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Guided by an invisible hand

The bank meltdown marks a turning point in our thinking about how the world works writes the Nobel L

Make no mistake: we are witnessing the biggest crisis since the Great Depression. In some ways it is worse than the Great Depression, because the latter did not involve these very complicated instruments - the derivatives that Warren Buffett has referred to as financial weapons of mass destruction; and we did not have anything close to the magnitude of today's cross-border finance.

The events of these weeks will be to market fundamentalism what the fall of the Berlin Wall was to communism. Last month in the United States almost 160,000 jobs were shed - making more than three-quarters of a million this year. My guess is that things will get considerably worse. I have been predicting this for some time, and so far, unfortunately, I have been right.

There are several reasons for my pessimism. The extreme credit crunch is a result of the banks having lost a lot of capital. And there is still uncertainty about the value of the toxic mortgages and other complex products on their balance sheets. The US economy has been fuelled by a consumption binge. With average savings at zero, many people borrowed to live beyond their means. When you cut off that credit you reduce consumption. This, in turn, will dampen the US economy, which helps keep the global economy growing. The American consumer has not only sustained the US economy, he has sustained the global economy. The richest country in the world has been living beyond its means and telling the rest of the world it should be thankful because America fuelled global economic growth.

There are further reasons for my pessimism about short-term economic prospects, in America and Europe. In the second quarter of this year, growth in the US would have been negative were it not for the growth in exports. But with the slowdown in Europe and problems in Asia it is difficult to see how we can maintain net export growth. The strengthening of the dollar - due not to greater confidence in the US but to reduced confidence in Europe - will make matters worse. The fall of energy prices will help a little, but not enough.

Treasury Secretary Hank Paulson has now come up with a new bailout scheme. The original plan - buying up the thousands of "troubled assets" (read: bad loans and complex products based on them that Wall Street created) - was badly designed and rife with problems. How would they have been priced? Call in the same Wall Street experts who got us into the mess and mispriced risk before? It is a heads I win, tails you lose situation.

The worry is that the taxpayer will be left holding the short end of the stick.

The British approach, which Paulson seems to be following, is far better, involving capital injections into banks, with preferred shares to protect against losses and warrants to share in some of the upside potential. This is the approach that I - along with most US economists and people with good street sense, like George Soros - had been saying America should adopt.

Ironically, though Paulson wouldn't listen to us, he seems to have listened to Gordon Brown.

Many of the problems our economy faces today are the result of the use of misguided models. Unfortunately, too many took the overly simplistic models of courses in the principles of economics (which typically assume perfect information) and assumed they could use them as a basis for economic policy. Many central banks use the notion of inflation targeting - that they should focus exclusively on inflation, raising interest rates when inflation increases. But I would argue that central banks have a broader responsibility; they are supposed to ensure the stability of a country's economy. While monetary authorities in the US and elsewhere focused on price stability, they allowed the financial system to undertake risks that put the whole economy in jeopardy.

This crisis is a turning point, not only in the economy, but in our thinking about economics. Adam Smith, the father of modern economists, argued that the pursuit of self-interest (profit-making by competitive firms) would lead, as if by an invisible hand, to general well-being. But for over a quarter of a century, we have known that Smith's conclusions do not hold when there is imperfect information - and all markets, especially financial markets, are characterised by information imperfections. The reason the invisible hand often seems invisible is that it is not there. The pursuit of self-interest by Enron and WorldCom did not lead to societal well-being; and the pursuit of self-interest by those in the financial industry has brought our economy to the brink of the abyss.

No modern economy can function well without the government playing an important role. Even free marketeers are now turning to the government. But would it not have been better to have taken action to prevent this meltdown? This is a new kind of public-private partnership - the financial sector walked off with the profits, the public was left with the losses. We need a new balance between market and government.

Professor Joseph E Stiglitz is chair of the Brooks World Poverty Institute at the University of Manchester and a 2001 Nobel prizewinner

This article first appeared in the 20 October 2008 issue of the New Statesman, My year with Obama

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The Okay Place: the psychological value of mediocre TV

Why do we watch comedies that don’t make us laugh?

I’ve been watching Brooklyn 99 on the train. The comedy cop show makes me laugh roughly once an episode, but nonetheless I watch it compulsively. I watch it on my commute, and I watch it while cooking dinner. It’s in the background when I’m paying my bills. I consumed so many episodes last night, Netflix sent me its most notoriously judgemental pop-up: “Are you still watching?”

Yes, Netflix, I was still watching. The real question was: why?

Brooklyn 99 doesn’t really make me laugh, and it’s far from the most critically-acclaimed show available on the streaming service right now. It’s not technically mediocre – the sitcom has won two Golden Globes – but it is to me*. It provokes the same feelings in me as Netflix’s The Good Place, a kitsch sitcom set in the afterlife. I am compelled to watch at all costs, but on the whole unamused and occasionally frustrated by formulaic storylines. (Sometimes, The Good Place even makes me cringe.)

I enjoy both shows, sure, but I don’t love them. So why am I wasting my time?

(*Because this is the internet, it's a good time to specify that "mediocre" here means in the view of the person being quoted, not objectively.)

“To understand why people are drawn to certain shows, it’s helpful to look at the type of feelings the shows elicit,” says Elizabeth Cohen, a media psychologist and assistant professor at West Virginia University. Cohen says media often has a “mood management function”, in that we use it to make ourselves feel better.

“Sometimes we are looking to be emotionally stimulated, so we might choose to watch something that we think will thrill us,” she says. “But other times we might decide to forego the dark cerebral drama on our DVR and opt for a safe sitcom instead. That could be because we need something that will help us wind down, relax, and boost our mood.”

Photo: Netflix

A desire to unwind is one of the reasons Oliver Savory, a 30-year-old grad student from London, watches The Big Bang Theory, a comedy that has inspired much ire.

“It fills a niche of something to watch while eating, when you can’t focus fully, or you’ve just got in and want to unwind without thinking too hard,” he explains. Oliver says “average” TV comforts him more than “good” TV because he doesn’t have to worry about keeping up to date. “Good TV you have to make time for, average TV can fit around your own schedule without imposing itself.”

Cohen says this is referred to as “comfort food TV”, the entertainment equivalent of eating boxed mac and cheese even if you have the recipe for mum’s spaghetti. “These are shows that people watch not because they are exceptional in quality, but because they are simple, predictable, or nostalgic.”

Sometimes, we watch “okay” shows because we feel they have the potential to be great. Karen Dill-Shackleford is a media psychologist who explains this was her experience with The Good Place.

“I love The Good Place, but there was a stretch when I thought it was poor,” she says. “I kept waiting for it to right itself because I thought it had real potential.”

The potential many of us see in the show is its fresh premise, and its engagement with moral philosophy. As Dill-Shackleford puts it: “[the show] is a palatable way to ponder life’s biggest questions. So, even if the jokes are lame, the potential for real value is still there.”

Charlotte Mullin, a 23-year-old illustrator, says she doesn't laugh at the jokes either. “But what keeps me watching is the premise, and the characters. I’m a sucker for good character development, and The Good Place has it in spades,” she says. (Cohen tells me she does laugh at The Good Place, once again illustrating that mediocrity is in the eye of the beholder.)

Photo: Netflix

Ross McCafferty is a 27-year-old journalist from Glasgow who couldn’t tell you anything about NBC’s Parks and Recreation, even though he’s seen every episode. During a difficult time at work, he consumed the entire show.

“It’s actually quite a derivative, even mediocre show,” he says. “But I still ate it up, because at the time it was oddly comforting to me, self-contained and uncomplicated and unobtrusive, like so little in my life at that time.”

The reasons McCafferty liked the show, he says, is because it was “nice”, “brightly lit”, “nonthreatening” and “so sweet it was cloying”.

Bright lights and pretty colours certainly feel like one of the reasons I keep going back to mediocre sitcoms, but I also find comfort in certain characters: Chidi in The Good Place and Boyle in Brooklyn 99 are comfortingly familiar – I almost switch on to keep up to date with them, as if they were friends.

George Clarke is a 25-year-old management consultant who finds similar comfort in Seinfeld characters, even though the show doesn’t make him laugh much. “Some days I might fancy Netflix’s latest psychological thriller, but most of the time I’d just prefer to sit and watch Kramer doing something ridiculous or George stuff it up with the girl of his dreams for the fourth time that season,” he says.

But couldn’t Clarke and I find our televisual buds in prestige dramas?

“I find the idea of watching prestige shows non-stop to be exhausting,”  says David Renshaw, a 30-year-old news editor, who jokes it can feel like you “need a map” to keep up with Game of Thrones. When he finishes watching something acclaimed, such as Breaking Bad, he “cleanses the palette” with shows like Masterchef or Gogglebox. “They are much lower maintenance… especially if you’re switching between TV and phone as often as I do.”

Photo: Netflix

The comfort of the mediocre is so powerful that it can often override other emotions, such as the cringing I experience during some of The Good Place’s more strained jokes. Lizzie Roberts is a 25-year-old masters student who enjoys Gilmore Girls even though she dislikes the character Lorelai’s “painfully unfunny monologues”.

“It’s my way of letting my brain reset,” she says of the show, as well as reality TV such as Towie and I’m A Celeb. “It’s not taxing, it’s tolerable.”

“Not taxing and tolerable” are perhaps the words that best sum up the complex psychological reasons we continue to watch mediocre TV during the Golden Age of Television. Streaming services like Netflix are also designed to keep us watching, with episodes auto-playing one after the other (plus it's easier to find a show you've essentially already paid for on the Netflix homepage than go out and hunt for something more prestigious).

Although watching mediocre TV can feel like a waste of time, it does seem to have a psychological purpose. When we're stressed, busy, or tired, it can be exactly the entertainment we need. Nothing is more stressful, busy, or tiring than a commute – so I'll be watching Brooklyn 99 on the train home.

Amelia Tait is a technology and digital culture writer at the New Statesman.

This article first appeared in the 20 October 2008 issue of the New Statesman, My year with Obama