I just finished reading John Quiggin’s Zombie Economics, from Princeton UP. I had read most of the book months ago, and then a number of things got in the way of finishing it. However, it’s an easy book to come back to because it is methodical in debunking the some major conceits of neoclassical economics and the associated policies. One of the reasons I was interested in this book in the first place is that Quiggin posted the chapters serially on his blog and received comment ahead of publication. The level of rigor and care is quite evident in the text- it goes without saying that this publishing strategy is an effective one.
There are five chapters, addressing what Quiggin sees as the five most dubious accepted truths in the mainstream: the Great Moderation; Efficient Markets Hypothesis; use of DSGE models; trickle-down economics; and Privatization. Each chapter has five sections- birth, life, death, reanimation, and after the zombies. This setup allows Quiggin to carefully explain the history of each idea, how each has been applied, and how to move beyond.
I most enjoyed the DSGE section, in which he takes on the predominant practice of a microeconomics-based approach to macroeconomics. Here, he probes the technical and philosophical assumptions of these accepted models, and shows how they were bound to failure in predicting the current crisis. In presenting alternatives, he shows how one can look to Keynes and seek models without a “coherent dynamic equilibrium concept.” Such models would embrace animal spirits, and eschew false attempts to simplify human behavior in pursuit of elegance. Quiggin also urges a return to Minsky in order to understand bubbles.
I had highest hopes for Chapter 4, which covered trickle-down economics. Here, I thought, Quiggin would unmask the class-based roots of the crisis, demonstrated by inequality and stagnant wages. He does talk about inequality a lot, and how political power has led to more of it and also the outsized growth of the financial sector (something like the Hacker-Pierson argument, but not articulated as such). He even debunks the notions that inequality leads to growth and that social mobility compensates for it. However, when discussing the real harm of inequality, he ends up falling back on the loss of autonomy it produces. I don’t want to downplay the importance of autonomy, but for some reason, the following paragraph annoyed me:
The points are clearest in relation to employment. Early on, Marmot debunks the Marxian notion of exploitation (capitalists taking surplus value from workers) and says that what matters in Marx is alienation. It’s the fact that the boss is a boss, and not the fact that capitalists are extracting profit, that makes the employment relationship so troublesome.
I’m not sure how Quiggin misses the fact that alienation and exploitation are tightly linked. Further, when one sees the divergence of wage growth and productivity growth in the last three decades, and the need for debt-based consumption it fueled, I’m not sure how one could conclude that exploitation and class don’t matter. I am beating a dead drum on this concept, I know, but it really seems to me that overlooking these factors is the critical conceit of economics, as most in the field assume that labor must simply take what is given to it. Thus, I’ve urged repeatedly for more worker-owned enterprises as a pathway to a new economy. A shift along these lines would address both alienation and exploitation, which is good because I’m not sure how one could address one without the other.
By eliding over exploitation, Quiggin naturally steers his policy pitch against trickle-down- the emphasis shifts to the outsized wages at the top (CEO pay), not to the stagnant ones at the bottom. The related (and wrong-headed) key political questions follow naturally, and emphasize tax reform. All told, in shooting down one zombie here, Quiggin seems to have reanimated one of the most important ones, that class is irrelevant.
Quiggin ends with a nice touch in his conclusion- he turns the financially-oriented notion of risk on its head by pointing out the great risks our society assumes by having inadequate safety nets and a privatization-first mindset. Put simply, “a social democratic response to the crisis must begin by reasserting the crucial role of the state in risk management…collective risk management through the welfare state helps to stabilize the aggregate economy.” Indeed, the tussle over the question has been the most marked in politics and economics in the last 30 years. We may need to settle it once and for all before moving on to the deeper structural tensions of our economy. Pointing out that opponent ideas are essentially “zombies” is a critical contribution here.
Finally, I enjoy Quiggin’s three simple propositions for economics, which he says should focus, “more on realism, less on rigor; more on equity, less on efficiency; and more on humility, less on hubris.” Though I think Quiggin may have missed something crucial in this book, he gets 95% of it right, and does so in a way that’s accessible for non-economists. His book is a great contribution to our understanding of the failure of economics, and a good start to putting the discipline on the right path.
i assume you meant dynamic stochastic general equilibrium.
In his blog posts, I had the feeling that Quiggin’s attitude was, this far left, but no farther; this deep in criticism, but no deeper; this far outside the mainstream of economics, but no farther. For example, he would not accept the suggestion that he mention the Sonnenschein Mantel Debreu results or that one should be as equally dismissive of New Keynesian macro as one is of New Classical macro. Am I likely to say the same of the book?
Nathan- thanks for catching.
Robert- I get that sense too, so the book may disappoint, but it is useful as a handy reference to shoot down the most obvious fallacies of NCL economics.
[...] Nick Krafft has published a superb—sympathetic but critical—review of John Quiggin’s Zombie Economics. I had highest hopes for Chapter 4, which covered trickle-down economics. Here, I thought, Quiggin would unmask the class-based roots of the crisis, demonstrated by inequality and stagnant wages. He does talk about inequality a lot, and how political power has led to more of it and also the outsized growth of the financial sector (something like the Hacker-Pierson argument, but not articulated as such). He even debunks the notions that inequality leads to growth and that social mobility compensates for it. However, when discussing the real harm of inequality, he ends up falling back on the loss of autonomy it produces. . . [...]
[...] When the swine flu outbreak lately appeared in Mexico, a lot of people were quite scared, only a few were walking on the street. I remember that the first days – I didn’t want to go to the supermarket – the guys from the supermarket were bringing the food to my apartment. People started to behave quite differently; they stopped complaining about the crisis, and even started to be more polite and less aggressive in the traffic. When I was pulling my car out of garage, before “the plague” everybody was honking on us, then the people suddenly stopped. In my opinion Mexico City looked like a ghost town, it was less polluted and so enjoyable as never before. So I think it wasn’t that bad as it was referred in media; in our case – we rested and had a break from our stressful jobs. What I personally consider: is that humanity has become more selfish, aggressive with each other and especially with our Mother Earth, who Further you can see this related post: http://openeconomicsnd.wordpress.com/2011/01/31/quiggin-the-econozombie-slayer-95-effective/ [...]
John Quiggin is an Australian economist. He made his name in the early 1980s in an esoteric area called decision theory. The Econometrics Society made him a fellow on the basis of this work, a distinguished award. He writes a blog, which has many devoted followers. The book is primarily about macroeconomics, however, which is not his area. Asking Quiggin about macroeconomics is like going to a podiatrist for your headache: it’s the wrong end of the body.The chapter on Dynamic Stochastic General Equilibrium modeling (DSGE modeling) is a good example of Quiggin’s lack of expertise about modern macroeconomics. He states that one of the oddities about DSGE modeling is the representative agent paradigm. This is an abstraction where the decision making of one representative consumer/worker is taken as a stand-in for the millions of people living in an actual economy. This abstraction was employed in a famous 1982 article by Kydland and Prescott. Finn I. Kydland and Edward C. Prescott justly won the Nobel prize in 2004. The stand-in consumer was abandoned in 1994 in important work by the late and great economist S. Rao Aiyagari. Every graduate student in macroeconomics today knows the Aiyagari paradigm. This work is not mentioned in Quiggin. Nor is the celebrated work by Mortensen and Pissarides, done during the late 1980s and early 1990s, on modeling unemployment. Dale T. Mortensen and Christopher A. Pissarides won the 2011 Nobel prize for Economics. There has been a flurry of work in macroeconomics embedding the Mortensen and Pissarides framework of unemployment into an Aiyagari/Kydland/Prescott style DSGE model. An early example is the research by David Andolfatto in 1996. Interestingly, Noble Prize winner Paul R. Krugman’s latest research with Gauti B. Eggertsson borrows from Aiyagari (they cite it) and is essentially a dynamic general equilibrium model, albeit with a very Keynesian flavor. Quiggin is really out of touch with modern economics.The trouble with Quiggin’s book is that to the non-economist his little bit of knowledge will sound authoritative. Like an undergraduate’s essay, many of the bits and pieces are indeed correct. But, also like many undergraduate essays, it shows little understanding about modern macroeconomic, just a superficial dropping of names and theories. Beloved Albert Einstein, a hero for scientists, didn’t like quantum mechanics and argued against it. Perhaps it was because of the escalation of the mathematics required to understand the quantum world. Some people say that Einstein wasn’t good at math. The mathematics in his papers is easy for a modern economist or physicist to understand–look them up on the web. Time has advanced mathematical training among scientists. Anyway, this was one battle Einstein lost. When Keynesians displaced the classical economists in the 1940s, 1950s and 1960s the latter cried out about the mathematics (calculus and statistics) the former used. Keynesians, such as the Nobel prize winners John R. Hicks, Lawrence R. Klein and Paul A. Samuelson, were at the forefront of technique in their day. And now it is the displaced Keynesian crying about the new math (dynamic programming, numerical analysis, stochastic processes) used by the neoclassical economists ushered in by the Kydland and Prescott revolution. Maybe the table will be reversed tomorrow. Who knows: if you could forecast this you could be a Noble Prize winner. This is the process of science: New ideas don’t come easily and old ones are hard to displace. Professor Quiggin: You sound like an old man whining about the young Turks. Professor Quiggin here is a question. Rather than solving macroeconomic models on high-speed computers to simulate the effects of government policies, what do you propose? (i) We input economic data streams and policies into your massive brain and do what comes out. (2) We use a divining rod. (3) We make stuff up. Yeah, the alternatives don’t look so good to most of us.