But, as I will spell out in more detail in the relevant chapter, the theoretical case for privatisation depends on the EMH, even if neither you nor the people who implemented the policy understand this. As a sketchy outline, if you buy the EMH, then the required rate of return to public investment must be the risk-adjusted private rate, and (assuming in addition that operational efficiency in the private sector is at least equal to that in the public sector) privatisation must yield a net benefit.

Over the years exceptions and “anomalies” have been discovered (even tiny departures are interesting if you are managing enough money) but for the purposes of macroeconomic analysis and forecasting these departures are too small to matter. The main lesson we should take away from the EMH for policymaking purposes is the futility of trying to deal with crises and recessions by finding central bankers and regulators who can identify and puncture bubbles. If these people exist, we will not be able to afford them.

As for your structure of your intro, well do as you wish, it’s not like I could stop you anyway.

On the topic of the Great Moderation, and privatisation and so forth, well patience is not one of my virtues, so while I wait for the happy day in which you get to those chapters I will occupy my mind and fingers by putting down thoughts on what you have written as they occur to me.

As regards both privatisation and the Great Moderation, if you waited until you read the chapters rather than misreading a short introduction, you’ll see that these points have been anticipated.

Really, I don’t get why you are so convinced that Fama’s EMH was a driving idea behind privatisation. Take the rule you proposed earlier, that markets are great for making short-term economic decisions but governments should be involved in long-term ones. Say you’re the new government minister in charge of state-owned enterprises, and you’ve decided that an economic activity that the previous government had under state control should be privatised because the decisions were relatively short-term and it’s not a natural monopoly so there would be plenty of competitive pressures, and so forth through whatever other considerations you have in mind. And I’ll explicitly add the assumption that Fama’s semi-strong-form of the EMH is false. So, if you privatised the activity and the new company was traded on the stock market, then couldn’t the government make a profit trading that company on the stock market, and thus increase its return on government workers’ pensions? Now perhaps there’s some problem with that final argument, perhaps you think the government traders would be subject to whatever cognitive or market flaws that stop the semi-strong EMH from being true, perhaps conflict of interest concerns prohibit trading, etc. But at most these other considerations mean that the falsity of the semi-string form of the EMH is irrelevant to the decision of whether to privatise or not. But I can’t see how the falsity of the semi-strong form of the EMH argues against privatisation.

2. Yes, I agree entirely with you that the Great Moderation claim couldn’t have been a motive for its adoption. I assume that you are writing this book in order to try to convince people who are emotionally opposed to you, like me, and not merely those who already agree with you. If I can mock your arguments based on time periods, so can other reviewers, and use this as a reason to dismiss your ideas. Why not, pre-publication, take advantage of my animosity to improve the clarity of your arguments and writing?

Also, part of the reason I mocked your introduction was that I suspect many readers do not have a time series of economic policy ideas in their head (I had to look up the history of the Great Moderation myself). If you write like the Great Moderation was an idea behind Thatcherism, Reaganism, etc, my experience of tutoring in history, maths and economics, is that a non-zero number of readers will believe that it was.

I do hope that you have taken advantage of me enough to change your discussion of the EMH from “best possible use” to “best possible estimate”.

3. The Great Moderation is a specific claim about observed historical volatility. Assertions made about NZ’s economic future were, at the times they were made, predictions. Observing history is different from predicting the future. So nope, the two don’t strike me as the same. Are you arguing that people like Oliver Blanchard and John Simon miscalculated the volatility rates? Or that the US statistics department, and other relevant countries’ departments have revised their historical series so that the Great Moderation, as a statement about the history, is now false? (Both are of course possible). Interpretations of why the Great Moderation can of course be wrong, especially with the inability of macroeconomists to do controlled experiments on the global economy, and what you see in the past can be affected by what you expect to have happen in the future, but still observations of history are different to expectations about the future.

As for statements about the economic future in NZ, I recall the NZ 1999 Labour Government coming to power promising to return NZ to the top half of the OECD per capita GDP tables by 2010 by stepping away from that nasty economic liberalisation and embracing the mixed economy (see http://www.beehive.govt.nz/speech/transporting+nz+top+half+oecd, the 2010 date was quietly dropped shortly after election but see http://www.listener.co.nz/issue/3603/columnists/13370/the_140_year_gap.html for a relatively-left wing source of the claim). I don’t see any sign of that goal happening. Somehow I suspect that this is going to make absolutely no difference to your opinion of mixed economies.

Highly recommended: Kenneth Rogoff on: Why we need to regulate banks sooner, not later, in Wednesday’s Financial Times:
http://www.ft.com/cms/s/0/c2d523c0-8c21-11de-b14f-00144feabdc0.html?nclick_check=1

Rogoff makes a very persuasive case for tougher regulation of financial institutions notwithstanding orchestrated howls of anguish about the loss of innovation and competitiveness this would inevitably lead to.

Rogoff also – persuasively – rejects the lament, popular in some quarters, that if only Lehman Bros had been bailed out last September the subsequent recession induced by the financial crisis would have been much less severe.

FWIW, the improvements are many and you’d have me almost interested in reading the rest of it. Thanks for taking the risk of listening.

No time to shorten it but on the title you seem to have your zombie-stuff quite wrong. So: what ogmb said and “Six vampiric ideas that are sucking the life out of the world economy.”

Combine that with a cartoon of a wooden stake that is shoved through the heart of …. and you’ll have the press attention that any new book requires.

(don’t know whether you’re strict dualism between neo-liberalism & social democracy will ever work though, it’s strictly speaking not true, it’s a Hegelian delusion, something stuck in Kuhnian paradigms—- surely neo-liberalism and social-democracy have a common ancestor in political liberalism (which also explain all the name confusion) & surely the essence of the commonality is to be kept—- I personally am emphatically committed to as little employment as possible and you will find that this is, however much forgotten, a common theme on the left; employment & its necessities being typically a very right wing reflex)

More generally, it’s pretty obvious that the Great Moderation is an ex post claim about the success of market liberalism, and therefore can’t have been a motive for its adoption. I don’t think any reader except you has a problem with this, so I’m going to leave the text as it is.

http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article6793921.ece

So now we have unacknowledged influences. So even if you can’t actually dig up any reference by the proponents of idea x to saying that their thinking was influenced by EMH, or the Great Moderation, you can still assert that idea x was influenced by them. Is there any evidence that could convince you that EMH was not the driving idea behind privitisation?

And the idea that the Great Moderation was behind Thatcherism and Reagnomics makes me smile. The Great Moderation, at least as is typically defined, is that in 2001 Blanchard and Simon noticed since the mid 1980s the volatility of a number of economic variables had declined substantially. And this idea got more famous in 2004 with a speech by Bernake in 2004 – see http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm
As Thatcherism dates back to the 1970s and Reaganomics to about 1980, to attribute those economic packages even in part to the Great Moderation implies that you believe that the Great Moderation is so powerful as an idea that it not only lives on after its death, but could also reach back before its birth. Zombies look pathetic by comparison. What name could you use instead for the title of your book? Terminator Ideas perhaps? (I’d suggest Skynet, but I think it lacks the name recognition of Terminator.)

. The claim that financial markets make the best possible use of economic information, and can never be subject to irrational bubbles, is rarely made, and usually hedged with all kinds of qualifications and escape clauses.

Oh Dr Quiggin, you were doing so well. If the strong form of EMH is true, it implies that financial markets make the best possible estimate of future flows given existing economic information. As you said in a previous comment. And now you’ve gone back to claiming that EMH implies that financial markets make the best possible use, but of course “best possible use” requires value judgments which Fama’s EMHs just didn’t make. There’s a big philosophical difference between the technical process of getting the best possible forecast and the more subjective issue of what decisions to take. For example, the NZ government uses information about fish numbers in setting the fishing quotas, whether this is a better or worse use of that information than what financial markets do with it depends not merely on the truth or falsity of the various forms of the EMH but also on other, more subjective issues, like how much value you place on fish species’ existance.

Together these ideas form a package which has been given various names:

I don’t have any evidence to hand for the thinking behind those packages. But in NZ, as far as I can tell, EMH was at best only part of the thinking behind Rogernomics, and the Great Moderation was not mentioned at all, which makes me deeply skeptical that those ideas were important in Thatcherism, Reaganomics or Australia’s economic rationalism. To repeat the quote I gave before:

Officials, most notably within the Treasury, were also intensively following developments in microeconomic theories concerning public choice, market competition and governance: contracting issues including property rights, asymmetric information and transaction costs and institutional economics more generally.