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"God is alive," Leonard Cohen intoned prophetically back in the secular sixties. "Magic is afoot."

And so it came to pass as the fateful millennium arrived, with God energetically resuming his domination of global politics, and magic burning up the bestseller lists like some mystical flame that consumeth not, nor – to the delight of embattled publishers – is it ever consumed.

The literary spell first cast by magician J.K. Rowling seems only to have increased its power since the retirement of her game-changing young hero, overwhelming barriers of age, genre and taste as it spreads to infect television (HBO's epic Game of Thrones) and film (Woody Allen's Midnight in Paris).

This summer, author George R.R. Martin's A Dance with Dragons, the fifth instalment in a medieval fantasy series that includes A Game of Thrones, sold 300,000 copies on the first day of its release. Three months later, the thousand-page tome sits at No. 7 on The New York Times list of bestselling hardcovers, making room for the latest fantasy breakout – The Night Circus, a first novel by Bostonian Erin Morgenstern – which now occupies the No. 2 spot on the same list.

Handsomely packaged and heavily marketed, The Night Circus is an atmospheric tale of two rival magicians conducting an epic duel as they travel Europe in a mysterious circus, which opens only at night and somehow contains infinite worlds within its circle of tents. Its startling success is the latest evidence of 21st-century readers' boundless appetite for escape into other worlds, freed from the baggage of day-to-day life in a dreary here-and-now.

"I like books that feel like places to go to, books that really have that escapist feel," Morgenstern said in an interview in Toronto this week, struggling to explain the method that brought her such unexpected success. A theatre graduate with no professional writing experience, Morgenstern spent years working up long, elaborate descriptions of her magic circus before giving much thought to character and plot – which she filled in later, on the advice of her agent and editors.

What mattered most to her was to create "a book that feels like it's elsewhere" – an instinct that led her straight to the literary jackpot.

Twenty years ago, "elsewhere" was almost always outer space, and the ruling genre was science fiction. With its emphasis on old-fashioned sorcery, however, The Night Circus is a natural product of the current era. "I joke that I was reading Harry Potter when I was 21 and Stephen King when I was 12," Morgenstern says, "so that probably shaped my literary development in strange ways."

But it would be a mistake to dismiss such efforts as childish when compared to conventional novels of social realism, many literary critics say – most recently Margaret Atwood, who offers an engaging defence of the weird and the woolly in her upcoming book of essays, In Other Worlds: SF and the Human Imagination.

Drawing regularly on the author's own childhood memories of obsessively reading semi-respectable stuff in a cold northern cellar, Atwood's essays present a multilayered argument in favour of magic in fiction, suggesting that what's really weird (and perhaps passé) are the upstart conventions of social realism. In an essay excerpted and lavishly illustrated in this month's Playboy, she looks beyond Emma Bovary to discuss the mythic origin of that classic sci-fi siren, "the girl in the brass brassiere."

"The most successful of those kinds of books – and the ones we reread – are those that appeal to children on one level and adults on another," Atwood said in a recent interview. "You read Treasure Island as a 10-year-old and it's very exciting; you read it as a 50-year-old writer and it's a masterpiece of style."

Robert Louis Stevenson began that book by drawing a map of an imaginary place for fun, according to Atwood, not planning to write a story to go with it – the same process Morgenstern used to produce The Night Circus.

"I think readers like it because of that sense of a place to go to," Morgenstern said of her own novel. "People want to go to the circus. It captures the imagination." And, if successful, the experience of being there "renews a sense of wonder, and that's a wonderful thing to have."

Lev Grossman, author of 2009's The Magicians and this year's sequel, The Magician King, entered the same terrain from a decidedly different direction than did Morgenstern. The son of two English professors, a veteran of graduate studies in comparative literature and currently lead book reviewer for Time magazine, Grossman embraced fantasy in a self-conscious act of literary rebellion.

"I never felt more avant-garde than when I started to write fantasy," the author said in an interview. "I never felt like I was challenging the received wisdom and the patriarchal hegemony so much as when I was writing about people casting spells."

The Magicians – Grossman's third novel but first attempt at fantasy – is a "three-way Stoppardian mud-wrestle with J.K. Rowling and C.S. Lewis," according to the author.

"I have nothing against escapism, which I'm quite fond of," Grossman says. "But I think it's a mistake to dismiss fantasy as mere escapism. That's a misunderstanding of what fantasy is and what it does for people."

Atwood suggests that fantasy has overtaken science fiction because science today moves too fast for its would-be portraitists. Grossman sees the shift as a generational reaction against "very weird and alien" digital technology. "There's a real longing among a lot of people to try to connect ourselves to the natural world in a way we're not, right now," he says.

But the new magical realms are no hippy-dippy free-for-alls. The cardinal rule, according to both Morgenstern and Grossman, is that nobody can wave a wand and make the world right. Classic fantasy worlds "are not worlds without problems," according to Grossman. "They're not worlds without loss and grief, and they're not worlds where magic makes everything okay."

What there is, he suggests, is a luminous mirror image of the everyday world: "When you set out into a fantasy world, you leave reality behind, only to re-encounter it in a way that's new or transformed, so at first you don't recognize it. But you are in fact wrestling with the same problems you wrestle with in real life. It gives you new ways of understanding them."

Like Atwood, Grossman questions the common 20th-century view that, to be serious, literature must obey the laws of mundane reality. "I almost think that's an aberration, and what we're seeing now is a bit of a correction," he says, "literature going back to business as usual."

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