So, the salient question is: Why didn't Kapuscinski simply publish The Emperor as a fact-fiction hybrid, with a prefatory note? Why didn't Mitchell append a note to the Old Mr. Flood stories in The New Yorker? It's possible that our fixation on fact as highest good and on maintaining the antipodes of journalism and fiction has created a problematically rigid division of genres—one that may encourage writers to lie (and then later come out of the closet, sheepishly, as genre-benders). Understandably, we think we value magazine pieces and nonfiction for their factual truth. But surely the impact of literary journalism derives in part from aesthetic intelligence and authoritative vision. Mitchell's Old Mr. Flood is a world you want to read about not because it's utter fantasy but because it seems real—in fact, it's a world that seems more real, more pressing in its moral accounting than those you find in many well-documented but dull examples of magazine journalism.
So, perhaps the problem is partly that our culture has no label for this kind of work, and that, systematizing creatures that we are, we need labels. Maybe we even need a new magazine genre, somewhere between fact and fiction. As for how and when it ought to be used, the only way to determine the answer would be on a case by case basis; in large part it depends on how worthwhile the result is. A system that asks writers to evaluate their own self-worth (in advance) is not a simple one; take the fact that Truman Capote's rigorous notion of a factually accurate nonfiction novel has quickly given way to a less well-enforced sub-genre, one example of which is Maria Flook's new book about Christa Worthington, a journalist murdered on Cape Cod in 2002. But such a system is theoretically feasible: Fiction writers pillage the lives of friends all the time; we tend to shrug off the negative consequences when the result is Saul Bellow's Herzog or a Robert Lowell poem. Certainly when in doubt, a journalist should assume it's not OK to take licenses like those described here; they're tools to be used rarely. But let's not take Mitchell off the syllabi because other writers lack his judiciousness and talent.
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