Panglossian finance

Disagreement among practitioners of the dismal science

As David Blanchflower argued in his first economics column for the NS, the crash of autumn 2008 wasn't just a failure of banking practice -- it was an intellectual failure, too. The collapse of Lehman Brothers just over a year ago wasn't just an indictment of hubris and greed on Wall Street; it was also "a body blow to those economists around the world who had designed worthless mathematical models, based on unrealistic assumptions that they then used to convince themselves that a recession of this kind could never happen again".

Blanchflower's magisterial dismissal of "useless economic models" echoed something the Nobel Prize-winning economist and New York Times columnist Paul Krugman had a written a couple of weeks earlier. Under the title "How Did Economists Get It So Wrong", Krugman chastised economists for "mistaking beauty for truth" -- for allowing themselves, that is, to be seduced by abstract mathematical models and an "idealised vision of an economy in which rational individuals interact in perfect markets". The only problem is that perfect markets have never existed and never will exist -- pace what Krugman nicely calls "Panglossian finance" -- and the sooner economists "learn to live with messiness", the better.

That's a very Keynesian view, of course. As Peter Clarke shows in his book Keynes: the 20th Century's Most Influential Economist (reviewed in the NS by Andrew Gamble), a recognition of the pervasiveness of uncertainty was a very important part of Keynes's vision. Keynes wrote that the "fact that our knowledge of the future is fluctuating, vague and uncertain, renders wealth a peculiarly unsuitable subject for the methods of the classical political economy". In other words, the market doesn't always get it right; in fact, very often it gets it catastrophically wrong.

Compelling stuff -- but some of Krugman's fellow economists have objected to being handed such low marks, among them John H Cochrane of the University of Chicago, who returned fire in an article entitled "How Did Paul Krugman Get It So Wrong?". Cochrane boils Krugman's piece down to the thesis that (in Krugman's own words) "Keynesian economics remains the best framework we have". He then charges Krugman with making a number of incompatible arguments.

For instance, in Cochrane's view, it is only because Krugman caricatures the so-called "efficient markets hypothesis" that his call for an economics that "recognises flaws and frictions" and "incorporates alternative assumptions about behaviour" has any force at all. Cochrane is caustic about this:

I say, "Hello, Paul, where have you been for the last 30 years?" Macroeconomists have not spent 30 years admiring the eternal verities of Kydland and Prescott's 1982 paper. Pretty much all we have been doing for 30 years is introducing flaws, frictions and new behaviours, especially new models of attitudes to risk, and comparing the resulting models, quantitatively, to data. The long literature on financial crises and banking which Krugman does not mention has also been doing exactly the same.

Further, according to Cochrane, "Krugman argues that 'a more or less Keynesian view is the only plausible game in town', and 'Keynesian economics remains the best framework we have for making sense of recessions and depressions'. One thing is pretty clear by now, that when economics incorporates flaws and frictions, the result will not be to rehabilitate an 80-year-old book." Ouch! Cochrane goes on: "A science that moves forward almost never ends up back where it started. Einstein revises Newton, but does not send you back to Aristotle. At best you can play the fun game of hunting for inspirational quotes, but that doesn't mean that you could have known the same thing by just reading Keynes once more."

Cochrane is taking it for granted here that economics is a science, in the way that physics is -- that's the point of the gibe about Einstein, Newton and Aristotle. And I think that may be where the disagreement between Krugman and Cochrane is most profound. For, as Krugman surely knows, Keynes regarded economics as being a moral as much as a mathematical science. This is one of the central insights of Robert Skidelsky's recent book about Keynes, also discussed in the review by Andrew Gamble mentioned above: "One of the greatest defects of economics today is that it has become a branch of applied mathematics. [But] Keynes thought of economics as part of the human discourse."

Jonathan Derbyshire is Managing Editor of Prospect. He was formerly Culture Editor of the New Statesman.

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Marvel's Doctor Strange is like ketchup – it's formulated to please, but you won't love it

Benedict Cumberbatch’s well-honed turn in Doctor Strange is enjoyable, but the film isn't one you'd ever fall in love with.

In 2004, Malcolm Gladwell wrote an article asking why there were dozens of varieties of mustard, and yet a single brand of ketchup – Heinz – utterly dominated the market. He discovered that Heinz ketchup was a perfect synthesis of the “five known fundamental tastes in the human palate: salty, sweet, sour, bitter and umami”.

Food scientists call this amplitude: Coca-Cola has high amplitude, blending vanilla, cinnamon and brown spice in a way that makes it difficult to pick out an individual note. That also makes it easier to drink buckets of the stuff; the palate tires easily of a single, spiky flavour, as with orange juice. But ketchup? You can smother that on anything.

The studio behind The Avengers, Thor and Iron Man has invented a similar condiment. Let’s call it Marvel Sauce. Take one superhero movie, add an even mix of buff beefcakes and Shakespearean actors, then marinate in light sarcasm to offset the fact that everyone is talking seriously about giant hammers or saving the world in costumes they look like they have to be sewn into.

That the process creates homogeneity is not the snobby criticism it might at first appear. (I’ve drunk Coke in places where the water wasn’t safe, or local tastes were very different from mine, and I’ve been grateful for it.) Yet it does mean the films’ greatest strength is also their greatest weakness.

Doctor Strange is smothered in Marvel Sauce. It looks phenomenal: if you liked the city-folding from Inception, this film lets M C Escher’s grandchild have a go with the software. The actors are first-rate, from Chiwetel Ejiofor as Baron Mordo to Mads Mikkelsen’s baddie, Kaecilius. (Wanted: someone else who studied Latin at school to appreciate my joke about Kaecilius being “in horto sedet”.) The tone is just right, undercutting anything too portentous with snark and slapstick. At one point, Benedict Cumberbatch is giving it proper, squinty-eyed, superhero duck face in the mirror when his sentient cloak pokes him in the eye.

Admittedly, the plot is pretty thin. Our hero is Dr Stephen Strange (Cumberbatch), an arrogant surgeon at a New York hospital with a lucrative sideline in after-dinner speeches. (He has to be American: first, NHS surgeons don’t make enough money to own the watches and glass-walled midtown apartment on show here. Second, he’d be Mister Strange, and would spend half his fights explaining this to people.)

One night, he is purring off to an after-dinner speech in his Lambo when he decides to look at MRI brain scans on his Microsoft Surface while overtaking in heavy rain. This is a bad idea. He wakes up with scarred and damaged hands and is bereft until his physiotherapist tells him about another patient who recovered from breaking his back. Strange finds the guy, who tells him to travel to Nepal (a change from the Tibet of the comics, apparently made to appease Chinese film distributors) to learn some old mystic bollocks.

From there on, the story suggests that the screenwriters have more than a passing familiarity with The Writer’s Journey by Christopher Vogler. Strange enters the special world, meets the mentor – a bald Tilda Swinton, who teaches him to bend time and space – and undergoes an ordeal, including his death and rebirth. He “seizes the sword”, an eye-shaped necklace that can rewind time, and uses it to battle Kaecilius’s plan to collapse Earth into the Dark Dimension. There is one surprise, which is that Strange’s core superpower is revealed to be boring enemies into submission.

Is this film enjoyable? Yes. Is it the kind of film you can fall in love with? No. I left thinking of the one Marvel film that’s mustard, not ketchup: the profane Deadpool. Its hero is also disfigured and cut off from his old life. But Deadpool’s scars ruin his face, and he is ostracised and feared. Strange gets to make swords out of energy and teleport using a magic ring, which seems a decent consolation for not being able to play Chopin. Deadpool also gets a real human woman as a love interest, rather than the one-dimensional saint of an A&E doctor of Dr Strange, played by Rachel McAdams. But then, Deadpool was an 18-rated parody, and this is a blockbuster. It’s ketchup. 

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 27 October 2016 issue of the New Statesman, American Rage