The Underpants Gnomes' Guide To Macroeconomics
The Keynesian Kaleidscope Part II
New to the series? Start with our foundational posts on Hyperreality and the Financial Matrix for essential context, or explore the full Table Of Contents.
Part II of The Keynesian Kaleidoscope, within the Sorcerer’s Apprentice series.
As we examined in The Metamorphosis of Money, for ages gold reigned as the most powerful monetary meme—a totemic symbol of the entire classical liberal worldview. By dethroning gold as money, Keynesians—used herein as a convenient, albeit not entirely accurate, shorthand for “modern” economics more broadly—launched a memetic revolution aimed at fundamentally transforming the entire economic and social order. Money functions as society’s operating system; a corrupted OS inevitably corrupts every program running atop it.
The memetic revolution succeeded: Keynesians cast a transformative spell over society, and Keynesian theory now silently animates much of our current hyperreality. By popularizing the idea that governments must “prime the pump” and “stimulate” the economy’s engine, Keynesians have provided a veneer of academic legitimacy to the very policies that have given shape to our Financial Matrix—a system characterized by monetary manipulation, pervasive central bank and governmental domination of markets, and unsustainable debt proliferation. As governments and central banks gained unprecedented control over monetary policy and the economic “commanding heights”, our society has increasingly come to resemble a manipulable simulation—a video game whose rules can be reprogrammed on the fly.
Ten Milestones On The Road To Hyperreality
1. The Metamorphosis Of Money
2. Keynes' Kaleidoscope <== YOU ARE HERE
3. Central Banks’ Money Printer Go BRRRR
4. Silicon Shadows: The Digital Detachment Of Economics & Finance 5. The Institutionalization Of Finance
6. The Rise of Skynet: The Algorithmization Of Finance
7. The Symbolic Alchemy Of Risk
8. “We’re All Quants Now”
9. Social Media & “The Ecstasy Of Communication”
10. The Consumerification of FinanceThe Economy-As-Car Meme: Abstracting & Reshaping Reality
“Bad metaphors make for bad policy.”
—Paul Krugman
Just as money devolved to an abstraction, so too has economics itself been overtaken by abstractions—notable amongst them the reconceptualization of the economy as a machine, specifically a vehicular one.
Federal Reserve Chairman Powell drew a direct parallel to driving a car when questioned about the pace of interest rate hikes: “The question of speed is a separate question from that of level…Speed was very important last year, and as we get closer and closer to the destination…it is common sense to slow down a little.”
Similarly, economist Paul Krugman in 2008 invoked a Keynes quote likening the economy to a car with engine trouble: “we have magneto [alternator] trouble.” Krugman framed the financial crisis as a “crucial part” of the “economic engine” failing, then quipped “Anybody know a good mechanic?”
From academic debates to water cooler conversations to policy implementations, this ubiquitous mechanistic meme permeates our society and fundamentally shapes how we conceptualize and interact with the world around us. We speak of the economy “revving up” or “stalling,” of “steering” economic policy, of the need to “accelerate” growth or “remove barriers” to equality or “put the brakes” on inflation. Ultimately, this vehicular metaphor doesn’t just describe our economy—it drives our reality.
Gremlins In The Machine: The Economy-As-Car Meme
Through Keynesianism, we have memed into existence a collective worldview of the economy as a car—say, a sleek, high-performance Italian McLaren F1 supercar. Our McLaren F1 operates on the fuel of aggregate forces—broad currents that flow through it and drive its performance. However, the McLaren is often temperamental, and constantly on the verge of stalling out, overheating, breaking down, or spinning out and crashing.
Two key issues lie at the heart of the car’s persistent entropy and instability. First, the car’s internal components—its engine, suspension, timing belts, and gears—often prove rigid and “sticky”. These inflexible parts struggle to adapt smoothly to changing conditions, causing the economic machine to seize up or grind inefficiently. Second, the vehicle is plagued by pesky “gremlins” under the hood—the volatile collective emotions and cognitive biases of consumers and investors. These mischievous and capricious creatures wreak further havoc on the car’s inner workings, perpetually destabilizing it and forcing it to veer towards extremes: either overheating (inflation) or stalling out (recession).
In our economic car race, the government and its brain trust of economists function as a complete Formula 1 team managing the McLaren: simultaneously driver, team owner, designer, engineer, and pit crew. They must keep the economic engine purring smoothly and lubricate the gears of commerce while fending off the unruly gremlins.
They constantly optimize their supercar—analyzing telemetry data, “priming the pump” when necessary, and executing critical pit stop maneuvers. The team deftly manipulate the throttle of government spending, adjust the gears of taxation, and carefully manage interest rates and money creation to keep the McLaren operating at “peak performance.” They navigate challenges, harness and direct the aggregate forces to keep the McLaren “on track” and steer the economy towards “winning” prosperity.
Economy-Car Necessitates Technocratic Control
The implications of this Keynesian economy-as-car metaphor are as subtle as they are profound and far-reaching. By reducing the infinitely complex tapestry of human interactions to a car meme, we’ve created in our minds a model of the economy that seems tractable to scientific measurement, analysis, command, and control.
This framing implicitly suggests that the economic vehicle has an owner, a designer, a defined destination—and requires constant expert oversight, intervention, and maintenance. It further implies that—with the right expertise—we can fine-tune the car for optimal performance and steer it where we want it to go. Economic problems become mere mechanical issues, solvable by knowledgeable technicians.
This metaphor is seductive in its simplicity. It promises scientific control over the seemingly chaotic world of human behavior. However, in reducing the vast complexity of economic interactions to the workings of a car, we have obscured the true nature of the economy and laid the intellectual foundation for the Financial Matrix.
Contrast this with a more organic metaphor—a rainforest ecosystem—that emphasizes emergent order. The economy now becomes a spontaneously self-organizing process shaped by innumerable individual participants making constant, small local adjustments based on the imperatives of mutual cooperation. Just as a rainforest thrives without centralized planning or control—without an owner, designer, engineer, or predetermined purpose—the economy functions best when left to its own devices. This naturally leads to a laissez-faire approach, in which government interventions are viewed as superfluous and potentially harmful.
The car meme, however, reframes government interventions not as inefficient or counterproductive meddling that threatens to disrupt the natural flora and fauna and destroy the fragile ecosystem, but rather as critical to winning the race. Just as a Formula 1 car requires constant monitoring, attention, and timely interventions to remain competitive, government interventions are necessary and pragmatic actions to keep the economy on track. Any cause célèbre such as “inequality” or “climate change” can then be recast as a hazardous track condition—a physical obstruction like a barrier or roadblock that must be removed in order to keep the nation’s car moving forward. The economy-as-car is a powerful meme that justifies—even demands—constant government involvement.
The car meme becomes even more beguiling as artificial intelligence (AI) technology advances and we collect ever-increasing amounts of “big data”. Just as companies like Tesla are developing self-driving cars, we can now envision an economy guided by enlightened AI algorithms trained on “big data” and incorporating our economic theories such that the economy can “drive itself”.
The temptation to delegate the steering and control of our economic vehicle to algorithms is intensifying. This is not a distant future scenario—the process is already underway, quietly rewriting the core kernels of our Financial Matrix’s operating system; we’ll explore this critical development in depth in subsequent installments.
The Underpants Gnomes: Keynes’ Magic Pit Crew
Our self-proclaimed expert Formula 1 racing crew—the government and central bank, now aided and abetted by AI and “big data” economic telemetry—seemingly possesses the ability to understand and optimize the economic McLaren and thus conjure prosperity.
However, the reality is far more sobering: the very use of the economy-as-car metaphor reveals that the experts don’t understand the economy, let alone possess an economic magic wand that allows them to “improve” it. Instead, a far more fitting metaphor emerges from the cartoon world of South Park.
When the South Park boys discover their underwear mysteriously disappearing overnight, they stay up late to catch the culprits. They discover Underpants Gnomes—tiny creatures who sneak into people’s homes at night to collect their underwear. The boys follow the gnomes to their subterranean lair and confront them about their bizarre nocturnal activities. When questioned, the gnomes enthusiastically reveal their “foolproof” business plan:
Keynesian theory elevated the Underpants Gnome Plan to the level of economic doctrine:
Government intervenes in the economy (through spending, monetary policy, or other means)
???
Economic recovery, growth, and prosperity!
Keynesian theory rests on the notion that the economic car is directed by a deus ex machina—an expert Formula 1 pit crew separate from and superior to the economic “vehicle” itself, operating outside and above the system they manage.
In Keynesian thought, government is blameless in the business cycle. Recessions and depressions are either endemic to the free market—our temperamental McLaren tends towards mechanical failure and chaos when left to its own devices (e.g., the 2008 Financial Crisis)—or they occur by act of God (e.g., COVID). The economy can’t be trusted to fix itself; the “pit crew”—the government and its economic advisors—must step in: stimulate additional demand by means of deficit spending, more money creation, more credit expansion, and more intervention into the economy.
It’s a seductive illusion—one that has captivated policymakers and the public alike and is eagerly embraced by all those who stand to gain from government intervention and manipulation of the “economic machine”. But the reality is far more “Underpants Gnome” than technocratic “Formula 1 Pit Crew”. The Underpants Gnome playbook is unmistakable in the response to crises, such as 2008—which none of the Gnomes foresaw—or more recently during the COVID pandemic:
QE (Quantitative Easing), bailouts, etc.
???
Economic recovery!
The Emperor’s New Underpants
After the 2008 crisis, our technocrats wholeheartedly embraced Keynesian doctrine and refused to let the economy self-correct. Instead, they embarked on an underpants-collecting crusade—frantically attempting to prop up prices, reignite credit expansion, and stimulate demand. But like the Underpants Gnomes’ flawed business plan, this strategy lacked a coherent Step 2 and realistic path to Step 3: genuine economic recovery.
For nearly two decades now, the global economy has required “emergency” underpants life support. Whenever the Gnomes made a half-hearted attempt to reduce the underpants stockpile, our global McLaren has responded by going into a tailspin and nearly careening off the track; in a panic the Gnomes hastily backtracked and then redoubled their efforts to collect more underpants.
These supposedly stopgap “collect underpants” interventions have morphed into permanent fixtures of our economy, requiring an ever-growing mountain of underpants to be hoarded to maintain the illusion of stability. When COVID struck, our Gnomes followed the same playbook, only with even greater fervor.
Alas, there is no mystical Step 2 that magically alchemizes these government interventions. They cannot conjure prosperity out of thin air—or even spark a genuine, enduring economic recovery. The economy isn’t a Formula 1 racecar, an engine, a tool, or an entity—it is simply you and me, and many other individuals just like us.
Like the hapless Underpants Gnomes, governments and central banks possess no resources (underpants) of their own. At best, they can only commandeer or rearrange existing wealth—our collective “underpants”—and stuff them into overfilled dresser drawers while boasting of an imaginary underwear empire.
If the Gnomes were to add advanced data analytics, better models, sophisticated algorithms, and artificial intelligence to their workflow it would certainly create an illusion of progress, but it would not alter the fundamental flaw in their endeavor. It would be akin to using a quantum computer to count and sort the underpants more efficiently—no amount of computational power can transmute borrowed undergarments into genuine wealth or sustainable economic growth.
Despite the now-towering Mount Everest of purloined underpants, the promised Step 3 “profit” remains as elusive ever. Instead of fostering genuine prosperity, we’ve constructed an elaborate economic illusion—the Financial Matrix—in which “wealth” is merely a shell game played with borrowed underpants.
From Metaphor to Hyperreality
In the next installment, we’ll detail how Keynesian theory and the economy-as-car meme form integral features of the blueprint for our Financial Matrix. In future installments, we’ll examine how this has paved the way for even more profound disconnections from economic reality, including the rise of algorithmic trading, the financialization of the economy, and the growing influence of economic “meme magic.”