Book review: A one-handed economist battles ‘zombies’

Book: Zombie Economics: How Dead Ideas Still Walk Among US
Author: John Quiggin
Princeton University Press
216 pages
Rs985

US President Harry S Truman famously yearned for the services of a “one-handed economist” — because the ones that he knew were forever going “on the one hand… on the other hand.” There’s something about macroeconomics that renders it less than an absolute science, since so much of the outcome of economic activity revolves around the predictability of human behaviour. And what can be more fickle than human behaviour, right?

It’s also said of economists, perhaps a trifle uncharitably, that they share with weathermen the dishonourable reputation of being right only when they are not wrong — and that most often both those classes of professionals are very wrong. Particularly after the financial crisis of 2007-08, there has been, among practitioners of what’s called the “dismal science”, a vigorous churning of the economic ocean to figure out why “no one saw it coming” and what lessons that humbling oversight holds for the future of their practice. Again, there isn’t unanimity of opinions, and there’s still a lot of “on the one hand, on the other hand” equivocation.

There are those who, for instance, argue that the near-meltdown of the US financial markets of 2008 was the direct result of a generation of financial deregulation, giving free markets the licence to be reckless with other people’s money. “On the other hand”, there are those who passionately challenge the notion that the deregulation of the financial markets lies at the core of the crisis; it was, if anything, excessive US government intervention in the US housing market — that kept mortgages artificially and unsustainably low and fed a housing bubble, which later collapsed in a heap — that underlies the financial crisis.

The severity of the financial crisis has provided many more data points for both schools to embellish their arguments and fortify their intellectual positions. Today, we have the nearest thing to a ‘class war’ among economists of different schools in the US. It isn’t just an academic ivory-tower argument or an exercise in intellectual masturbation: that dissonance is reflected very painfully in the real world too, where fat-cat bankers who brought the financial markets to the brink of ruin were rewarded with trillion-dollar bailouts and are back to their ‘big bonus’ ways, and yet Republican legislators are now pushing for social security cutbacks for middle- and lower-income Americans, despite a punishing 10% unemployment rate.

John Quiggin, a professor of economics in the University of Queensland, is clearly a one-handed economist whom Truman would have loved. In his persuasive, polemical book, with its spine-chilling cover (reminiscent of Michael Jackson’s Thriller video), Quiggin narrates a spooky tale of how ‘zombie’ economic ideas — mainstream, free-market theories that had been demonstrably disproved by the financial crisis — are still floating around, like “unliving, un-dead zombies” that are crawling out of the grave.

Quiggin has a few core ‘free-market fundamentalist’ zombie ideas squarely in his sights. For instance, he argues, the trickle-down economic theory — the idea that policies that benefit the well-off will ultimately have a “trickle-down” effect and help even the dirty, unwashed masses — has fed the most perverse income inequality. (With delightful freshness of perspective, Quiggin even cites a verse in the Anglican hymn 'All Things Bright And Beautiful'— “The rich man in his castle/The poor man at his gate/God made them high and lowly/And ordered their estate” as attempting to give divine validation of an unjustifiable class system.)

That trickle-down ‘zombie idea’ is still alive, was made evident by the recent extension by the Obama administration of the tax cuts (introduced by president George W Bush), which will add to the unsustainably high budget deficits and of which millionaires and billionaires will be disproportionate beneficiaries.

Likewise, Quiggin cites the Efficient Markets Hypothesis — the idea that “the market knows best” and that all government intervention by way of regulation is disruptive — and the evangelical passion about ‘privatisation’ among practitioners of ‘market liberalism’ as dead ideas that ought to be burnt to a cinder (and the ashes buried six feet under).

At a time when the political rhetoric in an economically enfeebled US is turning vicious and the Tea Party movement is stoking popular anger directed at the government — with chilling consequences, as was witnessed in the shooting in Arizona last week — Quiggin’s book is a spirited challenge to the “government is bad; free markets are good” dogma that still has a hold on policymaking minds, with palpable risks for the US and global economy and financial markets. Although they are framed in a US context, his arguments hold good for any society — including India’s — where the debate over what’s best for everyone is ongoing.

With his earthy style of writing, which makes even complex economic ideas accessible for lay persons, Quiggin demonstrates that he is not only a persuasive one-handed economist, but a skilled exorcist, chasing away the demons of failed economic ideas.