advertise it during the Super Bowl, or perhaps on a busy subway car, where people who see the ad will know that other people are seeing the ad too.

Moving to the political arena, the presenter elaborated on why totalitarian regimes are so quick to clean up graffiti and other public challenges to the authorities. It's possible for a dictator to remain in power even if a large number of his subjects hate him, so long as they think they are relatively isolated. But when someone writes, "Down with the Regime!" on a bridge, it is a signal that rallies the malcontents. Not only do they realize that they are not alone, but they know that other people like them are seeing the same subversive message.

In this context, the significance of YouTube and similar media is even larger than it seems at first glance. For example, I was thrilled when I saw "The Bernank" video, not because I learned something new from it — I already thought the Fed was a corrupt engine of inflation — but because I saw how many millions of other people had seen the video. And we can push it even further: I knew that they knew how many people were seeing the video.

This was the importance of "common knowledge," which the game theorists formally describe as something that (a) everyone knows, (b) everyone knows that everyone knows, (c) everyone knows that everyone knows that everyone knows … and so on forever. At first blush it might seem as if the deepening layers of knowledge are superfluous, but in some contexts they can be crucial.

To take an example adopted from the presenter at the NYU colloquium: Suppose Bill and John are on a crowded subway car, separated by dozens of people. The two are going to a Broadway show, and John is not familiar with the subway system, so Bill needs to signal to John when they should both get off the subway. However, because they are separated by so many densely packed people, the two men will have to use different exits to get off their car.

As the subway approaches the proper stop, Bill gives John a signal to get off. However, because there are so many people jostling about, Bill isn't quite sure that John saw his hand motion. So Bill isn't sure whether to get off himself, because it would be catastrophic if he stepped off and left John on the subway.

In this somewhat contrived example, we see the importance of layers of knowledge. Even if John did see the message — so that Bill knows it's time to get off, and John knows that it's time to get off — that isn't enough. Bill needs to know that John knows. Yet that too is insufficient, because John needs to know that Bill knows John knows, and so on. (If John thought that Bill didn't realize John had correctly interpreted Bill's signal, then John might expect Bill to stay on the subway car, not wanting to abandon John. Hence John might not get off the car himself, even though he knows it's the right stop, and even though Bill knows that John knows this.)

These fanciful musings shed more light on the power of YouTube's viewership statistics, which greatly amplify the impact of the Bernanke-bashing bears. It isn't merely that over 4 million people have seen the video blasting the Fed, but that we all know how many of us have seen it.

In a related vein, the surprising popularity of the Hayek-Keynes rap video, and the traffic rankings of explicitly Austrian sites such as Mises.org and LewRockwell.com, have encouraged more and more Austrians to come out of the closet, as it were. They can brush off the put-downs of the "respectable" mainstream economists, because they know that growing numbers of people agree that the Austrians have an important and neglected perspective when it comes to both economic theory and policy.

Not so long ago, the prevailing wisdom was that a young economist was committing career suicide by pursuing an explicitly Austrian research program. This is no longer the case. As I joked to the Grove City undergraduates at this year's Austrian Student Scholar's Conference, nowadays a young scholar is merely cutting off his left arm by announcing his love for Mises and Rothbard. This is progress!

Speaking Truth to Power

Commentators have extensively discussed the impact of Twitter and Facebook on the events in Egypt and elsewhere in the Middle East. What is less obvious is the tarnishing of the image of the Federal Reserve.

Last Saturday "AmpedStatus" (in affiliation with the hactivist group "Anonymous") announced "Operation Empire State Rebellion," in a YouTube video warning of nonviolent civil disobedience if the Federal Reserve doesn't change course. The creepy video — complete with a distorted voice — specifically demands the resignation of Ben Bernanke as a sign of good faith.

More generally, "disrespectful-punk" websites catering to financial readers, epitomized by ZeroHedge and EconomicPolicyJournal, take it as a matter of course that Bernanke has no clothes. The anonymity of the Internet ensures that plenty of respectable Wall Street pros turn to these alternative media to get the real news about the economy — when their boss isn't looking, of course.

The officials at the Federal Reserve and other power centers aren't ignoring the budding green shoots of dissent. Bernanke's duplicitous 60 Minutes appearance was a PR damage-control move that we normally would expect from politicians, not central bankers. Before the present financial crisis, the operations of the Federal Reserve were mysterious and boring.

"In central banking, as in politics, the ruling elite must keep the people in the dark."

But now — because of Bernanke's boldness, the ascendancy of the Ron Paul movement, and the resurgence in Austrian economics, among other factors — a large segment of the public is very interested indeed in what "the Bernank" is up to.

Conclusion

As Murray Rothbard emphasized, our modern banking system is based on fractional reserves, meaning the bankers are always vulnerable to a sudden loss in confidence. Just as political regimes can topple overnight with a change in public opinion, so too can the "strongest" of modern financial systems crumble in the face of a large-scale run on the banks.

In central banking, as in politics, the ruling elite must keep the people in the dark. The rise of the Internet, and in particular outlets such as YouTube, are making that task far more difficult.