Easy Money

This is just a bad version of this post by Miles Kimball and this post by Nick Rowe. I mostly follow Kimball, but I use slightly different terminology. I'm more careful about distinguishing between firms and industries. There's nothing more complicated in this post than some homework in a micro class. Really, this is just a simple New Keynesian model. The model as it sits isn't quite coherent, but I had fun looking through it. Why not go watch some cartoons?

There are four levels of analysis:

1. Consumer Demand
2. Firm Price Setting
3. Industry Size
4. Macro Policy

Every level of analysis requires all the others. Maybe this post needs to be read twice. I'm going to work in equilibrium, on the assumption that the complicated cybernetic process of searching for a stable social situation is already done. I'm also doing everything without risk or uncertainty, for no good reason. We can think of this as a (bad) sociological analysis of four kinds of people (or one person in four aspects) - a consumer, capitalists, entrepreneurs and a central banker. In a (Nash) equilibrium, no consumer, capitalist, entrepreneur or central banker wants to change their parameters given the choices of all the others. In a way, this is a cartoon!

Some simple notation to start with. Each industry is denoted by \( i \). Each firm is denoted by \( f \). I assume each firm \( f \) only produces one good. The product of two firms are in the same industry \( i \) if they are perfect substitutes at all price and output levels. I won't use subscripts except to denote firm and industry. The quantity demanded of industry \( i \) is \( Q_i \). The price of the good from industry \( i \) is \( p_i\). The quantity of the \(i\)th good produced by the \(f\)th firm is \({}_f q_i\). The number of firms in industry \( i \) is \( n_i \).

CONSUMER DEMAND

We start with consumer demand, but don't forget that consumer demand isn't "first". This is equilibrium analysis where everything determines everything else. Consumer demand is handled via a representative agent - that is, a single real valued utility function standing in for all purchases in a society. The agent can choose among a number of good or hold money.

\[ \max_{\vec{Q},M} U(\vec{Q},M) \]

The name "representative agent" was chosen by Alfred Marshall to emphasize that she isn't an "average" or "marginal" agent. So I will assume a Marshallian quasi-linear utility function. I assume that

\[ U(\vec{Q},M) = M + \hat{U}(\vec{Q}) \]

Where \( \hat{U}(\vec{Q})\) is strictly quasiconcave and homogeneous of degree one. In short: the representative agent has homothetic preferences in goods and linear preferences in money. Finally, the own price elasticity of each good \( i \) \(\eta_i\) is assumed to be strictly greater than 1. The representative agent subject to the restriction that consumption and savings together make up the whole of income. That is:

\[ \vec{p} \cdot \vec{Q} + M = Y\]

The representative agent takes prices as given by firms and income as given by the macroeconomic situation.

FIRM LEVEL

Since each firm \( f \) only makes a single good \( i \), it is easy to write it's revenue function:

\[ \max_{p_i,{}_f q_i} p_i {}_f q_i - C_f({}_f q_i) \]

I write this as a two part maximization problem to emphasize that out of equilibrium the firm is exploring both prices and quantities. It will turn out that once the right price is found, the quantity is forced. The price in industry \( i \) is independent of the firm by the law of one price. You can also think of this as being a representative firm analysis if you want. I assume that \( C_f \) is increasing and concave up everywhere for all firms. In perfect competition, we would have that price equals marginal cost \( p_i = C'_f ({}_f q_i)\). But that's not realistic. But in monopolistic competition, we have only prices are only proportional to marginal cost

\[ p_i = \mu_i C'({}_f q_i) \]

For some markup \( \mu_i > 1\). where

\[ \mu_i = \frac{\eta_i}{\eta_i-1} \]

The firm has no control over this, it is determined by the consumer. Because \( \frac{p_i }{ \mu_i } \) doesn't depend on firm \( f \) neither does \( C'({}_f q_i) \). This is ensured by the fact that \( C_f \) is concave up - this gives that \( C'_f \) is monotonic and therefore \( C'^{-1}_f \) exists. Since we're in equilibrium, each firm can take all the other firm's quantities as given. Since we also have

\[ \Sigma_f C'^{-1}_f(\frac{p_i}{\mu_i}) = Q_i \]

once \( p_i \) is chosen, so is \( {}_f q_i \). That means that the second term on the maximization problem is purely decorative.

INDUSTRY LEVEL

A firm \(f-1\) can explore setting different prices or producing different quantities. But another action is possible - an entrepreneur can attempt to make a new firm \(f\). The new entrepreneur is enticed by the possibilities of increasing returns, so her \(\gamma_f = C''_f  > 0 \) . Long run monopolistic equilibrium gives us that

\[ \gamma_f = \mu_i \]

at the equilibrium level of production with the equilibrium number of firms. What this means is that the \(f\)th firm will only get in the industry if it has a high enough markup. Once again we have something that seems like it depends on the details of a firm and something determined by the level of industry in equilbrium:

\[ \mu_i = C''_f({}_f q_i) \]

Kimball assumes that \( \mu_i \) is a monotonically decreasing function of \( n_i \). The thought experiment goes like this - the \( n \)th firm in industry \( i \) will have a harder and harder time finding a production with higher returns to scale and therefore a higher markup. This means that \( \mu^{-1}_i \) exists and the equilibrium number of firms is:

\[ n_i = \mu^{-1}_i(\gamma_f) \]

MACRO POLICY

Everything in the above was micro, but we have enough assumptions to incorporate macro as well. Recall that we had as a constraint

\[ C + S = Y \]

where \( C = \vec{p} \cdot \vec{Q} \) and \( S = M \). Prices were chosen by firms, quantities by consumers. Liquidity preference gives us

\[ M = L(r,Y) \]

For no reason, I choose a Tobin-Baumol Square Root demand for money. Each trip to the bank has a transaction cost \( T \). Holding cash has an opportunity cost in holding bonds*, which pay a real interest rate of \( r \). Therefore, the transaction demand for money is

\[M = \sqrt{\frac{T Y}{2 i}}\]

We can plug in our \( C + S = Y \) condition for a quadratic polynomial in \( M \) with one positive root by Descartes' Rule Of Signs. The quantity of money held by the representative agent would be

\[ M = \frac{T}{4r} + \sqrt{\frac{T^2}{16r^2}+\frac{TC}{2r}} \]

One can think of this as the natural policy for a central bank. It has to set an interest rate consistent with a given level of consumption \( C \) and output \( Y \), and \( M \) is determined by those three inputs.

If I set \(T = 4\) I can easily solve for the effect of changing the interest rate on the level of consumption by the chain rule.

\[ \frac{\partial C}{\partial r} = -(\frac{1}{r}+C+\sqrt{1+2 i C}) \]

Notice that the natural policy isn't neutral - for all positive \( r \) and \( C \), \( \frac{\partial C}{\partial r} < 0 \).

The reason for this easy analysis isn't that I chose an easy liquidity preference function, it's because I chose a quasi-linear utility function. This caused the micro analysis to separate from the macro analysis.

CONCLUSION

Anyway, it is a fun and cute system. What I'd like do do is see how changing the interest rate changes the equilibrium number of firms. What I need to do is unpack Kimball's condition for \( n_i \).

No moral.

*There's no bond market in my system. This is the incoherent bit.

They Killed Fritz! A Review of Unfiltered: The Complete Ralph Bakshi

Ralph Bakshi

This beautifully illustrated book covers the life and work of Ralph Bakshi, one of the great post-WWII artists. Bakshi work covers the whole of modern art: from ashcan realism to abstract expressionism, from doodling with a number 2 to acrylics and oils to bricolage made possible only with cutting edge technology. Bakshi is such a capital "G" Great that I feel the need to frame him up with a capital "Q" Question.

What can art do? No artist has ever stopped a war, not artist has ever saved an old lady from cardiac arrest, no artist has ever cured a child's cancer. Maybe art can feel good, but so can drugs and masturbation. Maybe most art is a masturbatory drug, conning the audience into thinking they've done something when all they've done is lost another day and gained another pound.

If human beings were "perfectly logical" (whatever that means) and everything was explicit, maybe art would be useless. But as philosophers have hammered on us for hundreds of years, everything is not explicit. The tissue of every society is made of norms: unspoken rules, prejudices, superstitions, hypocrisies and methodologies. Most of these are implicit and unspoken. Art has the power to expose and affect the unofficial rules.

Ralph Bakshi as an artist whose greatest goal is exposing the unspoken norms of life. It's certainly a theory.

Ralph Bakshi, Unknown Photoboming Child and Ralph Radino at Coney Island

Bakshi grew up in Brownsville, Brooklyn, New York, New York, USA as it transformed from a Jewish ghetto to a Black one. Even when Bakshi began his life in Brownsville in 1939 boys from the burg had made good and bad: The Horowitz brothers had broken free of of their violent boss and formed the greatest slapstick group of all time: The Three Stooges. The vicious organized crime rings led by Meyer Lansky and Benjamin Siegel ruled the streets with an iron fist. Aaron Copland premiered his first ballet. Abe Reles's "Murder, Inc." hitman racket killed their thousandth man. Danny Kaye had his first success on stage.

Paul Terry

Bakshi's first job in the art world (how oxymoronic that sounds now) was at Paul Terry's Terrytoons. Terry had sold the place wholesale to CBS the year before, betraying a lifetime of handshake contracts. CBS put the modernist Gene Deitch in charge of new production. Deitch had left Jam Handy (they made most of the shorts you see on MST3K) for the new world of TV, where he hoped that UPA style would allow him to be creative and on budget. What Deitch didn't know was that Terry had forced CBS to take on Bill Weiss as manager of Terrytoon's existing catalog. Weiss proceeded to do everything in his power to hobble the studio (he had been on the receiving end of many a handshake).

Bakshi was in the best of worlds and the worst of worlds at Terrytoons. He was under the wing of some great old-timers: Connie Rasinski, Jim Tyer, Bob Kuwahara. But Deitch and TV were going the way of UPA. Bakshi wanted to make cartoons with the life and energy he experienced in Brooklyn, he wanted to animate mass quavering with weight, he wanted crooked & pulsating lines.

It was tough but he was learning. The first cartoon Bakshi helped animate did have one thing that he wanted to bring to the screen - ethnicity:

But overall, Terrytoons was cramping. Through a suspicious miracles (that turned out to be hot air) Bakshi ended up in charge of Paramount's animation division. He directed a series of barely released theatricals as semi-pilots for TV shorts.

What Bakshi didn't know was that, like Bill Weiss at Terrytoons, Burt Hampft at Paramount wasn't looking for a director to take his studio to greatness, he was looking for one to take it to the grave. The money was in syndicating existing cartoons, not producing new ones.

Bakshi was scooped up by another executive, Steve Krantz - an independent. Krantz needed a warm body to produce some animation properties he sort of owned: Rocket Robin Hood and, of course, Spider-Man.

Krantz dangled to Bakshi an irresistible lure - Bakshi's name on the studio door. No boss, only customers. It was garbage of course - Krantz horded the money for himself and Bakshi Studios was at the mercy of the network. Then, in 1969, Bakshi did something nobody saw coming, a goal so lofty nobody even aspired to it. He made a movie.

Fritz The Cat is the best entry into the Bakshi experience. It's not a terribly pleasant movie. Fritz is a shiftless, unpleasant, naively misogynistic hippie. If you want to know why people hate David Crosby watch this movie for a few minutes. Fritz in the comics was even worse. R. Crumb is profoundly fucked up.

What makes Fritz so fascinating then? One is Bakshi's idea to use live recordings of non-actors. The movie begins with a construction worker worried that his daughter is sleeping with an unpleasant hippie. In real life, the man speaking was a construction worker shootin' it with Bakshi in a bar after work. Bringing that level of reality into a movie is impossible. But Bakshi had an advantage that John Cassavettes didn't - Bakshi was working with animation. Bakshi had a level of control and timing that no live action director could possibly have. And so Fritz The Cat is more real than a live action movie could possibly be.

The backgrounds of Fritz The Cat are beautiful. By collecting mountains of reference photos and with colossal command of acrylics, Bakshi were able to fuse the structure of Ashcan Realism and the emotional coloring of Impressionism. The movie features wonderfully fluid animation from veterans - Irv Spence (who did most of the Tom & Jerry shorts), Jim Tyer, etc. While Disney was going around telling everyone how what an animated film needed was a big time producer, Bakshi was getting better animation for less than a million dollars. The House of Mouse came out with Robin Hood, the recycled animation movie, the next year for six times the budget. It didn't make a third of what Fritz made.

I guess I should say another few words about R. Crumb. I can see why Crumb acts the way he does - acts like the movie is some stain on his reputation. Says idiotic, patently false things like the movie is "red neck". You see Fritz is Crumb. Fritz is what Crumb wanted to be. This says very bad things about Crumb - Crumb's version of Fritz is a rapist. Bakshi's Fritz is just unfaithful - even disapproves of rape. Wikipedia gives this quote of Crumb "They put words into his mouth that I never would have had him say.". This refers specifically to Fritz quoting The Beatles. R Crumb, an old school jazz fan, hated rock and The Beatles. Fritz liking rock music is - to Crumb - worse than being a rapist. In theory, Crumb could be honest. He could say that he didn't want to give Fritz to someone else because he identified with the dipshit too much, that he was bullied by his wife into selling the rights for Serious Cash (millions) and that his feud with Bakshi (Crumb shunned any artist who worked with Bakshi) was childish.

If you think he'd do that, you don't know R. Crumb. Lucky you.

Let's skip ahead now to Bakshi's most incendiary movie, Coonskin. It was originally titled Coonskin No More and that is a so crazy better title, holy shit. The movie would have made it with that title. Bakshi's movies were being destibuted by schlockmeisters like the blacksploitation kingpin Jerry Gross and the infamous Samuel Z Arkoff.

Satire is the art of using comedy to bring out the norms of society. Coonskin is a satire on race relations. Blazing Saddles is another one. The difference between Coonskin and Blazing Saddles is despite the fact Blazing Saddles has some naughty words, it lets everyone off easy.

Blazing Saddles is one of the gentlest and kindest movies ever made. Gene Wilder plays The Waco Kid (whom the script tries to tell us is an old alcoholic ex-murderer) with such sweetness I could see ISKCON using him as a model for the young Krishna. Cleavon Little plays his character as Bugs Bunny - the right choice comedically but it makes it hard to see him as a victim of racism. Gene Wilder and Cleavon Little have such real and warm friendship that you could toast bread on it. The movie isn't fun because it's incendiary or because it has such deep things to say about race, it's fun because you can see a lot of warm, fun people singing songs, tell jokes, use naughty words and get into naughty situations. By the end of Blazing Saddles, blacks and whites are owning land and living together in peace and harmony. In the real world, the Pre-WWII Solid South was practically a 3rd World Country because the elites in control of her would rather grind her into dust than allow a black man to have a factory job.

Even worse in this regard is the movie In The Loop, which is very funny but a total whitewash on the UK's role in Iraq. In the movie, the UK characters are all very torn on the war and it weighs on their conscience that they "have to" start a war to appease the insane Americans. Of course, this is complete horseshit - the UK administration at the time was very pro-war. The movie tires to tie this to the American character, Americans will start a pointless land war in Asia but won't swear. They don't even know the difference between an Englishman and a Scot, the idiots! Okay, sure, Malcolm Tucker is just as much a warmonger ... but at least he swears. It's a total pat on the back.

That said, the Elephant Man reference from In The Loop is just about the funniest thing ever.

Coonskin isn't a very funny movie. It is occasionally funny, but it is much more gross, mean and disturbing. Laughter comes from a place of comfort, whatever comedians try to tell you. Laughter is comforting. Coonskin is a satire in the sense that it uses cartooning and exaggeration to get at the ugly norms of society, but it isn't a satire in the sense that it's laugh-a-minute. Coonskin lets nobody off - not cops, not liberals, not activists, not the church, not the blacksploitation heroes that make up its lead characters and especially not the mafia. It's a gross, bleeding, waling movie. The "Melvin The Roach" sequence is one of the greatest vignettes in any movie.

I suppose I gotta talk about the controversy around this one. I'm against censorship, of course, but I do see why someone might morally object to this movie. This is a movie that exposes society's norms, but if your goal is to change those norms this might not be the best strategy.

After Coonskin, Bakshi was stuck in a weird place. No matter what Quentin Tarintino tells you, people didn't go to Grindhouse theaters to be challenged. We didn't really think about the gore any more than in Tom & Jerry. Besides that, a lot of those theaters were in black neighborhoods and "racist" was not a good look, sales-wise, even if it was bullshit. Bakshi decided for his next movie he'd do it all metaphorically, in a fantasy world. He could have the same morals and less people would bring their baggage. At the same time, a weird young arty hippie director was reeling from his failure to get his big idea - a violent mockumentary about Vietnam shot while the war was in progress - off the ground. He had a new idea for a Roger-Corman-esque low budget SF epic. This weirdo and Bakshi both pitched to the same person, Alan Ladd Jr at Fox. Bakshi's pitch was titled War Wizards. The other guy's pitch was Star Wars.

One of these movies did a little better than the other.

Is Wizards a ... good movie, strictly speaking? Well, it's okay if you're in the mood for it. Old school SF stuff. Very New Wave and trippy. But you can tell that the movie lost it's budget halfway through. This is when Bakshi began rotoscoping. Nowdays you CGI rotoscope an SF movie and you get a billion dollars, but Bakshi wasn't so lucky. Rotoscoping allowed Bakshi to make a New Wave SF epic on a $2M budget, but the movie definitely tests the viewer's tolerance for this technique.

Ralph Bakshi

Bakshi continued to make movies throughout the 70's and even into the 80's. His adaptation of about half of Lord Of The Rings ... well, it has its defenders. Bakshi's heart was in the right place. American Pop and Hey Good Lookin' are good entries in the post-American Graffiti nostalgia genre that apexed in Forrest Gump (though the only completely good American Grafiti rip-off is Animal House). Fire And Ice is good and the rotoscoping really works for it, but that's more Ralph Bakshi directing a Frank Frazetta movie than a Bakshi movie. And his last attempt at big Hollywood movie was Cool World, where big tough ex-boxer Bakshi was bullied out of creative control by Kim Basinger.

John Kricfalusi

During this time Bakshi worked on a lot of smaller projects, mostly with his protege John Kricfalusi, also known as John K. Bakshi's output at this time ... well, the studio's output looked suspiciously like K's later cartoons and suspiciously unlike any of Bakshi's. Bakshi and K helped recreate TV animation with their Mighty Mouse reboot, but this really should go in a review of a John K book.

Bakshi's main creative outlet since the budgets dried up has been painting. Bakshi is a marvelous painter. Most of his work would be described by an art critic as post-Francis Bacon extremist expressionism while remaining figurative. I'm also quite fond of his George Herriman inspired ink sketches.

Bakshi also released a short film a couple years back called Last Days Of Coney Island. Check it out above.

All in all, this is a gorgeous, glossy book, filled with beautiful art and a fantastic true narrative. When I read this book, I can hear Bakshi's scratchy Brooklyn voice. There isn't two pages in a row that doesn't have some amazing drawing barely saved from the ash can. Absolutely inspired from start to ... the mid-80s.