Zombie Economics: How Dead Ideas Still Walk among Us [Hardcover]

John Quiggin (Author)

Book Description

Publication Date: September 13, 2010

In the graveyard of economic ideology, dead ideas still stalk the land.

The recent financial crisis laid bare many of the assumptions behind market liberalism--the theory that market-based solutions are always best, regardless of the problem. For decades, their advocates dominated mainstream economics, and their influence created a system where an unthinking faith in markets led many to view speculative investments as fundamentally safe. The crisis seemed to have killed off these ideas, but they still live on in the minds of many--members of the public, commentators, politicians, economists, and even those charged with cleaning up the mess. In Zombie Economics, John Quiggin explains how these dead ideas still walk among us--and why we must find a way to kill them once and for all if we are to avoid an even bigger financial crisis in the future.

Zombie Economics takes the reader through the origins, consequences, and implosion of a system of ideas whose time has come and gone. These beliefs--that deregulation had conquered the financial cycle, that markets were always the best judge of value, that policies designed to benefit the rich made everyone better off--brought us to the brink of disaster once before, and their persistent hold on many threatens to do so again. Because these ideas will never die unless there is an alternative, Zombie Economics also looks ahead at what could replace market liberalism, arguing that a simple return to traditional Keynesian economics and the politics of the welfare state will not be enough--either to kill dead ideas, or prevent future crises.

Editorial Reviews

Review

This book is certainly a good read for anyone eager to know why it is urgent that economists come up with a socially useful body of thought or suggestions. (Shanghai Daily )

Entertaining and thought-provoking. . . . [W]orks as a good summary for non-specialists of how the economics debate has developed. (Philip Coggan Economist )

Quiggin is a writer of great verve who marshals some powerful evidence. (Financial Times )

Lucid, lively and loaded with hard data, passionate, provocative and . . . persuasive. . . . [Zombie Economics] should be required reading, even for those who aren't Keynesians or Krugmaniacs. (Glenn C. Altschuler Barron's )

Apparently some economists have a sense of humor, dismal though it may be. Quiggin uses the 2008 global financial crisis as the focal point for examining five core macroeconomic and financial theories that have been--to use zombie terminology--killed by our current predicament. . . . Economics students and interested lay readers will find this valuable. (Library Journal )

Erroneous economic ideas resemble the living dead, writes John Quiggin in his smart new book Zombie Economics. They are dangerous yet impossible to kill. Even after a financial crisis buries them, they survive in our minds and can rise unbidden from the necropolis of ideology. (James Pressley Bloomberg News )

The financial crisis has disproved many cherished tenets of 'market liberalism', such as the 'Efficient Markets Hypothesis', yet these zombie ideas still shamble through newspapers and journals. Enter economist Quiggin, calmly wielding dual shotguns to blast them relentlessly in the face. . . . As Quiggin explains with elegance, lucidity and deadpan humour, the undead ideas here are interconnected: killing one causes it to knock over another in a sort of zombie-dominoes effect. (Guardian )

Zombie Economics is . . . a highly readable and sobering assessment of the role played by discredited economic ideas in the global financial and economic meltdown of 2008-09. Quiggin delves deeply into the origins and development of all the star culprits so loved by the economic right in recent decades: from the efficient markets hypothesis to privatization and Real Business Cycle Theory. None has stood up to the stern test posed by real markets and economies in crisis. Yet most live on, still featured in many curriculums and advocated by those academics who have staked their careers on them. (Globe & Mail )

It's hard to resist a book called Zombie Economics, and University of Queensland professor John Quiggin makes his tale as compelling as his title. . . . It's the rare read that's both thoughtful and fun. (Biz Ed )

[A]n excellent new book. (Jessica Irvine Sydney Morning Herald )

I haven't done justice to Quiggin's book, so if you're interested in a readable exposition of the exploits of academic economists over the past 35 years I recommend it highly. It's the story of how economists forgot much of what they knew. Please, guys, don't do that again. (Ross Gittins Sydney Morning Herald )

As well as exposing how these flawed ideas brought on the global crisis and how they live on, Quiggin offers his view on a new way forward in economic theory. It's time to bury the zombie. (Fiona Capp The Age )

From the so-called 'great moderation' concept to the implications of the efficient markets hypothesis, Quiggin does an excellent job summarizing each zombie idea and explaining why it is discredited in a simple (but not simplistic) manner. (Choice )

[Cogent] and readable . . . (The Nation )

Cleverly titled, with a wonderful and very un-academic cartoon cover and written without excessive jargon, Zombie Economics provides an elegant critical introduction and analysis of some of the key ideas of modern economic thought. (Satyajit Das Naked Capitalism blog )

Put a bullet through the decaying brain of walking-dead economics by reading Quiggin. (Seth Sandronsky SN&R )

Peppered with humorous quotations, theory and history, Quiggin has assembled a compelling read about the misguided intellectual economic assumptions of the last forty years and also gives possible solutions to our current financial dilemma. (Stamas, Bullfax.com )

I encourage my colleagues in sociology, psychology, and management to read this book and leverage it to lead to a more integrated social science and, perhaps, a more socially aware economic science. (Brent Goldfarb Administrative Science Quarterly )

From the Inside Flap

"Killing vampires and werewolves is easy enough. But how does one slay economic zombies--ideas that should have died long ago but still shamble forward? Armed with nothing but the truth, John Quiggin sets about dispatching these dead ideas once and for all in this engaging book. Zombie Economics should be required reading for those who would dare reanimate the economic theories that brought us to the edge of ruin."--Brad DeLong, University of California, Berkeley

"Tempted to tangle with your libertarian uncle or your Wall Street Journal bromide-spouting coworkers? If so, this book will arm you to rebut the clever phrasemaking and slippery reasoning that has allowed dead constructs like 'trickle down economics' to soldier onward. Quiggin's clear, elegant dissection of wrongheaded notions will appeal to both lay readers and academic economists."--Yves Smith, author of ECONned: How Unenlightened Self-Interest Undermined Democracy and Corrupted Capitalism

"Zombie Economics provides a unique and comprehensive discussion of the ideas that failed during the recent financial crisis. But the book contributes much more. Its discussion of how macroeconomics developed, and the ideology that has grown up around it, is every bit as important and interesting."--Mark Thoma, University of Oregon

"This is a terrific book. Quiggin is an engaging writer, and the combination of quotations, history, theory, and hard evidence makes the book quite a page-turner."--Andrew Leigh, Australian National University

See all Editorial Reviews

Product Details

• Hardcover: 216 pages
• Publisher: Princeton University Press (September 13, 2010)
• Language: English
• ISBN-10: 0691145822
• ISBN-13: 978-0691145822
• Product Dimensions: 6 x 1 x 9 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 3.5 out of 5 stars  See all reviews (35 customer reviews)
• Amazon Best Sellers Rank: #514,164 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

119 of 130 people found the following review helpful

5.0 out of 5 stars great book that will illicit wildly negative, but undeserved reviews December 11, 2010

By D. J. Albers

Format:Hardcover|Amazon Verified Purchase

this book offers a very good critique of how the research program of macroeconomics for the last 40 or so years has been, largely, a failure. while it is true that the author is not always careful or complete with respect to some of his definitions (for instance, the efficient market hypothesis has different interpretations/statements in, say, finance versus freshwater economics --- finance folks, by the way, have dismissed the efficient market hypothesis decades ago), most of his points/explanations are clear enough to understand. HOWEVER, it is worth noting that economics can be extremely politicized; the one star reviewers are a cases in point; much of modern macro ends up having policy implications, and thus a lot of work, some of it very technical, was done with an ax to grind. and, if you have an ax to grind, well, evidence that throws a wrench in your machinery is dismissed, discarded, or, in some cases, claimed as stupid. this is a very embarrassing book for the economics profession, and is a very embarrassing book for folks who pedal a particular brand of right-wing economics, which is why it gets some of the negative reviews. but, that is one of the many compelling reasons to read it. moreover, this book is, with a few exceptions, honest, and correct and the author backs up his claims with a hell of a lot of references. in fact, for econ students looking for thesis problems, this book is a gold mine. in any event, to gain clear picture of why economics hasn't had much to say about the world since early 2008, and what is wrong with modern macro, read this book. really.

73 of 83 people found the following review helpful

4.0 out of 5 stars Good Thoughts! November 10, 2010

By Loyd E. Eskildson HALL OF FAME

Format:Hardcover

A zombie idea, per Quiggin, is one that keeps coming back, despite having already been killed. That seems like an apt description of where we're headed now - eg. resuscitating free market ideology after the 'Great Recession' caused by - free markets. The truly paranoid can be extra worried recalling Milton Friedman's statement that "our (true free-market enthusiasts) basic function is to develop alternatives to existing policies, and to keep them alive and available until the politically impossible becomes politically inevitable." Worst of all, some hold a suspicion that conservatives are committed to bringing about such crises if they don't naturally occur. Zombie economic ideas highlighted in the book include privatization, the 'Efficient Market Hypothesis,' the 'Laffer Curve,' and 'Trickle-Down Economics.'

I was particularly intrigued by the author's pointing out that restrictions on the dismissal of workers or requirements for sizable separation packages are the most vilified supposed obstacle to improved economic performance, yet those protesting the loudest ignore the one-sided bonuses, options, and pay without performance packages for the leaders who usually cause the worker layoffs. In case that isn't rich enough, there's also option repricing and backdating, golden parachutes, and gross overpayment vs. foreign firms, while offshoring millions of American jobs to save money. (In 2008, the world's largest bank - ICBC, market capitalization of $250 billion, paid its CEO $235,000, vs. J.P. Morgan with a capitalization of $158 billion, paying $19,651 million to its CEO. In 2009, all Toyota executives together received less than Ford's CEO.)

The 'Efficient Markets Hypothesis' implies that private enterprise will always outperform government. Contrary evidence includes the LTCM bailout, the dot-com collapse, and now the Great Recession.'

Neither the 'Trickle-Down' theory now the Laffer Curve offer limits on how far to take the theory. Thus, per the enthusiasts, we can never treat the rich too generously with tax avoidance (or most anyone else, for that matter), nor ever run out of increased tax revenues from lowering taxes. Both are obviously silly positions. Meanwhile, despite the benefits of trickle down, inequality in America has considerably increased in the last four decades - directly undermining the theory. Contending, eg. that supporting evidence is supplied by the poor in the 1990s being more likely than the average household in the 1970s to have a wash machine, dryer, dishwasher, refrigerator, color TV, PC, and/or phone ignores major price cuts for those products and ignores major increases for others - eg. university education and housing. It also ignores the role of increased debt. International data show the U.S. has the lowest social mobility on nearly all measures, while the often despised European social democracies the highest.

Quiggin is far from convinced of the innate benefits of privatization, conceding it works poorly in some instances (small and medium-sized businesses), and often much better for large enterprises - especially in transportation or public utilities. He identifies instances where privatized enterprises have been re-nationalized after economic failure or poor service provision (eg. railways, airlines, hospitals), but also too easily slides over problems with public employees (especially teachers, public-safety staff) leveraging excessive wage and benefit payments. Russia has suffered a major privatization failure, with extensive looting of public assets via those linked to the government. The same occurred in China, to a much more limited extent, and there are numerous complaints in South America about water, etc. privatization. Chile privatized Social Security, leading to much higher administrative charges and unsatisfactory benefit levels, despite government spending on pensions remaining at over over 25% of the total budget.

Quiggin points out that public entities have a financing advantage - funders look for much higher rates of return from private entities than they expect from public bonds. China may offer lessons in this area - it has kept large sectors of its economy in government hands or control, and manages to still be quite competitive.

57 of 65 people found the following review helpful

5.0 out of 5 stars Evil Dead December 22, 2010

By S. H. Swenson

Format:Hardcover

Quiggin is a good writer and by all accounts a very good economist. His problem is that he doesn't understand how you fight zombies, and he seems confused about what zombies are.

Zombies, you see, are ex-people, not ideas. Ideas, both true and false, are the life's blood of a field. Often more is gained from showing that an idea is false than by showing an idea is true. The Zombies (in the sciences at least) are ex-scientists who have had their brains lost, sold or eaten. You can recognize them by the way they promote obvious garbage without a hint of shame. Often while they are speaking at a conference, the audience members will have a contest to see who can find the most egregious blunder. They are generally pitied, but not to the extent that we publish their nonsense (ok sometimes their nonsense does get published, but then there is a big scandal and the offending member of the editorial board of the journal resigns in disgrace) or allow them to propagate.

The economics profession is an example of what happens when the zombies propagate unchecked. The entire fresh water school and many of the top journals have been taken over by zombies. Quiggin does an excellent job of eviscerating most of the false ideas propagated by the zombies, he shows how wrong these ideas were and even shows how most of them where known to be false long before now.

One minor quibble with his treatment of the EMH. While it has always been clear that the strong form was false, he seems to give the weak form a pass. The problem is that the weak form is every bit as false as the strong form. In the presence of massive leverage, a sharp downward drop will cause massive margin calls and this will cause a massive drop in the price. We observed this in action in the fall of 2008, and short sellers made a mint on this observation. Quiggin says that you cannot make money consistently in this way. Yes, that is true because such an event is followed by a depression, and then you have to wait for the start of the next depression before you can do it again. If the liberals are in power, that should be 70+ years (1929-08), so you would have to be a vampire to manage this more than once. If the conservatives are in power, you should only have to wait about 15 years, so the living can do this multiple times. However the weak form of the EMH is still false. In the real sciences, it only takes one counterexample to show that a theory is false.

One interesting point in the book is where he talks about how the Keynesians altered their theories in light of problems with inflation expectations. (Altered them too much as it turns out.) This is what non-zombies do. If you believe the same thing on Wednesday as you did on Monday no matter what happened on Tuesday, then you might be a zombie.

The book that Quiggin should have written is the one describing how the zombies took over economics. This is the more interesting story I think. The zombies in Economics are different than the zombies in other fields, where they are mostly insane or senile. In Economics, the zombies have made a conscious choice to be zombies. They have, in effect, sold their own brains. I think this subject is ripe for economic analysis. The wealthy have benefited enormously from the ideas put forth by the zombies (the rich should always pay less taxes for example) and they have showered money on the fresh water zombies and their schools. It would be interesting to examine how much return they have achieved on their investment.

It would also be interesting to document how the fresh water schools go about destroying the brains of their students. The most egregious example that I am aware of is the intro course at UC where the students are told that the best way to decide who should get an education is by who can pay the most. None of the recent presidents, except the Bushes, would have been educated, and I guess that is the point. I would imagine that a student in that class would either leave, eat his own brain, or willingly sell his brain when the price was right.

Also Quiggin doesn't seem to understand how one should deal with zombies. He seems to think that by politely pointing out that the zombies are promoting false ideas, he will convert the zombies back into people. Unfortunately that isn't how zombies work. He needs to watch "army of the dead" or "Zombieland" to get an idea of the proper method of polite discourse with a zombie. Here`s hoping that Quiggin and the other living economists can mange to purge the zombies and rescue the field of economics. The economy of the world is depending on them.