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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Mirror mirror: Will Storr's Selfie charts the history of self-obsession

We all want to discover who we truly are – but what happens when we don't like what we find?

It’s often said that the self is a ‘story’,” Will Storr writes, early in this exploration of human identity and behaviour. “[I]t is built to tell us a story of who we are, and . . . that story is a lie.”

As evidence, he describes how the left side of our brain acts as a narrator, interpreting our surroundings and feelings, and weaving them into an unfolding tale with us as the hero. We might be acting instinctively rather than rationally, but the storyteller inside us makes up something on the spot to explain our actions – a process that psychologists call “confabulation”.

We know this comes from the left brain because of studies done in the Sixties on patients who had the connections between the hemispheres severed to reduce the intensity of their seizures. Researchers showed them pictures visible only to their left eye, which travelled to their right brain. But without a storyteller to interpret the images, “the patient would have no conscious idea that they’d seen anything . . . If a man’s right hemisphere was shown a picture of a hat, say, he would deny having seen anything at all – but then be alarmed when his left hand (which, of course, is controlled by his right hemisphere) suddenly began pointing at a hat, apparently of its own volition.”

Storr uses the storyteller self to explain the extraordinary life of one of his interviewees, John Pridmore, a rage-filled gangland enforcer who found God one night when he heard Satan’s voice listing all his sins. Over the next few weeks, he went to confession for hours at a time and walked seven miles to church in bare feet as penance for his past life.

“During the night of the Devil, John’s mind grabbed the ‘story’ that would form the structure of his new life from his culture,” Storr writes. “He was raised in a Christian country, by a Catholic mother. His plan for the future and his ­replacement identity would be built from ideas from these sources.”

These days, when a man spits at his mother, John only hits him – rather than killing him.

This is Selfie at its best. Storr is a magnificent reporter in the mould of Jon Ronson or Louis Theroux, uncovering unlikely, intriguing personalities and situations and navigating them with teasing ambivalence. His journey to discover the essence of selfhood takes him to a remote monastery, deep into state archives and to a Silicon Valley flophouse with delusions of grandeur.

The best set piece is his time at Esalen, a nightmarish institute in Big Sur, California, where people get in touch with their hidden selves through excruciatingly earnest group therapy. One woman’s hidden self is a cave-dweller; Storr finds her outside the seminar space urinating on the ground with one breast hanging out. (Luckily, his hidden self is a rude arsehole, so he tells her off.)

Esalen’s promise is that in order to become happier and more fulfilled, we need to get in touch with our innermost self. Unfortunately, the “encounter” movement, designed to encourage authenticity, sometimes had unintended consequences: an early study with nuns in 1964 did not, as hoped, make them happier with their lot, but “unleashed a firestorm of lesbianism and rebellion” (though that sounds fun, too). Half of the 615 nuns who took part asked to be released from their vows, according to one of the scientists involved.

Still, clearly, something was happening and people were keen to experience this revolution of consciousness for themselves. What happened encapsulates the sour side of the Sixties: Fritz Perls, who taught gestalt therapy at Esalen for five years, interpreted the need for casting off the repressive yoke of mid-century convention as a licence to wander around naked, “his erection arriving before him”.

Although some of the many women in his orbit apparently acquiesced to his advances willingly, others did not. He once spanked the West Side Story actor Natalie Wood over his knee during therapy, accusing her of “absolute phoniness”. During sessions, participants would be told that they were worthless, or encouraged to act out their anger. One threw an assistant out of the window.

By the end of the Sixties, a disturbing number of suicides had been reported among former guests at Esalen: a phenomenon that Storr links to the idea of “social pain” – the measurable psychological reaction we feel when being rejected by others, or seeing someone else suffer rejection. Just like physical pain, this seems to have emerged to regulate our behaviour; for normally functioning human beings, behaving unfairly or seeing unfair treatment causes a twinge that discourages repetition.

Storr also talks to the neuroscientist Bruce Hood, the author of 2012’s The Self Illusion, who points out another flaw in the Esalen plan: “the lack of a perfect, authentic self to actually uncover”. Later, however, this idea is undermined by another researcher, who suggests that some personality traits – openness, conscientiousness, extroversion, agreeableness and neuroticism (moodiness and anxiety) – are relatively stable throughout our lives. “People in the Gaza Strip are super-anxious,” is how the behavioural scientist Daniel Nettle, the author of Personality, puts it.“But even within the Gaza Strip some people are more anxious than others.” We can try to change ourselves, but it’s like pushing a cart up a hill. It’s always easier to roll back down again.

The book is cautious to the point of vagueness about adjudicating between these competing claims and, to his credit, Storr has asked experts in the relevant disciplines to read the manuscript before publication. Yet there is a distinct disjunction between the flowing and glowing prose of his reportage and the thorny, caveated paragraphs of his scientific summaries.

Still, that is testament to the book’s ambition. Although the cover sells it as an investigation of modern narcissism (the “selfie” craze is generally accepted to have begun in 2010, when the iPhone added a front-facing camera), this is in fact a history of ideas. We journey from ancient Greek individualism through Christian self-abasement and on to the Sixties West Coast zeal for raising our “self-esteem”, finishing with Ayn Rand’s libertarianism and the gurus who sell advice on “crafting your personal brand”.

This is a Western history. Storr argues that in some Asian cultures, society was historically less individualist and that harmony, rather than success, was the highest goal. This brought its own problems: a South Korean professor tells him that the families of job applicants can be investigated for criminality or mental illness. The “taint” of such qualities is presumed to apply to the applicant, too.

One of the recurring themes is just how much snake oil has been sold to unhappy and directionless people in search of meaning. Storr charts how one American politician almost single-handedly created the self-esteem industry by arguing that high self-worth guards individuals against depression and even criminality.

The Californian John ­“Vasco” Vasconcellos was, to put it charitably, a crank. At 33, he had a breakdown and swapped his sober suits and cropped hair for “half-open Hawaiian shirts on the floor of the [California State] Senate, a gold chain nestled in his chest hair”. After a heart attack he asked constituents to sing songs to encourage his arteries to scrub themselves clean (“Touch and rub and warm and melt/the plaque that blocks my streams”). He took fellow legislators to the hot tubs at Esalen, preaching that “the people of America remained trapped under the old Christian delusion that humans were essentially rotten”.

What they needed, Vasco decided, was higher self-esteem. So, in 1987, he set up a state task force, which heard from a woman who handed out thousands of blue ribbons to people while telling them that they were loved. The press hooted in derision but the voters loved it. “Fan mail outnumbered complaints by ten to one,” Storr records. To crown his triumph, Vasco released a study from the University of California showing that there was a scientific basis for his claims. (It was bollocks, needless to say: the scientists’ objections were restrained by exploiting fears about their funding, and then airbrushed from the final report.)

Storr argues that here, once again, the model of the fashionable self fitted the politics of the age. In the Sixties counterculture, “radical authenticity” was supposed to smash convention. In the Eighties, the disciples of Ayn Rand – the high priests of neoliberalism – were happy to encourage the idea that the only thing holding people back was themselves.

Poverty could be recast as a personal, rather than social, failure; the suffocating support of the state could be loosened, and markets could allow human potential to thrive. (Incidentally, kudos to the author here for offering a definition of neoliberalism that goes beyond “bogeyman” and acknowledges the trade-offs inherent in any system: “Millions in the West have become wealthier since the 1970s and their standards of living have risen . . . but one of neoliberalism’s most negative effects is its tendency to concentrate the pain on our most vulnerable.”)

The legacy of the high self-esteem movement appears to have been an uptick in narcissism (insert your own Trump joke here), which has been intensified by social media and the need to perform an airbrushed version of your life for public consumption.

The book’s message must be that the perfect conception of the self lies between two extremes. We need to have a strong enough sense of free will not to succumb to fatalism and apathy, but also accept that often we cannot attribute failure to a character defect, or merely not “wanting it enough”. Amid all the therapy, education and affirmation designed to burnish and uncover our true selves, Storr asks a fundamental question: what idea of the self makes us happy?

This is where Selfie gets uncomfortable. The author is, by his own admission, a neurotic, perfectionist former alcoholic who is prone to suicidal thoughts. Indeed, the idea of suicide clearly captivates him (he gives descriptions of methods, contrary to Samaritans guidelines that aim to avoid triggering copycats). He wonders if the drive towards perfection is behind the higher rates of suicide since 2008, but concedes it might also be due to the financial crash and resulting life pressures.

In his description of one young tech entrepreneur who killed himself not long after an ill-advised remark led to an online witch-hunt, Storr comes close to suggesting that it was bad press that drove the man to it.

Austen Heinz ran a DNA manipulation company and had announced his collaboration with a woman developing vaginal probiotics for those suffering yeast infections. In a presentation, he told an audience that “the idea is to get rid of UTIs and yeast infections and change the smell of the vagina through probiotics”. This was reported as a “start-up dude” wanting to “make women’s private parts smell like ripe fruit”.

Storr seems to feel that Heinz was treated badly as his poor phrasing got sucked into a wider narrative of Silicon Valley sexism and privileged cluelessness. “To excoriate anyone for working on this specific area would seem eccentric at best: over-the-counter products for vaginal odour have been available in pharmacies for years, and nobody accuses their manufacturers of hating women,” he adds, ignoring the vast body of feminist critique of a beauty industry that convinces women that their bodies are gross and flogs them stuff to “fix” it.

It might appear that I’m quibbling here, but inevitably the line of argument reminded me of Jon Ronson’s choice of interviewees for his book on viral outrage, So You’ve Been Publicly Shamed. These included the journalist Jonah Lehrer, sacked from the New Yorker after a plagiarism scandal, who emerged as a battered and regretful figure. It’s always easier to empathise with people when we can see ourselves in them or imagine ourselves in their situation.

Ronson found it easy to justify sympathy for a well-known writer who insisted he’d genuinely made a error. Storr similarly tilts us towards the hounded perfectionist with bad social skills and against the ghastly press.

When you see the sleight of hand, though, it bumps you out of treating him as an omniscient, objective narrator. Perhaps that is fitting: after all, he’s just spent 300 pages convincing us that who we are shapes how we see the world, in ways we don’t even notice.

For this reason, Selfie is profound, uncomfortable, joyful, frustrating, ­fascinating, fragmented, inspired, heartbreaking, and occasionally riven with internal contradictions. Just like a person, really.

Selfie: How We Became So Self-Obsessed and What It’s Doing to Us
Will Storr
Picador, 416pp, £18.99

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 22 June 2017 issue of the New Statesman, The zombie PM

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