Zombie Economics: How Dead Ideas Still Walk among Us

Zombie Economics: How Dead Ideas Still Walk among Us

John Quiggin

Language: English

Pages: 288

ISBN: 0691154546

Format: PDF / Kindle (mobi) / ePub

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.

In a new chapter, Quiggin brings the book up to date with a discussion of the re-emergence of pre-Keynesian ideas about austerity and balanced budgets as a response to recession.













decade, it’s hard to see how Sumner maintains his own faith, and he Zombie Economics_pages.indd 66 3/04/12 5:34 PM THE EFFICIENT MARKETS HYPOTHESIS 67 never really gives an explanation, except to say that it’s easy to misperceive bubbles. As far as macroeconomics is concerned, the experience of the Great Depression and of the current Global Financial Crisis (which as Sumner implies, really began with the 2001 recessions) is pretty strong evidence that market liberalism is not the right

zombie movie is the moment when zombies who seem to have been blasted into the next world by the hero’s shotgun, pull themselves up from the ground and come shambling forward. In the writing of this book, that moment came for me when I read Casey Mulligan’s paper “Aggregate Implications of Labor Market Distortions: The Recession of 2008–9 and Beyond.” Looking at the way in which Real Business Cycle theorists have tried to write the Great Depression out of macroeconomic history, presenting it

1980s onward, the gains in equality were reversed. This occurred partly as a result of the changes in the distribution of market incomes. Profits grew at the expense of wages, and the distribution of wages became more unequal. Changes in market income were reinforced by public policy. The steeply progressive income tax rates of the postwar era were replaced by a flatter tax system. Maximum rates were cut to 40 percent or less. Initially, and to some extent even today, these measures were

for reasons that are totally outside your control, understanding, or prediction. This is where a concept of autonomy does better than liberty, negative or positive. To have autonomy, you must be operating in an environment that is reasonably predictable and amenable to your control. The environment consists largely of other people. So one way of increasing your autonomy is by reducing that of other people, for example, by moving up an existing hierarchy at their expense. Similarly, when employers

standard package of policy reforms recommended by bodies like the IMF. There has been little serious effort to reconsider the theoretical rationale for these policies or to ask who gains and loses from their implementation. LIFE: A POLICY IN SEARCH OF A RATIONALE A Policy in Search of a Rationale From its earliest days, privatization was described as a “policy in search of a rationale.” Actually the problem was not so much the absence of a rationale as the presence of too many. As with the war

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