Zombie Economics, John Quiggin, Princeton University Press, Pp 275 (PB), $16.95
Zombies are by definition things that are alive, but they are that after dying. Generally this contradiction of terms implies a deranged, blood thirsty, dumb monster. But what makes zombies really dangerous is that they are just about impossible to kill.
While most of us rest easy knowing that zombies aren’t real, John Quiggin points out that, ideas, on the other hand are just about impossible to kill, and so make the most dangerous zombies of all. “But even when they have proved themselves wrong and dangerous, ideas are very hard to kill. These ideas are neither alive nor dead… they are undead, or zombie, ideas. Hence the title of this book.”
Quiggin raises his argument by drawing attention to the Great Moderation. The Great Moderation, during its reign had everyone convinced that the business cycle tamed thanks to institutional and structural changes. However, Quiggin rightly points out the error of such a thinking, and mentions not only that the Great Moderation was associated with policies that were un-egalitarian and unsustainable. He refers to the thinking involved with the Great Moderation as zombie ideas, however, because, in spite of how thoroughly they have discredited themselves, they live on in the minds of some of the top economists. If verified with the proper econometric tools the great moderation may actually not have happened, with regard to the USA “the average rate of output growth was 4.3 per cent in the 1960s, and only 3.0 per cent in the 1990s. So, expressed relative to the average growth rate, volatility was actually lower in the 1960s. In particular, the implied probability of negative growth rate was lower.”
This way Quiggin tears apart all the arguments raised in favour of the zombie ideas. He next picks up the Efficient Market Hypothesis, which Quiggin explains is the idea, “the Efficient Market Hypothesis says that financial markets are the best possible guide to the value of economic assets and therefore to decisions about investment and production.” While the Financial Crisis of 2008 seemed to disprove the Efficient Market Hypothesis, its defenders seemed no less bully. Other ideas, which by all accounts ought to be dead seemed to plague the land. Quiggin gives due mention to Privatisation, another zombie idea. He elaborates by highlighting the fact that the notion that the private sector can do everything better than the public sector is a dangerous one. The author refutes this statement by giving various examples from around the world and shows that sometimes the public sector needs to take the initiative. He mentions that mixed economies like the United States have produced results superior to either a socialist or private regime. He mentions the fallout of these zombie ideas, such as the Great Risk Shift, Dynamic Stochastic General Equilibrium and Expansionary Austerity, among others.
Another favourite zombie that Quiggin shot down is one that is still taught to students in high school – trickle-down economics. It was one of the zombie ideas and it played a central role in the events of 2011 that led to the ‘Occupy Wall Street’ movement. Along with other zombie ideas, outlined by Quiggin, trickle-down economics was at best a hoax that led to policies which caused the gap between the rich and poor to grow to unprecedented levels. Quiggin brings to light the shift of political power from the people to the people-with-money in a democracy like the United States, by citing “A study by the Centre of Responsive Politics showed that about two-thirds of US senators were millionaires in 2008. There are similar trends in other countries.”
The book is divided into six chapters, each discussing and effectively killing a zombie idea, plus a conclusion drawn from the whole experience. Each chapter stays true to the zombie theme by going through the birth, death and reanimation cycle of each zombie. Quiggin manages to be argumentative, accurate, straight forward and convincing, while on occasion humorous. Certainly a good companion for anyone hoping to navigate the swamps of messy, and failed economic ideas.
Quiggin is a professor of economics at the University of Queensland in Australia. He is also an Australian Research Council Federation Fellow and a member of the Board of the Climate Change Authority of the Australian Government. He got the idea for the book from Animal Spirits, by George Akerlof and Robert Shiller. Quiggin also mentions that his book has been made possible by not just the supporting staff but also by the insightful comments by the thousands of commentators who posted in his blog johnquiggin.com.
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