Economists and Rocky IV

Rocky IV was the last film I saw in the cinema with my father.

It was the last film we saw together because I was a teenager – partly because I was delusionally defensive during a debate about the quality of the film – and partly because it was the last time that he and I weren’t too embarrassed to be seen with each other for a few years.

My father came from a small village in Wales and was a very high achiever at the Inns of Court before leaving law to become a corporate finance manager. His vast knowledge of the world of money and his frequent urging of me to understand cash flow is no doubt why I am so interested in economics today.

I wonder if he would agree with me today about Rocky IV as a perfect analogy for the way some economists have succeeded and failed in recent years?

If you’re not familiar with the plot, Rocky is a working class boxer from a tough neighbourhood who has to fight the state-pampered Russian Ivan Drago. I won’t bore you with the details, but, in brief, Rocky chooses to train in the woods, lifting logs, running up mountains and pulling sleighs through the snow. Whereas Drago trains with scientific equipment and a huge team of doctors monitoring his every move. And (spoiler alert) Rocky wins.

The analogy is not a subtle one. Some of the analytical economic modellers of the last decades have failed despite their phenomenal advances in the mathematical part of the social science. While the scientific analysis has improved, it has failed to prevent the Great Recession – made worse by Drago-esque hubris. But on the other side, the Rocky Balboas – or those who have trained in the real world, not the lab – ie economists from the pre-econometrics-obsessed behaviourist tradition (the on-the-floor bankers and Keynesians(?!)) – have come through on top. (For a great exposition on where some economists have applied theory appropriately since the Great Recession read this superb Krugman post.)

That was all I had intended to write. But once you start looking at the film, the contradictions come thick and fast.

The message from the film is that Americans are real people who see the world differently from the cold Russians. In the film, Drago is depicted as a ruthless robot, even stating after knocking out Rocky’s friend, “If he dies… he dies.” The irony is that that cold lack of empathy feels distinctly Laffer-esque.

Too much? No. Arthur Laffer was one of the most influential economists of the 80s. He and his ilk are ruthless in their shrugging off of their responsibility to those in need. Their economic analysis treats human beings as labour units, or as expendables. (I feel another Stallone film-based blog coming on!) For my full feelings on Arthur Laffer read this.

And yet, Rocky is the true fantasy child of Reagan and Thatcher. He rises from the bottom to the top – the perfect depiction of the American dream.

And yet… despite being rich and the greatest boxer in America, he still lives in the slums. He knows his place. To be rich is perceived as somehow unsavoury to the morally upright Rocky. The true American hero stays poor – it is a badge of honour.

This mixed messaging from 1985 is fascinating – and a key part of the problem of the way in which America saw / sees itself.

Extra thought added 4th April 2015

For a more complex discussion about economic modelling try Simon Wren-Lewis’s post.

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