Bookblogging: The end

by John Quiggin on January 18, 2010

Over the fold, the conclusion of my book, with Release Candidate title “Zombie Economics: How Dead Ideas Still Walk Among Us”. I plan a proper post on the whole bookblogging experience, but until then, I’ll thank everyone who’s commented, or just read this exercise with interest and make one (maybe) last request for help. Can anyone recommend a book on Thatcher’s economic reforms that would be a good suggestion for further reading? I’m currently suggesting Anderew Glyn’s Capitalism Unleashed, but I’d like to add something from a centrist or Thatcherite perspective, as long as it’s readable and not too objectionable for words.

There’s a near-complete draft of the whole book here.








Conclusion: Economics for the 21st Century


The zombies of horror movies are famously hard to stop. Being already dead, they can absorb all kinds of damage and keep lumbering onwards towards their targets. The zombie ideas discussed in this book are similarly resilient. Throughout the crisis, the economics profession carried on, for the most part, as if nothing had changed. And now that the immediate crisis has passed, market liberals are trying to pretend that it never happened. As Richard Posner, a rare example of a market liberal who has changed his views and embraced Keynesianism observed in a recent interview ‘market correctives work very slowly in dealing with academic markets. Professors have tenure. They have lots of graduate students in the pipeline who need to get their Ph.D.s. They have techniques that they know and are comfortable with. It takes a great deal to drive them out of their accustomed way of doing business.’


An approach to economics that has been dominant for more than three decades will not go away simply because its predictions are inconsistent with the facts. It is necessary to provide an alternative to the zombie economics of market liberalism.


Some suggestions about the way forward have been offered in this book. They can be summed up by three simple propositions. In the 21st century, economics should focus:


* More on realism, less on rigor


* More on equity, less on efficiency


* More on humility, less on hubris


The prevailing emphasis on logical rigor has given economics an internal consistency that is missing in other social science. But there is little value in being consistently wrong. Economics must move on from the infinitely rational, farsighted and asocial beings whose decisions have been the central topic of analysis in recent decades. It will still be necessary to abstract from the messy complexity of human decision processes and focus on critical factors in decisionmaking. But the factors that are relevant in microeconomic analysis of goods markets may not be the same as that matter in labor markets or in analysis of macroeconomic aggregates.


Three decades in which market liberals have pushed policies based on ideas of efficiency and claims about the efficiency of financial markets have not produced much in the way of improved economic performance, but they have led to drastic increases in inequality, particularly in the English-speaking world. Economists need to return their attention to policies that will generate a more equitable distribution of income.


Finally, with the collapse of yet another economic ‘New Era’ it is time for the economics profession to display some humility. More than two centuries after Adam Smith, economists have to admit the force of Socrates’ observation that “The wisest man is he who knows that he knows nothing”. While knowledge in the sense of absolute certainty may be unattainable, economists can still contribute to a better understanding of the strengths and weaknesses of markets, firms and other forms of economic organization, and the possibilities for policy action to yield improved economic and social outcomes.


Every crisis is an opportunity. The global financial crisis gives the economics profession the chance to bury the zombie ideas that led the world into crisis, and to produce more realistic, humble and above all socially useful body of thought.




{ 43 comments }

1

alex 01.18.10 at 11:23 am

Close your italics tag?

2

dsquared 01.18.10 at 11:41 am

Nigel Lawson’s autobiography is pretty good.

3

x. trapnel 01.18.10 at 12:31 pm

I should have asked this many installments ago, back when you were talking about DSGE macro, etc., but: what do you think of the stuff in David Colander’s Post-Walrasian Macroeconomics book?

4

James Conran 01.18.10 at 12:39 pm

I can’t recommend it because I haven’t read it, but Samuel Brittan might be a good place to look for a pro-Thatcher perspective on her economic policy. From his website:

“The Thatcher govemments economic policy”, in D. Kavanagh and A. Seldon (eds) (1989) The Thatcher effect. Oxford: Oxford University Press, pp. 1-37,

which is reproduced in:

Capitalism with a human face. Aldershot: Edward Elgar. (1995)

http://www.samuelbrittan.co.uk/pub.html

5

JoB 01.18.10 at 1:24 pm

John,

- Great first paragraph (although I fear it not always applies to the actual content)!

- Interesting observation on tenure, wasn’t it meant to do the reverse; isn’t the fact that most of the PhD’s are followers merely a consequence of not being certain of their jobs?

- you’re conceeding efficiency to easily to those whose solutions proved inefficient; why should effiency be incomensurate with equitability?

6

JoB 01.18.10 at 1:24 pm

Damned that formatting!

7

belle le triste 01.18.10 at 1:57 pm

“Every crisis is an opportunity” — while this is a truism that’s probably actually true, it’s hard not to think of the claim without Homer Simpson gleefully adding “a crisitunity!”

8

Ahistoricality 01.18.10 at 4:13 pm

“Every crisis is an opportunity”—while this is a truism that’s probably actually true,

Actually, it’s a cliche that bears no resemblance to the way people actually respond to crises.

9

Barry 01.18.10 at 4:44 pm

Ahistoricality , I think that it’s a comment on they way that *some* people react, especially those who entered with money and/or power.

10

ejh 01.18.10 at 5:02 pm

I’ve said before and I’ll say again, there’s no obvious reason to expect a change in thinking just because there’s a worldwide crisis. It doesn’t impact substantially on the social strata from which I would guess that most economists spring, and if any recovery leaves a lot of people worse off than before then that doesn’t necessarily change anything provided that it’s still highly possible for people with good educational qualifications to thrive. I don’t see that this

three decades in which market liberals have pushed policies based on ideas of efficiency and claims about the efficiency of financial markets have not produced much in the way of improved economic performance, but they have led to drastic increases in inequality, particularly in the English-speaking world.

is likely to be the way such people see it at all: they’ll say that economic performance has improved and as for inequality, well, who cares?

After all, it depends what you think a healthy economy looks like – if your view of same can encompass large numbers of people remaining in poverty provided there’s economic growth then why should economists think growing inequality is of any importance, and why shouldn’t they view the recent collapse just as they view any other stutter which requires a market correction? Isn’t the hegemonic view quite likely to be that what the crisis really means is that wealthy countries can no longer afford welfare states, because dismantling key parts of those states is likely to be the major political response?

Or maybe not. But absent powerful union organisation, it’s hard to see where the social force is coming from that’s going to stand in the way of that view in practice.

11

Ceri B. 01.18.10 at 5:24 pm

Gotta agree with ejh. The current situation should be entirely sufficient refutation of these zombie ideas, but it clearly isn’t. The push is indeed underway in the US to cut the social safety net again, justified by, sure enough, shortage of money and other things that it needs spending on and making sure that the people responsible for the crisis have lots more assets to play with. In contested elections like the one in Massachusetts at the moment, the establishment story is that Democrats are spending too much and need to tighten their belts in this hour of need – I don’t think the public at large buys it, but hegemonies are hard to crack open.

12

Barry 01.18.10 at 6:03 pm

John, in terms of the economics professoriate coming to terms with reality, there are a few things to consider. First, even before the crash, (for the USA) economic growth in the 80′s was less than in the 70′s; the 90′s saw less than in the 80′s, and the 00′s less than in the 90′s. In short, the rolling out of neoliberalism did *not* improve economic growth in the USA, overall. It was associated with increasing inequality and stagnation of wages for half or more of the workers in the USA. IMHO that was deliberate, but at the very least it didn’t seem to bother the neoliberal advocates.

Second, as has been well documented by DeLong, Krugman, Cassidy and Mark Thoma, a unique feature of the economics professoriate is that one doesn’t have to go to academic rejects for sheer BS; the elite departments are full of people who publicly and blithely says all sorts of stuff. That’s not a good sign in a discipline.

Third, IMHO a major but ignored factor is the power of the economic elites. The economists might like to think that changes in their field are due to their own brainpower, but I notice that they’ve paralleled changes in the political sphere. It’s got to be veeeeeeeery convenient for the economic elites to have ‘unbiased’, ‘scientific’ support for what they want to do; this will not change.

13

John Quiggin 01.18.10 at 9:06 pm

@ejh, Ceri and others. I agree to a fair extent. But
(1) Although the economics profession doesn’t change fast it does change. Keynes (+ the Depresssion) had a big impact and so, in the opposite direction, did Friedman + stagflation. Hopefully the GFC+Krugman and others will pull things back a bit
(2) I think it’s a literary convention in books of this kind to end on a hopeful note, and that’s what I’ve done here.

14

kid bitzer 01.18.10 at 9:17 pm

perhaps in line with your first adage would be some advice that delong repeats:

make young economists study more economic history. more kindleberger. more manias, panics, and crashes.

it’s part of getting the next generation focused on the empirical and away from the siren-song of the a priori. (sure; we all love the a priori. but economists have proven, again and again, that they simply can’t be trusted with it. now–stop whinging; it’s your own fault. we let you play with a priori models, and what did you do? you broke things. now we have to take them away, until you can show that you are mature enough to play with them safely.)

15

Ted 01.18.10 at 11:12 pm

I have not read the entire Wiki, but from what I have read there is a strong tone that economics is all about what the government should do, and that at all times, it is the government that controls and determines a society’s prosperity. This is simply nonsense in a non-authoritarian world, such as the western liberal private-property based democracies.

But even within this intellectual bubble, there seems to be another simple binary that Keynes and Friedman are the only game in town, with governments swinging from one to the other, with JQ praying that with Krugman’s pro-Keynes PR will convert to governments to “pull things back” to Keynes. I suspect that events will show this whole framework is thirty years too late. But we’ll just have to wait and see.

16

Substance McGravitas 01.18.10 at 11:14 pm

One shotgun blast is just not enough.

17

Joshua Holmes 01.18.10 at 11:14 pm

Ceri B @ 11

In contested elections like the one in Massachusetts at the moment, the establishment story is that Democrats are spending too much and need to tighten their belts in this hour of need – I don’t think the public at large buys it, but hegemonies are hard to crack open.

If the public doesn’t buy it at large, then why is Teddy Kennedy’s seat in trouble? Surely if any state electorate would reject it, Massachusetts’ would.

18

BillCinSD 01.19.10 at 12:30 am

21st century econ

more on power relationships and less moron’s in power

a little more (dynamics) action, please

19

Ted 01.19.10 at 12:58 am

And of course the really important contingency here is just how game-changing the so-called ‘GFC’ is/has-been. I will wager that not is it already economic history, but it will quickly lose significance, ranking much less than 1992. Derivatives, liberalization, mathematics, new market creation are all here to stay.

20

Robert 01.19.10 at 3:27 am

I see no reason to pretend that mainstream economists arguing for market fundamentalism are rigorous or logically consistent. Certainly a nonrigorous argument is that (1) macroeconomics needs microfoundations and (2) DSGE models with representative agents and one produced commodity are microfounded.

I have never figured out whether Quiggin is intending to tell the story of mood swings (among the general public or economists) or of something more serious.

21

John Quiggin 01.19.10 at 3:27 am

@Ted #19 Well, that’s the point of the book isn’t it? In the absence of an alternative, all those things are here to stay, even if the justification for them has collapsed.

22

mds 01.19.10 at 3:29 am

If the public doesn’t buy it at large, then why is Teddy Kennedy’s seat in trouble?

Because independent MA voters are fed up with Democratic fecklessness, and want action on the economy that has concrete benefits outside of Wall Street banks. Why do they think this can be accomplished by electing a trickle-down tea partier who opposes recovering bailout funds from Wall Street banks, and is almost certainly a vote against any jobs bill? Ah, now that can lead into all sorts of explorations of our two-party system, the human need to assign blame, and whether there’s been a recent increase of lead in Massachusetts drinking water.

23

tonebuddha 01.19.10 at 6:03 am

(CT lurker braves his first post)

I’ve very much enjoyed the bookblogging, for me it’s like sitting in some supercharged postgrad lecture/tutorial session.

Another thing that will make zombie economics hard to kill is that market liberal economists have been feeding the ideological fires of the right wing for so long that they can’t live without each other. Without it there is no basis for the completely deregulated labour market, which in Australia (at least) remains their ultimate article of faith. The right will continue to push it and make these academics feel validated for as long as long as they are funded by vested interests. Oh, dammit, that’s forever…

24

Barry 01.19.10 at 11:36 am

Joshua, because American voters are the sort of fools who can forget a near-miss at the Great Depression II in a year. Because American voters are the sort of fools who can hold up signs ‘keep government out of my medicare’.

And because the American political system is so frikkin’ corrupted that the only alternatives to GOP evil is Democratic corruption; that we indeed have a system which gives trillions to bankers while spitting on everybody else, and a media which supports that very strongly – they know where their advertising dollars come from.

25

JoB 01.19.10 at 1:57 pm

Oh come on – they’re not voting for or against you! They’re voting for the best candidate, & that there are only two of them is: above all telling about those not competitive enough to get named as serious contenders.

26

Barry 01.19.10 at 2:09 pm

JoB, if you could please write in legible English, I could understand you so much better.

As for ‘best candidate’, there are two problems – first, most people don’t know who the best candidate is; they’re voting for party. Second, the GOP guy will without doubt vote the GOP line – have you really not noticed the near-100% discipline the GOP Senate has exhibited this year?

“…above all telling about those not competitive enough to get named as serious contenders.”

Null syntax, please correct.

27

JoB 01.19.10 at 2:29 pm

Barry doesn’t like me ;-)

At least one thing where I am like most friggin’ American voters.

28

Ceri B. 01.19.10 at 5:20 pm

Joshua Holmes@17: What I hear from people I know in MA is, overwhelmingly, simply discouragement. The Democratic leadership’s betrayal of its bases hit really deep. It’s not that anyone I know there has given up on wanting things like political accountability for financial crimes and exploits or decent health care that isn’t loaded with boobytraps and handouts for the people responsible for it being so bad now. It’s that there doesn’t seem to be a good way to translate that sort of wish into political power right now, just the long slog of primary challenges and all, and serious alternative building. Hegemony is hard, but at least some awareness from Gramsci and such provides a useful rebuttal to the stuff like “oh if you just cared enough to do anything it’d all get better”.

29

Barry 01.19.10 at 5:45 pm

JoB 01.19.10 at 2:29 pm

“Barry doesn’t like me ;-)”

Don’t care about you, but it’d be nice if you wrote in English :)

30

bianca steele 01.19.10 at 5:57 pm

One reason is that social conservative independents are more willing to vote for a male Republican who posed nude for the epitome of media outlets conservatives hate, and who used his daughter’s American Idol appearance for his political campaign, but sends that daughter to a school run by a religious order, than for a law and order female Democrat. And libertarian independents are more willing to vote for a male Republican who posed nude for the epitome of media outlets conservatives hate, and who used his daughter’s American Idol appearance for his political campaign, but sends that daughter to a school run by a religious order, than for a law and order female Democrat. And Coakley, a party outsider who is not an ideal candidate in every way, has run a poor campaign.

I don’t know what Ceri is talking about. Have surveys shown that registered Democrats are voting for Brown? Almost everyone I know calls themselves an independent.

31

bianca steele 01.19.10 at 7:06 pm

Though I may have forgotten the question. Was it about the electorate that propelled Mitt Romney to national prominence?

32

Ceri B. 01.19.10 at 7:34 pm

Bianca Steele, I didn’t say (and you didn’t ask :) ) but essentially everyone I know in MA is a Democrat, or at least tends to vote that way, and so the question for them is “Bother or not?” Not whether to vote for Brown – that’s not an issue for any of them – but whether the benefits of voting for Coakley are worth the obvious and foreseeable problems. The portion of the country given to moral monstrosity and therefore to supporting Republicans has a separate set of problems, which I’m not taking up at the moment.

33

Ceri B. 01.19.10 at 7:39 pm

Anyway, this is a tangent of sorts from the post, and what I really wanted to say, which is that I hope for progress because in my experience good change nearly always comes in surprising ways, but I sure don’t see much ground for it at the moment.

34

bianca steele 01.19.10 at 7:54 pm

If this works, please delete previous moderated comment…

Still don’t understand Ceri. They don’t want to vote for Coakley and would prefer the seat go to a Republican because she’s not progressive enough? Because she would like to crack down on Internet gambling?

These are registered Democrats? There’s really no reason to register with a party affiliation in this state unless you want help from your local pols or you want to make a statement.

I don’t want to sound condescending but maybe they’re confused by the media coverage. The morning after p1|| stuff is nonsense because when the Globe asked around, the only hospital that said it wouldn’t ever be constrained by religious conflicts was St. E’s.

35

bianca steele 01.19.10 at 7:55 pm

Moderation? One random guess is my limit. Maybe the filter agrees with Coakley.

36

scathew 01.20.10 at 4:19 pm

Market economics also won’t go away because it servers extremely powerful interests that have investment into seeing that they continue. These zombies aren’t revived simply out of ignorance, but because they serve the purposes of the rich and powerful.

In the Zombie analogy, the oligarchy (or corpratocracy) serves as the mad scientist that unleashes the zombies screaming, “And now I will rule the world!!!!”

37

derrida derider 01.21.10 at 2:14 am

I must say, John, that my overall impression of the book is the same feeling I used to get reading JK Galbraith years ago – a very convincing (and, like Galbraith, well written) analysis of what’s wrong but less convincing when it comes to how to set it right. True, you’ve got to knock down the old edifice before you can build the new one. But abandoning the rational self-interested individual would be more attractive if we had better ways to model observed human bahaviour that can be systematised and generalised in ways that create testable and policy-relevant predictions.

And it doesn’t seem a great practical gain to swap a consistently wrong approach for one that is logically inconsistent and in which it is therefore impossible to determine which bits are right (or rather, which are useful – the old saw that “all models are wrong but some are useful” applies). I reckon the emphasis on rigour should stay; after all, you personally are no slouch at the mathematical whizzery and oughtta preserve its role out of rational self-interest :=).

38

Ted 01.21.10 at 4:49 am

JQ

While I wish you and the book every success, I don’t think you’ve quite grasped that your book is precisely a product of that Keynes vs, Friedman cognitive carousel that has never reflected the economic history of the recent past, let alone post-WWII.

What I have learnt since the whole three-week long ‘GFC’ is that academic macroeconomists have a tin ear to the socio-political dynamics and events that are the world outside. Perhaps the reason macroeconomics is such an intellectual scandal is that it attracts people who want humanity to be puppets, with the macroeconomists pulling the strings. The reality is, the macroeconomists clearly do not have a clue.

39

erik 01.21.10 at 12:31 pm

I think that most economist would agree with the “More on realism, less on rigor” – and increasingly so for the last 20 years.

Still, we get “less on realism, more on rigor”.

I have been looking for some analysis of why this is the case – i.e., what is the driving force behind it. I have a hard time defining what it is that seem to produce this “prisoners dilemma” (given that my observation that most economist don’t think rigor is the way to go, is correct).

Have anyone seen such an analysis?

40

Ted 01.21.10 at 10:21 pm

erik

There are at least two reasons. The first is the laudable aim of making the logic/reasoning of economics analysis as water-tight as possible. The descent of all social science in the nineties and noughties into the abyss of post-structuralist obscurantism shows what can happen when ‘science’ relies too heavily on discursive exposition. The language of mathematical proofs transcends somewhat the flakiness that are other social sciences are often handicapped by.

But of course the substitution of mathematics for verbal exposition never totally escapes the pre-cognitive bias that post-structuralists so gleefully loved to hunt down and expose in the more vulnerable social sciences. In fact, the increasing mathematization of post-War economics was substantially motivated to remove economics – and thus economists – from the critical gaze, not only of hoi polloi, but other social scientists (and indeed all scholars), policy makers and so on. In 2010, the greatest anxiety of an applicant to a US Economics Ph.D program is their grade in Real Analysis, an advanced proof-based Pure Math course, which will be used to identify such phenomena as the optimal location for two ice-cream vendors to set up their stall on a beach.

Too often, Economics relies on flaky misappropriations of pure math, and even more so Applied Math; there are many WTF moments when the student sees equations familiar from Physics and Chemistry, such as Laplace’s equation, or even Samuelson’s work began in the 1940s using classical thermodynamics.

Now, of course this leads to the main criticism here; realism. But there is actually a great deal of economics that does tack harder towards realism that idealism. Theories are subject to sophisticated data sets, econometric analyses run, and empirical disconnects from theory are taken seriously. The problem is that discovering a disconnect between theory and data merely raises a flag for even more mathematical sophistication/tweaking of the model.

In defense of economics’ privileging of theory over data is the – quite reasonable, though far from infallible – argument that economic theory focuses on the optimal, so that the degree of sub-optimality revealed by the data can be identified, and policy-making or decision-making of individuals, firms, organizations, and so on can refine their decision/policy-making.

The second reason for this privileging of mathematical theory is the Nobel Prize, which is awarded for Economic Sciences. The lust for a Nobel Prize overs the entire field. Humanity would be well served by the Bank of Sweden no longer awarding the blasted thing.

41

Erik 01.22.10 at 10:10 am

Ted.

Thank you.

But is…
“Theories are subject to sophisticated data sets, econometric analyses run, and empirical disconnects from theory are taken seriously.”
… this really was the case?

I wouldn’t have a problem with abstract theories as long as the empirical verdict really mattered. But to me – as the case with e.g. Famas version of EMH (which is so far beyond ridiculous that I don’t know what to make of it), which isn’t some unimportant” freakonomic” fringe theory that doesn’t matter – it just seem like theory always triumph reality. (which also seem to be the thesis of the book zombie economics above)

42

Robert 01.23.10 at 7:35 pm

If mainstream economists were to have no influence on the world, one would have no reason to pay any attention to them. They don’t care if what they say makes sense, much less if they are describing how capitalist economies actually operate.

But my main point is I see no reason to believe that a tradeoff exists between rigor and realism.

43

Hungover Guy 01.25.10 at 5:24 am

As much as I can understand right now, I think you’re right!

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