Posted At : April 20, 2011 7:43 AM Posted By : Satyajit Das
Related Categories: Book Reviews
John Quiggin (2010) Zombie Economics: How Dead Ideas Still Walk Among Us; Princeton University Press, Princeton and Oxford
R. Christopher Whalen (2011) Inflated: How Money and Debt Built the American Dream, John Wiley, New Jersey
Michael E. Lewitt (2010) The Death of Capital: How Creative Policy Can Restore Policy, John Wiley, New Jersey
“Mortmain”, derived from medieval French meaning “dead hand”, refers to legal ownership of property in perpetuity. Jurisprudence, to varying degrees, has sought to prohibit the control of property by the “dead hand”. Unfortunately, economic thinking seems to be controlled by dead economists or as John Quiggin, himself an economist, argues – “living dead” economists.
In “Zombie Economics”, Professor Quiggin takes aim at a number of “dead” ideas – the Great Moderation; Efficient Markets Hypotheses; Dynamic Stochastic General Equilibrium; Trickle Down Economics; Privatisation. The central thesis underlying “Zombie Economics” is that the global financial crisis (“GFC”) exposed the weaknesses of these ideas, which underpin free market or neo-liberal economics. But as William Faulkner argued: “The past is never dead. It’s not even past.” Worried that these ideas continue to live on in the minds of economist and politicians influenced by them, Professor Quiggin wants to kill them off.
Clever titled, with a wonderful and very un-academic cartoon cover and written without excessive use of technical jargon, “Zombie Economics” provides an elegant critical introduction and analysis of some of the key ideas of modern economic thought. The arguments are generally thorough, though lack depth reflecting the brevity of the work (around 200 pages). Professor Quiggin’s personal sympathies, which are politically left of center, are never hidden.
Two recent books – John Cassidy’s (2009) “How Markets Fail: The Logic of Economic Calamities” and Justin Fox’s (2009) “The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street” – cover similar territory. Professor Quiggin’s economics training makes “Zombie Economics” far less character or narrative driven and far more interesting in its understanding and criticism of the theory.
The most interesting thing about “Zombie Economics” is actually its lack of interest in why the weaknesses in the theory, much of which has been recognised for years, does not preclude its acceptance. The answer most likely lies in politicians and ultimately the electorate need for simple painless remedies and nostrums. For example, Professor Quiggin’s criticism of privatisation of infrastructure does not seem to recognise the obvious driver of this policy – political expediency of circumventing public finance constraints.
The interesting thing, of course, is that any “new” idea that takes the place of the “zombie” ideas is not likely to be an improvement. Perhaps homo economicus and homo politicus is like David St. Hubbins in the satiric film This is Spinal Tap: “Before I met Jeanine…my life was cosmologically a shambles. I would use bit and pieces of whatever Eastern philosophy would drift through my transom.”
Christopher Whalen’s “Inflated” deals with one aspect of zombie economics – inflation. Changes in price level are ambiguous at best. Even measuring it can present considerable challenges – some years ago, Argentina consciously decided to exclude items where the price rise was particularly high on the basis that no one could afford to buy such products, justifying their irrelevance to the measured inflation rate. Government everywhere, similarly, manipulate inflation measures.
The real issue about inflation, however measured, is its use as a policy tool. The popular economic narrative assumes that inflation is an outcome of economic activity. In reality, it is a key weapon in policy maker’s armoury. Throughout history, governments have used inflation to wipe out excessive debt, a practice that is now central to the policy of the Bernanke Fed to reduce systemic leverage. cont’d at the source …click!