THE ECONOMISTS' NEW CLOTHES

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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  • rate this
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    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?

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    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.

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    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.

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    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.

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    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.

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    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?

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    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.

  • rate this
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    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.

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    Comment number 29.

    Thanks Juan, I need to watch the Trap again!

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    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!


  • rate this
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    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!!

  • rate this
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    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.

  • rate this
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    Comment number 33.

    I meant F-A-E above. Oops.

  • rate this
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    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,

  • rate this
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    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/

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    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?

  • rate this
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    Comment number 37.

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

  • rate this
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    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.

  • rate this
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    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

  • rate this
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    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.

 

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