Tuesday 23 February 2010, 13:39

Adam Curtis Adam Curtis

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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    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"
    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.

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    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.

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    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

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    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!)

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    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.

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    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.

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    Comment number 7.

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

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    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.

  • rate this

    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.

  • rate this

    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.

  • rate this

    Comment number 11.


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

  • rate this

    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.

  • rate this

    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.

  • rate this

    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).

  • rate this

    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

    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.

    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 ! »


  • rate this

    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?

  • rate this

    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.

  • rate this

    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:

    Hayek vs. Keynes Rap Anthem:

  • rate this

    Comment number 19.

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

  • rate this

    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.


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