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THE ECONOMISTS' NEW CLOTHES

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Adam Curtis | 13:39 UK time, Tuesday, 23 February 2010

It is astonishing that everything about the credit crisis is still discussed in the technical terms of economics. Although, as most commentators agree, almost all economists failed to predict the financial crisis that swept through the western economies in 2008 - we still slavishly discuss and analyse it in their technical terms.

Whether it is straight journalism, or columnists' rants, or even imaginative responses like the play Enron, the problem is described either as a technical system that went wrong or as a set of strange inventions that were then corruptly used by bad and greedy people. And in doing this all the journalists, and the critics, and the playwrights earnestly try and explain to us the system in the terms, and the framework of "market-speak" created by the economists and the financiers.

The high point of this came last week when lead items on TV news were devoted to the letters written  by two opposing groups of economists. It was the height of absurdity as economists from the opposing camps came on News-24 to announce pompously that "this is far more important than politics". As David Blanchflower (ex-member of the Monetary Policy Committee) pointed out in a really good piece in the New Statesman - HERE - they have absolutely no basis for any of their claims. The reason is that they have no idea what is going to happen to the economy in the next 12 months.

But more than that - perhaps the economists are the problem? That they themselves cannot see the full dimensions of the project of which they have been a part.

But still we listen to them, and still our journalists use their language and assumptions.

Which means that despite the disasters we are still trapped in the economists' world.

But the moment you pull back and look at that world from a wider perspective strange things start to emerge.

When the neoliberal project first began in 1979 with Mrs Thatcher the idea was that politicians would give away power to the markets and the state would shrink. Over the past 15 years the idea of the "market" has been extended to practically every area of society - education, health, even the arts. But to make this happen those running the neoliberal project had to enforce it by creating vast and intricate performance indicators and feedback systems (which in many cases led to wide scale absurdities). And to do this they used the mighty power of the state.

The crucial thing is that these systems had practically nothing to do with the original idea of the "market". They are actually a strange pseudo-scientific piece of planning engineered by politicians and groups of technocrats that borrowed far more from cold-war ideas of feedback engineering and cybernetics than from the risky roller coaster of the market. And to create the systems they had to greatly enlarge the state and the extent of its power, which is the very opposite of the vision of a free-market utopia.

And when you examine the roots of the neoliberal idea of the market it gets odder still. The ideas that rose up in the post-war years that captured the imagination of people like Mrs Thatcher are actually a very strange mutation of capitalism. If you listen to interviews with Friedrich Hayek he talks far more like a cold war systems engineer discussing information signals and feedback than Adam Smith with his theories of Moral Sentiment.

While the roots of the technical systems that the banks created to manage risk also lie back in the cybernetic dreams of the 1950s and 60s.  Dreams not of progress through the dynamism of markets - but of using computers to create a balanced, almost frozen world. - just like in the Cold War.

Which raises the question - have we misunderstood what we have lived through since 1979?

We think it was the resurgence of capitalism. But maybe it was something very different? Something that we can't see properly because we are still trapped in the economists' world and their mindset.

I am putting up a film I made as part of the Pandora's Box series - because I think it is relevant. The Pandora's Box series looked at how scientific ideas were taken up and used by politicians and other powerful groups to justify what were essentially political attempts to change and re-engineer the world.

In this episode I argue that Mrs Thatcher's monetarist experiment of the 1980s was not just giving power away to the markets. In reality it was a pseudo-scientific attempt to re-engineer Britain that had far more in common with the preceding Old Labour attempts at "scientific" economic planning that it did with any free market theory.

And I think it would be good to pull back and look at the recent crisis in the same terms.

The film also includes the most fabulous machine I have ever seen. A giant interconnected system driven by water to model the whole British economy.

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Comments

  • Comment number 1.

    I was professionally employed as a 'feedback engineer' from the mid-seventies to the late nineties and it was painfully obvious that many of the 'social' feedback systems put in place could never work. The use of performance indicators when humans are so self-evidently highly adaptable and the underlying 'measurements' were so poor was especially doomed to failure. Engineering feedback systems are astonishing in their ability to perform well but depend on the availability of precise, reliable and meaningful measures of the underlying systems. This high-quality data is almost never available outside of engineering systems designed according to well-known, long established principles.
    Politicians, influenced by management 'gurus' with a naive understanding of the principles of feedback control but without a deep comprehension and experience of the limitations and pitfalls, failed to grasp - and still fail to grasp - this fundamental fact. Further, the 'markets' - those self-optimising feedback systems which are supposed to offer almost magically perfect solutions to the problems of supply, demand and distribution are themselves theoretical constructs which bear only a passing resemblance to what actually happens in real life. (see John Kay's excellent book "The truth about markets - ther genius, their limits, their follies" http://www.thetruthaboutmarkets.com/%29.
    Asymmetry, or lack, of information and the corruption of information by noise or poor measurements are key reasons why markets (and many social engineering projects beloved by the politicians) fail to operate as expected. These problems have been known for a very long time (~100 years) in engineering; methods for dealing with them in some circumstances have been developed and work well within limitations. But the techniques are complex, require sophisticated mathematics and subtle computer programming. They are essential to put a lander on the moon: they do not lend themselves to grand political and economic projects.
    I enjoyed "The Trap". The story is similar: adoption of a powerful theoretical construct taken out of context and combined with a lack of understanding of the consequences of the idealised axioms on which it was based.
    ----------------------------------------------------------------
    By the way, while feedback engineering, systems and information engineering certainly came of age as disciplines during the cold war, they are much more widely used for benign purposes than you seem to imply: from vehicle braking systems and flying aircraft to keeping your hard disk spinning accurately, from noise reduction in MP3 players to protecting your on-line banking, from the precision of MRI scans to stabilising ferries so you don't get sea-sick, and a million more applications besides.

  • Comment number 2.

    The problem is Economics is a human construct yet economists and governments act as though it is physics and that it's "laws" cannot be broken. The rules and trends was devised to simplify the complex interactions of a large population. A million people buying and selling with their own individual needs and desires cannot be expressed in a formula. The statisical models may show the most likely event but the sever scenarios at the edges of the curve cannot be ignored. They will occur at some point.

    People are greedy and will look to increase the size of their margin. We're also self-aware. This means that if you could model our behaviour, we would be aware of the model and adapt our behaviour to increase our own profit margins.

    Once the banks knew that the governments would pick up the "toxic assets" the value of those assets rose. Perhaps if they'd been at that value before, they wouldn't have been quite as toxic? I wouldn't be surprised if banks struggling with cash flow, sold these assets to other banks to bring urgent cash, whilst the buying bank knew they would profit when they overcharged the government to secure said assets.

    If these economists try to predict the banks behaviour they're behaviour wil change in response to the prediction. It's like trying to measure the size or speed of an electron. The act of observing changes the observed.

  • Comment number 3.

    Yes. AC.

    But it's all so complicated to deconstruct.

    This is all known.

    Why do you think it important to highlight? Steam is water.?? Why don't you give us some answers to your thinking? let's go from there.

    IF YOUR REMIT IS TO GO " IS'NT IT WEIRD?". then no go.

    If your thinking is to plug leaky ideals, to transmit an alternative,better way, then lets go with it.

    Your questions are Kosher. But I am not sure whether you are tickling your audience for a connected response or a reaction. And why?..

    Do you have to justify your blog, and payment, for this website??

    I endorse this website, wholeheartedly...but am less than happy about what's happening here....

    Chris D





  • Comment number 4.

    I believe I saw the machine in your film in the Science Museum in their computer department. It doesn't run but they do show footage from a documentary of it running (it might very well be this film!)

  • Comment number 5.

    @ Chris D - I don't think it's Adam Curtis' job to tell us what to think.
    Appreciate a bit of probing, the lack of any political edge is a positive thing for me, as no man has all the answers, being honest about that is very refreshing. And plenty questions can be a pretty good start.

    I know a few economists who work for the treasury who basically admit their practise is a load of rubbish beyond the basics. It's hard to see where to go when mainstream political thought has to appeal to some sort of economic ethos when it really starts to look like it is all just complete speculation. I would be less annoyed if it was viewed as it is, a tendencious social science rather than something concrete. The machinery image is a good one, it highlights how ridiculous the conceit is to attempt to predict the behaviour of an entire economy which depends on a myriad of fluke occurences to come about.

  • Comment number 6.

    I think these ideas are interesting, but hardly revolutionary. Surely the insights of Goodhart and Ormerod in this film are iterations of *the poverty of historicism* and Keynes' "animal spirits"; both of which were postulated before either came into the world. I do note with interest that you point out what Popper failed to realise: that the monetarists, or to use the now-pop-phrase "laissez-faire" economists, that he believed were the standard-bearers for the rejection of attempts to understand the system, were in fact no more in synch with those ideas than the Marxist revolutionaries he so vehemently fought to discredit.

  • Comment number 7.

    Human behaviour doesn't follow a normal distribution when you measure it, as it can change its desires on a whim.

  • Comment number 8.

    I think there is a fundamental problem with the way the system has tried to manage itself and we have seen the system become degraded by the systems it put into place.

    By this I mean I think that the economic crisis is a result of a political thinking that we are all out for self interest and so it is acceptable to abuse the system for our own gain. Through use of media and control of the distribution of information to the wider public; people have been led astray in terms of how they spend their money. The misinformation is deliberate because it is a certain way to make more profit, but it ruins the theory of us all being rational. The philosophical idea that a lie repeated enough becomes true then poses a question; what happens when we mislead the people who will go on to run the country? For our own gain we end up implanting wrong ideas in our citizens and future leaders.

    To make this relevant to economics; the people there have been using the words you talk about and people want to feel like they understand the economy, and the understanding is given to them through all of these words, but most people don't understand how it works. I personally reject the notion that people are self interested and scheming and instead think they are reactionary and more like chemicals in reactions. If you apply certain factors to their environments then they will react in a different way.

    I think the economy is messed up mainly because we've made a terrible mistake in putting control of the state in the power of people who abuse power as a job; the market.

  • Comment number 9.

    Another interesting perspective.

    Your point about economists:
    I wouldn't call most economists today economists but market analysts. Like 'liberalism,' the word has mutated over the years until 'neo-liberal' is supposed to mean what liberal once did.
    An economist is a historian and a theorist, like your Adam Smith, and unconcerned with what the markets happen to be doing right now. A good macro economist can't speak with certainty, because he understands that an economy is too complex to understand and therefore predict or control - that's Hayek's biggest justification for free-markets. Now imagine a news channel chasing up an economist for a reason on the latest drop in employment, and that economist said 'I don't know - you see, no one can really know - there's too many factors to even list.' Would he get air-time?

    Your points on politics:
    Remember, libertarianism comes in right wing (Thatcher) and left wing (Anarchist) forms. It's perhaps true that the free-market methodology is used in a utilitarian way to reach right-leaning ideals. However, you would understand from public choice theory this is inevitable, especially as libertarianism in it's purest nature is apolitical.

    However, whatever the true intentions of a Thatcher or a Reagan - whether or not they thought of it as a controlled scientific project, they were destroying more government than creating it, and the beast they let go was bigger than any political rhetoric. It worked as it historically always does.

    Think of Deng Xiaoping bringing capitalism to China with the words 'it doesn't matter if the cat is black or white, as long as it catches the mouse.' The communist party tries to squeeze the benefits from capitalism, but over time capitalism itself is bringing unintended freedoms, and seems to be eating away at the communist party's original ideology itself.

    What it comes down to I think is this - Milton Friedman measured capitalism simply by government spending to GDP.. the nature of politics and bureaucracy along with human nature doesn't change, it's just their size that determines how much damage they can and can't do.



  • Comment number 10.

    What absolute tripe. This whole article falls victim what I call "Galbraith disease", that is over-generalising and over-simplifying to fit an absurd narrative that has absolutely no bearing on reality.

    The alarm bells starting going off when I saw the cliché "neoliberal project" spring up. Yes, what is the neoliberal project, apart from a straw-man beholden to the left? Well, actually you don't say what the "neoliberal project" is, and so leave it to innuendo and insinuation. You tar the whole economics profession with the idea that all economists are small-state wingnuts, conveniently ignoring the huge amount of economic theory showing where markets fail.

    Ridiculously, you couple the Thatcher/Major governments' economic philosophy with that of the Blair/Brown governments. You assume that because Margaret Thatcher wanted to cut the state 30 years ago, people have been in agreement with her ever since. You also fail to understand the difference between shrinking the state and introducing market reforms to public sector institutions. Let's spell out the difference: the former is privatising, selling off stuff; the second is making middle-level managers order their things from a central NHS supplier.

    Another fantastic clanger was:
    "almost all economists failed to predict the financial crisis that swept through the western economies in 2008 - we still slavishly discuss and analyse it in their technical terms."
    Doh! So if a pharmacist suggests a model for forecasting body metabolism of drugs which turns out to be wrong, would he there and then pack up the entire of Chemistry and announce that we need something new? No!
    It would appear you don't even know what those technical terms are - covariance, risk, present value for example - which are all as important in finance as knowing 2+2=4. No, instead it's straight into this moralising fantasy where economists are blinkered cretins who preach the way of the market.

    In finishing you make the following point:
    "In this episode I argue that Mrs Thatcher's monetarist experiment of the 1980s was not just giving power away to the markets. In reality it was a pseudo-scientific attempt to re-engineer Britain that had far more in common with the preceding Old Labour attempts at "scientific" economic planning that it did with any free market theory."
    I really don't know where to begin with this one. You combine in one paragraph 1) monetarism 2) privatisation 3) social engineering 4) economic planning and 5) Old Labour. You conveniently ignore that at least two of these diametrically oppose each other, and incorporate them into one nice easy trend that makes a nice narrative. An excellent demonstration of no understanding of any of these ideas in any depth.

    Not one economic theory criticised or rebutted. Not one piece of substance. Instead you drivel on for 800+ words writing about a subject which you clearly have absolutely no idea about. Shallow, superfluous, stupid.

  • Comment number 11.

    @yoctoBarryC

    Are you an economist or an academic? You speak as if you were.

  • Comment number 12.

    Your posting of the Pandora's Box excerpt made me go back and watch the series. There's a little bit in the first episode that is particularly amazing: three officials from the consumer research / market conjuncture state department are explaining how they go about their job. Can you provide more details about the footage? Where did you get it? The piece is edited so as to be ridicule, but their 'acting' helps.

  • Comment number 13.

    Blimey. I sometimes wish I'd studied Philosophy, Politics and Economics at Oxford rather than Film at Kent. I did meet a lot of girls doing that though. I guess that's what they call 'Opportunity Cost'.

    I'm not gonna defend AC even though I'm quite a fan, especially on the points yoctoBarryC makes; I don't feel knowledgeable enough. Yet.

    On what Chris D says - I think there's some truth in what you say. I posted on a earlier entry that I thought Adam was The Wizard of Oz. But I don't mean that disparagingly. Remember Oz was in glorious technicolor. Dorothy and the gang had a great adventure. Mostly, when they finally met him and asked him for the answers and solutions, he couldn't offer them anything much other than to reveal what they already had and knew.

    Watching this I think it brought home to me how the style of the films has changed. I think it's become more aggressive and imposing over time. You compare this to Century then to Trap then to Kiss, it's getting more intense. I think he won't be happy til he makes a 7 minute film with a cut every 1/24th of a second, including a clip of every popular song since 1947 that turns all who view it into the Starchild out of 2001. That's what I reckon.

    I really like what Lewis Gordon Miller wrote and it's how I feel about the recent economic events myself, that as you say the lie that was repeated often enough and made true was the idea that people are entirely self interested. I think that's become true(r) of many people in our society; I'm 30 and I really feel people and society has changed in my lifetime. Not sure if that's really true but I feel it very strongly. I think it's been a combination of people having been told that absolute self-interest is a fact, and that it was 'right' and natural in some way, and that systems were built around this simplistic idea, that has quite deeply embedded it.

    Overall I think direct criticism of economists is harsh. I can't remember the quote exactly but there's something I heard in "An Inconvenient Truth" about not being able to understand things when your livelyhood depends on it. I also think resisting contemporary ideas is hard and has happened very few times through human history. In many cases I think economists want to accept certain principles, as someone earlier has mentioned, and present themselves as someone who understands it, and that it is a rational system. I don't think they should be vilified for it.

    But what they don't understand, and this is an idea I've come to recently having tried to learn about all this stuff, is that the Rationalism that underlies their 'science' is not absolute and is flawed in the way they are trying to apply it. Again this is a point better made by earlier posters.

    I've mentioned this before but I think I get it more now. It a question of the nature of knowledge and how we as human beings try to establish truth. The flaw with the fundamentals of some (note, I said "SOME") economic and social theory and models, is not necessarily that they are based on Rationalist principles, but that they do not acknowledge the fallibility that arises because of the complexity of the subject - people and their interactions. If we're to use Rationalist principles then we need to be more circumspect, or perhaps simply more accurate and appropriate, in the ways we employ them.

    Why are absolute models of human behaviour taken up so willingly? I think it is human need for order and the fear of the unknown, of risk. I also think, after a brilliant post by someone who basically talked about the history of Rationalism a few blogs ago, that it might be related to increasing awareness of human fallibility in light of the rise of modern scientific thought. It's a bit Ray Bradbury to say we're scared of computers. But I mean, as we've discovered the laws of physics, the beauty of mathematics, do we feel ashamed and humbled? Does all this derive from our own egoism?

    I dunno. But I've a feeling we're not in Kansas anymore.



  • Comment number 14.

    The essay and episode are an excellent analysis of British economic thought; however, it's important to note that many centrally controlled economies (such as Japan, Germany, China) have succeeded in creating massive growth sustained over decades. The relative impotence of the British economy is to some extent due to it's misguided abandonment of manufacturing and export industries (the world of real things) in favour of the service economy. There's a very good short interview with a very man over at Wired with Peter Thiel:

    "There are good things and bad things about capitalism, but inequality becomes completely intolerable to society when everything’s static."

    I don't think growth is sustainable (it's based on innovation, population growth, and resource extraction, all of which have limits).

    Unfortunately reporting in the West doesn't bring up questions like these very often. It is so institutionalised that it's completely unable to see outside its own frame of reference. Only a few years ago BBC business correspondents were openly talking about how low interest rates were a good thing as they fuelled (debt-based) consumption. Yet in China they operate a covert policy of 'suppressed consumption' which is actually a lever the works - it boosts savings rates and a country's relative wealth through high exports (most of the debt money for the recent asset boom came from the Far East).

  • Comment number 15.

    Some people do think of the problem out of the box.
    I'm following for more than a year the very interesting blog of Paul Jorion (mostly in french sorry). He's getting very popular and invited more and more often by press and TV...

    Today he just tried to launch a call to the European authorities
    http://www.pauljorion.com/blog/?p=8523

    Please read it (sorry for the bad translation), and if it seems revelant for you too, try to make a buzz of it.


    "Ladies and gentlemen, from the European authorities, I’m telling you : House is on Fire !

    You won’t save Greece by decreasing state employee’s incomes. You won’t save Greece by encouraging it to fight tax fraud. You won’t save it neither by creating a… lottery (it would be derisory). It is far too late to do so. And in any case, it is not the point.

    On the 3rd of february, i took part of the tv show « The debate » on France24.

    http://www.france24.com/en/20100203-france-24-debate-financial-crisis-economic-bankruptcy-states-greece

    http://www.france24.com/en/20100203-france-24-debate-financial-crisis-economic-bankruptcy-states-greece-part2

    If you speak English, please, listen to what i’ve said when we were talking about Greece cheating on economics stats. If not, please, read this resumé :

    There is a new game on the Credit-Default Swaps (CSD). Now, it’s not 1) Bear Stearns 2) Lehman Brothers 3) Merrill Lynch, it will be 1) Greece 2) Portugal 3) Spain.

    Your Greek’s kitty, harly earned, will be taken over the storm and you will immediately need four others ones : Portugal, Irlande, Cyprus and Spain which is bigger than the first four.

    Then, you will get few days to take your breath because the next victim is not in the euro zone since it will be United-Kingdom.

    It’s not about big incomes : it’s about dominoes, and as « Lehman Brothers » was written in the sky the ady Bear Stearns fell, « Portugal » will be written in the firmament the day Greece will go bankrupt.

    So, what should we do ? Point the spotlights at the main cause. At this deadful combination of the public debt ratings from rating corporation and the non-position of the CDS, this bets from people who are not getting any risks but are creating huge systemic risks with one aim : huge personnal profits.

    It’s time, Ladies and Gentlemen, to forbide bets on price variations.

    Don’t tell me it’s complicated : it is not, it’s already written in the american accounting standard FASB 133.

    Don’t tell me it will affect liquid asset : this reproach, i used to answer that punters only create liquid asset for other punters so it doesn’t matter, but today, i’ll add this : « At this level of likely disintegration of the Euro zone : liquid asset, we don’t care ! »

    "

  • Comment number 16.

    I sometimes think of the current economic crisis in terms of a school disco where the lights have been turned on at the end. While one minute it was all charged sexual atmosphere, illicit drunken dancing and general frugging, putting the lights on (usually fluorescent) serves as a harsh reminder that the real world exists, and people and things are suddenly a whole lot less attractive when considered in the long term.

    Where the first 2 posts talk about control engineering and human constructs, I look at the economic problem within the realms of chaos theory. An idealistic system that should work but ultimately fails when there are vast amounts of minute human influence that can lead to wildly unpredictable outcomes, but still produce a predictable outcome in the longer term. No more boom and bust?

  • Comment number 17.

    Followers of Austrian economics, such as Ron Paul, Peter Schiff, Marc Faber and Jim Rogers did predict the current severe recession-depression. It was the Keynesians that did not see it coming. Keynes is popular with governments because this school allows them to print vast amounts of fiat currency to solve problems. They avoid having to raise taxes or cut spending.

    Unfortunately, these increases in the money supply(inflation) result in the replacement of one bubble with another larger bubble. The downturn is delayed but made worse. In the end you either wind up with a depression or high, perhaps even hyper- inflation.

  • Comment number 18.

    Like most people Curtis can not tell the difference between neoclassical and Austrian economics.

    While he is correct that the pseudo-sciences of mainstream neoclassical and Keynesian economics have much in common with regards to mechanically controlling the economy he is very wrong to lump Hayek and by extension the whole Austrian school into this thinking.

    Austrian economics is true economics. It is about real free markets that self regulate by balancing fear and greed. It makes no clam to be a science but rather is philosophical apriorism. The Austrian school understands that praxeology is the foundation of economics and thus the scientific method can not work as human action is uncontrollable and unpredictable.

    Austrians create logic then overlay it on data rather then torturing the data like Friedman until it gives up its secrets.
    Here is an Austrian working out how an economy functions:
    http://www.youtube.com/watch?v=bFxvy9XyUtg

    Hayek vs. Keynes Rap Anthem:
    http://www.youtube.com/watch?v=d0nERTFo-Sk

    http://thebubblegoesbang.blogspot.com/

  • Comment number 19.

    Friedrich Hayek discusses Milton Friedman's Monetarism and monetary policy:

    http://www.youtube.com/watch?v=fXqc-yyoVKg

  • Comment number 20.

    Self-cert mortgages and their US equivalents at ever increasing income multiples being taken out by paye employees. Smell a rat anyone ?

    Within the banking industry these mortgages were referred to a "liar loans", but nevertheless packaged up and sold on as AAA rated securities to unsuspecting banks and funds around the world where they provided the security for further loans to be made or taken at multiples of anywhere between 8 and 60. Once US residential prices turned over the whole edifice started to crumble.

    It's not rocket science. Without the "rule of law" commerce and govt cannot function.

    All these overly academic explanations for the credit crisis including the above article are just diversions. No one wants to admit it was straight forward crime.

    The salary levels of public employees is public knowledge. The price they paid for their home is public knowledge. Whether they have ever inherited money or assets is public knowledge.

    Mortgage fraud carries a prison sentence, the return of the criminally appropriated property to the to the victim, the further confiscation of property to the value of the total criminal gain and it's subsequent profits, lifelong unemployability.

    To expect organised crime, the various security services of foreign govts and our own, various commercial organisations, to ignore the blackmail potential of public officials is foolish. By ignoring widespread mortgage fraud we are inviting penetration of our public services and private firms.

    Billions can be made on the markets from the advanced information provided by a BoE or Treasury official. A troublesome journalist,politician investigator is easily set up with falsified evidence placed by a blackmailed police officer or public official. Organised crime is untouchable now. Can any public records be trusted.

    This is the story yet it's not being covered. Thats very worrying.

  • Comment number 21.

    10. At 5:37pm on 24 Feb 2010, yoctoBarryC wrote:
    Not one economic theory criticised or rebutted. Not one piece of substance. Instead you drivel on for 800+ words writing about a subject which you clearly have absolutely no idea about. Shallow, superfluous, stupid.
    --------------------

    yoctoBarryC, market economic theory have been refuted time and time again by reality - the most solid of substances. And I didn't read a single sentence in your drivel that provided any explanations why. You sounded as a theatre critique who's having a bad hair day.

    All economic interventions have proven to be nothing more that experiments of trial and error. Maybe, the economy does not need economists, how about that? Maybe it should be left completely alone or simply controlled 100% as in planned economy.

    I don't understand why market economists, in case they have not proven themselves worthy yet, get so angry when they are being critisised. I mean something has to justifies the big salaries, what is it?

  • Comment number 22.

    So, if I read this right, economists' theories are correct but irrelevant in a dynamic world inhabited by imperfect humans; the activities of banks and big marketplayers are fueled by greed and reliant on widespread misinformation; politicians are representative of the general population who don't really understand the context of the economic "thinking" in our current reality.

    In a nutshell our leaders and intellectual "betters" rely on flawed economic theories for guidance, and put our finances in the hands of banks who manipulate the market to their own ends.

    Sounds like my gut feeling was right - to distrust and put as much distance as possible between myself and the grippy banks, self-absorbed brainiac economists and self-serving intellectually inadequate politicians trying to control me, push me in a certain direction, and / or get an ever growing slice of the results my own enterprise and output.

  • Comment number 23.

    Does Adam Curtis read the replies?
    I hope so, because this is a suggestion for a programme that badly needs addressing and is perefect for Adam Curtis.

    It relates to the issues in Raymond Fitzwalter's book, THE DREAM THAT DIED: THE RISE & FALL OF ITV. It is a microcosm - or to put it in Adam's fiendlier terms, a parable - of what has happened to Britain over the last 30 years. Plus, it's a very 'photogenic' story, though heartbreaking.

    Get in touch if you're reading, Adam, and I'll give you an outline and my notes, if they help at all to navigate the issues of the book.

  • Comment number 24.

    ...and about the blog, well, the embedded documentary, 'The League of Gentlemen' from the PANDORA'S BOX series, is the best documentary I ever saw. Any assumption that monetarism is a science falls right through the floor after watching this...and who would have thought that a programme about economics could be this entertaining or this fascinating... A work of art about a pseudo-science.

  • Comment number 25.

    Well I'm no Economist, but surely what has *just* happened was the abandonemnet of the core Thatcherite ethos: if a business runs itself so badly that it becomes bankrupt, then it should die. It applied to British Coal Mining (most famously) and very recently the Blair government applied it to what little remained of British Leyland. But now when the industry most run by Economists - the Banking Industry - fails, it has NOT been allowed to go under. Indeed now, the economists tell us that the biggest mistake our governments have made was to allow Lehman Bros to go to the wall.
    If the Economists had applied their own theories to their own business, then maybe things would have changed a lot and been very different to where we are today. But when did turkeys ever vote for Xmas.

  • Comment number 26.

    I was interested to see #6 mention 'the poverty of historicism' - When I first read it some 10 years or so ago, Blair was at the height of his popularity, and at the time it struck me that the 'tinkering' approach to governement put forward by Popper had finally been implemented. Policy was lead by focus groups, and each policy was taken on its individual merits.

    I agree that with the poster before that Popper had failed to appreciate how 'lassaiz-faire' economics was not a neutral position. But I think he had also failed to see what a government without an underlying narrative tying its policies together would actualy be like.

    Adam Curtis himself put forward one of the best critisms of this approach in Century of the Self when he pointed how policy making by focus group, combined with management by measurement, lead to inconsistent and incoherent government.

    In some ways I find that incredibly sad - Popper was railing against government by romantic historical narrative (and right now Radovan Karadicj is available to remind what was wrong with that...) - but the seemingly pragmatic, sensible alternative he came with was anything but when put into practice.

    Where do we go from here?

  • Comment number 27.

    Adam,

    I think there is a story that you would love along this theme - it sounds jargonistic and dull but it's not.

    The theoretical basis for neo-classical theory was built on the maths of early 19th century physics. Fixed point equilibriums were found to be useful by physicists modelling potential energy and forces.

    The work of the brilliant academic economic historian Philip Mirowski has shown how the founding fathers of modern economics such as Jevons and Walras, borrowed the mathematics wholesale, converting the symbols for energy into economic matters. Crucially and most fascinatingly this mathematics was wedded with the utilitarianism of Bentham and Mill, in which the maxim of the greatest happiness (or utility) of the greatest number, was schematised to form the basis for economic theory. Thus an individual human being is measured as a metaphorical point moving through the space of consumption. The goods this point consumes increases its value or "utility", and the dot moves to a higher realm in this mathematical space.

    The clever bit is what happened next. The economists created a mirror image of this "utility function", in a "production function" in which products are produced under the force of profit maximisation according to their relative prices.

    The two functions - utility and production - are then merged to find a so called equilibrium. It is astonishing, but this model is still the founding stone of today's university economics courses and the foundation of most intermediary and even advanced mathematical economics courses. In simple terms, economics is close to 200 years out of date.

    The reason this is important of course is as you would assume, political. The "scientific" result was extended to a theory of the whole economy - general equilbrium - the supreme efficiency found to exist from this piece of antiquated maths justifies the ultimate freedom of the market espoused by the Platonic philosopher kings, the neo-classical / neo-liberal economists and politicians of the late twentieth and early twenty first centuries.

    I think you should pick up some Mirowski, as this is the sort of fascinating story you could get your teeth into.



    Excellent blog by the way.

  • Comment number 28.

    @Joe

    I'm pretty sure that Adam is familiar with Mirowski's work. He has mentioned him before in this blog, and in fact he has said that "The Trap" was influenced by his work.

  • Comment number 29.

    Thanks Juan, I need to watch the Trap again!

  • Comment number 30.

    At 08:25am on 02 Mar 2010, Joe wrote:

    I think you should pick up some Mirowski, as this is the sort of fascinating story you could get your teeth into.
    ____________________


    Guffaw!


  • Comment number 31.

    Er...yes...I didn't massively want to get into this debate, as I am an historian by training, not an economist. Still...From a historian's point of view, I would say that I found Adam's original film extremely interesting, insightful and valid as an analysis of the gradual replacement of 60's Labourite socio-economic policy (and Keynesianism) with Thacterite encouragment of monetarism, privatisation etc. Naturally, it was made in the early 90's (only shortly after the political regime it was considering had wound down to its end), but I think there was still enough latitude for Adam to consider with some intelligence the forces that had been operating in British society for the past 30 years or so up until that point - this episode of 'Pandora's Box' was in the manner of a retrospective, historically acute analysis, and while not everyone would agree with the conclusions reached, I personally would not argue with the basics of the thesis expressed. I suspect, from the tone of many of the comments already posted, that many haven't been inclined to watch Adam's actual film, because there, it seems to me, his points about economic planning going hand in glove with political and psychological forces are expressed quite cogently and with some historic specificity.

    Where I think, with respect Adam, that you have set yourself up for criticism, is in prefacing the introduction to the film with an, at best, vaguely stated, but 'topical', thesis. Not only, as some of the more economically minded posters have commented, does this lack the rigour of definition that we actually find in the film, but it is perfectly fair to say that, if history teaches us anything, it is that human situations are changing all the time, no matter how superficially 'identical' broad trends may seem. Although I think it is a truism to say that 'Third Way' Labour politics, as inaugurated by Blair etc., inherited most of its basic tenets from Thatcherism, it still seems to me questionable to assume that current predicaments can be effectively considered in the context of economic circumstances in existence thirty years earlier. I am not sure that, really, the current credit crisis has anything more in common with the conditions prevailing in the time of Thatcher than the time of Thatcher had in common with conditions prevailing in the time of Harold Wilson, though I accept your broad point that we may place too much faith altogether in the prescriptions of economists, and always have. This isn't meant as a criticism of the film, which I thoroughly enjoyed, and learned something from, but only of the need to preface it with a somewhat tendentious introduction!

    And as to Joe's comment - it isn't just the fact that Mirowski gets mentioned in, and informs much of the thinking, behind 'The Trap' - he's actually interviewed in it!!

  • Comment number 32.

    Hi Adam

    2 things

    Firstly, Cosmonaute by Stereo Total

    Secondly, F–A-flat–F, "Frei aber einsam" = "Free, but lonely" - that's deliberate isn't it? Must be.

    Love it.

  • Comment number 33.

    I meant F-A-E above. Oops.

  • Comment number 34.

    In America's crooked banking system, money is created( the money supply is expanded or INFLATED) by banks making loans. Loans create money instead of the more logical system of loans being made of EXISTING MONEY. If someone said you can create money as you loan it, wouldn't you be tempted to loan to virtually everyone you knew? That's what banks do resulting in malinvestment and the inevitable boom-bust cycle.

    The secret that the BANKSTERS DO NOT WANT YOU TO KNOW IS THAT WITH A FIAT MONEY SYSTEM, THE GOVERNMENT DOES NOT NEED TO BORROW MONEY. IT CAN JUST PRINT IT! THE BANKSTERS will claim just printing money is inflationary. As Thomas Edison said, selling a bond for a thousand dollars is actually more inflationary than printing a thousand dollars because of the interest.

    People have written about this for centuries, but the powerful banking system sees that the average person is not made aware of this. Watch the free internet movie "Zeitgeist" to learn more. I wish Adam Curtis would cover the fraudulent central banking system in more detail in one of his documentaries. He seems more objective and less ideological than documentarians like Michael Moore,

  • Comment number 35.

    It is interesting (and troubling) how governments(and the media!) use fraudulent statistics in a form of mind control to make people think they are better off than they really are. Paul Craig Roberts, an excellent columnist and former Asst. Secretary of Treasury in the early 80's, has written extensively on how the government continually changes the criteria on computing inflation and unemployment to the point where they are now practically useless.

    Shadowstats.com computes the numbers the "old fashioned way" and it is startling to see that the "real" American unemployment number is over 20%. It is generally accepted that a depression occurs when unemployment is above 25%!

    The government claims inflation is only around 3 or 4%, but amazingly, they don't count food and gasoline in this figure! I guess as long as you don't eat or drive to work each day those prices do not affect you. Visit the site to learn the truth. http://www.shadowstats.com/

  • Comment number 36.

    Gentlemen, this sure looks like a red herring. Just what you might expect from an established voice from within the media mainstream (detailed explications of such a thesis can be found in Herman/Chomsky's Manufacturing Consent, Mark Curtis's Web of Deceit etc).
    So the economists are to blame, 'coz they haven't been able to come up with any half decent theories! As our starting point we are to take for granted the benign intentions of our "representative" governments and that their control of the money supply is exclusive. Thus the discussion that follows is framed. Still Tony Benn partly has it: "if a scientist helps you with your ideology you use him, if he doesn't you disregard him". When politics is the end game, all kinds of pseudo-science is often shielded from the rigours of the scientific method. One day we'll look back in wonderment on 20th century embarrassments like "climate science", speed cameras as an effective road safety tool, numerous virtual death tolls due to passive smoking, salt, cholesterol etc ad nauseum. Keynes's and Friedman's contributions will be amongst this lot, examples of useful distractions permitted to float to the top of the pile by elite interests because they helpfully limit themselves in scope and thus avoid the forbidden questions.
    A similar process goes on in the media, it is the 'sound chap' journos that get the promotions and not the ones that are unafraid to ask the really awkward questions. So true to type AC never poses the fundamental questions in his film - what is money supply? How is money created, and by whom? Who is really in control of it? If he did, he would quickly discover the mathematical impossibility of interest-bearing debt-money and where such a money-creation process logically leads (clue: boom & bust).
    We must not be too harsh on AC. Sometimes you have to watch what you say if you wish to keep your career on track.
    But in case AC does decide to test for himself where the invisible boundaries lie of what can be expressed in the mainstream, here's an idea for a documentary: exploring the effect on society of strong feedback in the form of institutions of direct democracy. It has a proven track record of sefeguarding stability and growth for the last 150 years in Switzerland. There is plenty of literature on this though you won't see it mentioned in the mainstream (see for e.g. Gregory Fossedal's Direct Democracy in Switzerland). Switzerland is far from perfect, but it sure has a head start on the rest of the 'free world'. Here are some unmentionable (in the mainstream media that is) facts about Switzerland. Its highest unemployment ever recorded was ~5% during 30s depression. For comparison, ~5% happens to be UK's lowest unemployment ever recorded. Swiss GDP per capita is one of the highest in the world. The Swiss franc has consistently been one of the world's most stable currencies. The Swiss central bank is bound by the Swiss Constitution to pay 2/3 of its profits to the federal government. Swiss newspapers and TV are obliged by law to give equal access to proponents and protagonists of popular ballots. The list goes on. To obtain such concessions from the ruling elites here is unthinkable. Care to explore why, Mr AC?

  • Comment number 37.

    Does anybody know what the music is at the start of the programme?

  • Comment number 38.

    Paper currency when backed by gold or silver has actual value. Today's fiat currencies represent not intrinsic value, but DEBT. Dollars for example come into existence when bank make loans. Since there is interest owed at each dollar's inception, that means there is always more debt owed to BANKS than there are dollars that exist to pay it off. That means governments and the taxpayers will be in ever greater indebtedness to banks.

    While this system is obviously advantageous to banks, it is inherently unstable and leads to everyone else becoming an indentured servant to the banksters. This concept is not understood by the vast majority of people, including economics majors who are usually not exposed very much, if at all, to Austrian Economics. It has been known, however, for centuries.


    Part 2 (for those blessed with a longer than American attention span)

    Read this quote from our third President Thomas Jefferson:

    "The [privately-owned] Central Bank is an institution of the most deadly
    hostility existing against the principles and form of our Constitution...
    if the American people allow private banks to control the issuance of their
    currency, first by inflation and then by deflation, the banks and corporations
    that will grow up around them will deprive the people of all their property
    until their children will wake up homeless on the continent their fathers
    conquered."

    The Bank of the United States (1816-36), an early attempt at an American central bank,
    was abolished by President Andrew Jackson, who believed that it threatened the nation.

    He wrote:

    "The bold effort the present bank had made to control the government, the distress it
    had wantonly produced...are but premonitions of the fate that awaits the American people
    should they be deluded into a perpetuation of this institution or the establishment of
    another like it."

    Andrew Jackson had at least two attempts made on his life. So proud and intent on
    warning the future generations was he that his tombstone is inscribed with the phrase
    "I killed the bank!"

    I can't recommend enough reading books by Ludwig von Mises, Murray Rothbard or Ron Paul. Many of their works can be read for free online at the Ludwig von Mises Institute. If enough readers of this blog call attention to the role of central banking in this fraudulent "world debt crisis", then perhaps Adam Curtis will consider doing a documentary about it.

  • Comment number 39.

    Thought I would share this link with everyone; I think it's a brilliant piece. I read it and thought there was some major crossover with the topics raised on here, especially the talk about 'narrow technocratic' ideas.

    http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=8&_r=1

  • Comment number 40.

    36. At 00:30am on 05 Mar 2010, Evgueni in Horley wrote:
    So true to type AC never poses the fundamental questions in his film - what is money supply? How is money created, and by whom? Who is really in control of it?
    ------------------------------------

    I absolutely agree with Evgueni. The question that no journalist dare even ponder upon is the system of Central Banks. But we have to be fair to Adam Curtis - it is dangerous asking this question. Journalists that have made attempts to uncover the truth have been mysteriously disappearing.

    All will be revealed in 2012, though. The wait is nearly over.

  • Comment number 41.

    All I want to say as an admirer of everything Adam Curtis has done–-and as an academic working on, among other things, futures––is how grateful I am to have this episode of PB back on the site. We should have the whole series, which shares this episode's astonishing prescience. Every time I hear that final admission from Alan Budd, I am amazed.....I have an old VHF of the series. Remarkable to note how it has grown rather than diminished in relevance.

  • Comment number 42.

    I feel that politics is profoundly crippled because we have lost sight of the simple fact that economics is a man-made phenomenon and not a physical ecosystem like nature. We have mistaken analogy for reality. We do not yet have the power to completely reshape nature, but we do have the power to radically rethink things like banking, money, and this perceived need for continual economic growth, which may well turn out to be ecologically unsustainable. We could do whatever the hell we want instead of waiting for the market's permission!

    Because earthy, more spiritual notions like love, charity, community, honest dealing and goodwill - self-transcendence in general - are now seen as being at best a limited, fugitive aspect of a human nature that is predominantly and probably eternally dark and carnivorous, and at worst a kind of sentimental delusion, our only recourse is to govern like manipulative animal-trainers. This amounts to an admission of defeat: we might as well all die, because humans absolutely cannot consistently live such a life, try as they might.

    'Wisdom' is now a word consigned to New Age bookshelves, along with a lot of other good words - words you could productively ponder the meanings of all day.

  • Comment number 43.

    Dear Adam

    It might interest you to know, if you did not see it already, that a letter appeared in The Guardian Letters page on Wed 16 June, referencing The League of Gentlemen, in relation to the Office for Budget Responsibility.

    You can read it at

    http://www.guardian.co.uk/politics/2010/jun/16/budget-realities-public-sector-distortions

    I wrote the letter and am a great admirer of your work.

  • Comment number 44.

    "We think it was the resurgence of capitalism. But maybe it was something very different? Something that we can't see properly because we are still trapped in the economists' world and their mindset."

    This was actually built into the theories themselves - although I have a sneaking suspicion that many of the theorists didn't realise this.

    The best source for this line of thought is a recently translated lecture series by the eminent French philosopher Michel Foucault. The series is available in lovely binding on Amazon - it's around 15 quid; its called 'The Birth of Biopolitics'.

    Foucault starts off trying to trace the roots of what he calls 'biopower' but ends up doing a full exposition of how neo-liberalism is in fact an attempt to subordinate the state to rationalised economic calculation. He concludes that what the neo-liberals are really trying to do - whether they like it or not - is to avoid a totalitarian state (most of their theories are based on those of Austrian emigres with major cases of 'state-phobia' due to their experience of Nazism) by constructing a technocratic state in which basic freedoms are partially realised.

    Another line of approach to this is through another historian of thought: Philip Mirowski (who Curtis interviewed for The Trap). Mirowski argues that the project to 'economise' social relations took a new turn when it began to appropriate computer metaphors in the 1950s. This led to a view of humans as, not homo economus, but as quasi-cybord creatures, completely subjectable to rational calculation (essentially the view of man put forward by Nash, but on a far more sophisticated level).

    Anyway, I think Curtis should make a documentary incorporating these ideas - especially those turned up in Foucault's lecture series. They just aren't getting the coverage they deserved. I remember a while ago being in a politics class. The lecturer was trying to explain the difference between liberalism and neo-liberalism and why the two diverged from the same ideology. He was falling over himself trying to do this. I offered the suggestion that neo-liberalism is in fact an attempt to rationalise state institutions in terms of market logic - a similar, but slightly different process, I said, to what happened in the Soviet Union under the technocrats. The man looked at me as if I had four heads... he simply couldn't understand what I was talking about.

  • Comment number 45.

    economics should be taught with the other humanities. it's about interpretation. being a trader by profession, i learned immeasureably more about 'the markets' and their behaviour, and improved my work far more by reading a few books on psychology than the few dozen books i've read on the technical aspects of financial trading and economics. maths and economics are simply window dressing for market moves. something for people to talk about on Bloomberg TV.
    the markets are a psychological, not a technical construct.
    i read a quote once that said "people bring more than money and information to the markets - they bring themselves..."
    no trader is concerned with what THEY think the implication of X central bank doing Y is - they are concerned with what the average opinion of average opinion of the market particpants is a result of that action - it's removed from the economic fundamentals.
    the bottom line is that market moves are all about probably the most basic human emotion of all - fear. the fear of not making money, but especially the fear of losing it...

 

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