[For an expanded (and published) update on this post, see this.]
John Quiggin is an Australian economist who some of you might be familiar with as the author of "Zombie Economics: How Dead Ideas Still Walk Among Us." Currently he is having a bit of a dustup with the Australian wing of the Rupert Murdoch empire.
I knew absolutely nothing about John Quiggin, until someone asked me to write a short review of Zombie Economics for the Journal of Economic Literature. The timing was good, as I was about to leave for Australia to give a plenary talk at the Australian Conference of Economists in Canberra in July. I could read the book on the plane (though a trip from St. Louis to Chicago would actually be sufficient) and might actually come across the man himself, or news of him, at the conference.
By the time I got to Canberra, I had read Zombie Economics, and had written a draft of my review which panned the damn thing (more on that later). I was a little lost at the conference as none of the Australian economists I know showed up, but Pete Klenow was there, and I sat down at dinner with Max Corden, who is one of the most engaging people I have run into in my life. Between courses at dinner, various awards were presented, and at one point we got to an the annual award of Distinguished Fellow of the Economic Society of Australia. Previous recipients included my dinner companion Max Corden, Trevor Swan (he of the "Solow-Swan model"), and Murray Kemp. Who did the 2011 award go to? John Quiggin.
What is Quiggin's claim to fame? His early work is an odd mix of agricultural economics and decision theory, but he seems to have distinguished himself mainly in public policy. He writes regularly in the mainstream media, writes a blog, and Zombie Economics appears to have sold well.
Now, what is Quiggin up to in Zombie Economics? Roughly, Quiggin is the Australian farm team in the Krugman/Thoma/DeLong league. Quiggin argues that there are five key "zombie ideas" that have been used by conservative economists for ideological purposes. The financial crisis has showed us that, without question, these ideas are wrong. Nevertheless the ideas, like zombies, continue to walk. If you read the book, you'll see why it could sell well in airports. However, I would recommend Life by Keith Richards (which is the last book I bought in an airport) over Zombie Economics any day. Keith is much more interesting, and the economics is better.
So, what are the zombie ideas? They are:
1. The Great Moderation.
2. The Efficient Markets Hypothesis.
3. Dynamic Stochastic General Equilibrium
4. Trickle-down economics
The Great Moderation: Quiggin is a little confused on this one, as the Great Moderation simply characterizes a set of properties of US aggregate time series. From about 1985-2007, inflation was lower and less variable, and real GDP was less variable about trend than had been the case previously. Quiggin is certainly correct, though, in finding fault with those (Ben Bernanke included) who wanted to argue that the Great Moderation was due to a regime change in economic policy. If policy was so great, it should have done a better job over the last four years.
The Efficient Markets Hypothesis: For Quiggin this is "the idea that prices generated by financial markets represent the best possible estimate of the value of any investment." Here, Quiggin is badly confused, but maybe the finance practitioners are not helping him out much. Market efficiency is simply an assumption of rationality. As such it has no implications. If it has no implications, it can't be wrong.
Dynamic Stochastic General Equilibrium: Quiggin claims that this is "the idea that macroeconomic analysis should not concern itself with economic aggregates like trade balances or debt levels, but should be rigorously derived from macroeconomic models of individual behavior." I can hear you snorting with laughter. Why is "but" in that sentence? Like the "efficient markets hypothesis," DSGE has no implications, and therefore can't be wrong. Indeed DSGE encompasses essentially all of modern macroeconomics. Which of our models is not dynamic, with uncertainty (and therefore stochastic), and with some equilibrium concept. Indeed, many of them incorporate trade balances and public and private debt. Granted, some of our models were not so helpful in making sense of the financial crisis. But others were, and some of the models that were not helpful could be (and are being) modified so that they are.
Trickle-down economics: This one puzzled me. For the previous three zombie ideas, Quiggin is confused, but I could see where the confusion might come from. However, while the words "trickle-down economics" are familiar to me, I have a hard time associating that idea with the mainstream ideas of any academic economists. On some level, it seems obvious that economic growth benefits all residents of a country. Whatever my skill set, I would rather ply my trade in the United States than in Malawi. While there may exist serious barriers to economic mobility in the United States that we should be addressing, the financial crisis does not somehow point out some serious deficiencies in how economists think about the income and wealth distributions.
Privatization: Here, Quiggin offers a litany of government privatization efforts gone awry. If I wanted to, I could take this evidence as supporting the hypothesis that government is really bad - so bad that it can even screw up privatization.
So, the heart of economic thought is a set of zombie ideas that should die a miserable death. But to be replaced by what? Quiggin is pretty vague about this. He thinks that "heuristics and unconsidered assumptions inevitably play a crucial role," and that economics should focus "more on realism, less on rigor." Eureka. We need some sloppy, realistic, heuristic models with unconsidered assumptions.
It's unfortunate that some of the people who write so much about economics for the general public spend so little time reading about what economists actually do, and attempting to understand it. No wonder people are confused.