If there is one thing we learnt from both UK EU Referendum Result (“brexit”) and the Chilcot Report (on the war in Iraq) it is this: we live in a time of post-factual politics. Facts no longer matter and ‘framing’ is everything. The truth no longer matters in Economics either. It fashions itself for the convenience of power. Facts don’t sway voters, facts don’t count. All the evidence and experts do not amount to a whole lot of anything when humans act upon instinct – instinct carved by the media in a thousand subtle ways inside a debate carefully buffered between ‘acceptable’ extremes. Such ideas become impregnable to reality and gain a life on their own such that nothing can destroy them. They are, as John Quiggin describes in his 2010 book “Zombie Economics”, “dead ideas that walk amongst us“. From Privatisation to Trickle-down economics – the landscape is beset with beasts that no facts can lay to rest. It remains a damning indictment of our democracies, our cultures and our politics. The Enlightenment playing second fiddle to un-reason.
So, does Quiggin have anything to add to this banal statement of the screaming obvious? At first sight there is nothing much new here. If you want to read something good about the 2008 Financial Collapse then there is “Whoops!” by John Lanchester. If you wish to see neo-liberal economics torn shred to shred then have a gander at Steve Keen’s “Debunking Economics”. Keen’s work came out in 2011 whilst Lanchester’s “Whoops!” was from 2010 – so Quiggin’s work marks just a small part of a tidal wave of such books arriving on the literary scene two years after the 2008 crash. No doubt many a book editor saw a gap in the market for some pop-economics that would fill the gap in peoples’ knowledge. The sort of people who wanted to know generally “what went wrong” but didn’t wish to read an economics text book or, indeed, spend too much time on the topic. People like us.
We spent some time reviewing these works back in 2012. Four years later we were drawn back to the topic by Quiggin’s funky “framing” – the idea to make it all about zombies. Somehow we judged the book by its cover and thought he would have something original to say. It is work-man-like. It covers the bases yet lacks some of the anger of “Whoops!” whilst not being as convincing as “Debunking Economics”. We read the 2012 imprint of “Zombies” with a new chapter (ISBN 978-0-691-15454-1 Princeton University Press) that brought the topic up to speed with Austerity & the Occupy Wall Street movement. It briefly describes how the obscure/ignored arguments (he presented) had become more mainstream; they were being discussed openly because of the Occupy movement.
Quiggin has a go at knocking down the following “dead ideas”:
- the belief that the time between 1985 & 2008 were a “great moderation” where financial markets had been tamed
- the “Efficient Markets Hypothesis” that maintained the concept that financial markets set prices perfectly
- Dynamic Stochastic General Equilibrium – a highly academic notion that macroeconomics should ignore real world indicators of economic performance
- Trickle Down Economics – the idea that letting the rich get richer enriches everyone
- Privatisation – the fashionable belief that private companies outperform government-owned ones
- Austerity – the idea that the free market will generate wealth in a collapsing economy if the government stops spending money
As the author states:
“From the inside, ideology usually looks like common sense.”
Yes, very much so – particularly if you surround yourself with a group of advisers with a very narrow prescription for what ails us. Select your team and tune it to what you want to hear and pretty soon you will believe your own propaganda. How else do you explain politicians apparently leaving all sense of reality?
We can leave the Great Moderation largely untouched as this was a facet of economic circles in the USA and hardly impacted anyone in the real world. Which is sort of ironic really. However Quiggin takes a quick detour in this section to bash the inequalities of executive pay in a section that is probably more telling than it appears at first sight. In discussing the pushing down of risk from companies and government onto workers…
“Arguments against rewarding failure were forgotten when it came to CEOs.”
Whilst the majority of people descended into poverty and insecurity the lives of senior executives became somewhat more cushy. The social contract was over and senior management pay sky-rocketed in the good times and stayed high in the bad times. Whilst workers were punished for failure those at the top lead a gilded existence. Moral peril followed with massive failure the result. Collapse was inevitable.
So what happened between 1985 & 2008? Well the financial markets grew and became detached from real-world economic indicators. Household incomes declined but consumption was maintained through credit and the falling cost of household goods. It was driven by an assumption that the good old days would finally return allowing everyone to pay off their credit cards. That day was never to come. Volatility resulted. It was a pack of cards driven by a real estate boom. How deluded were the economists who pretended that the markets had been tamed.
So, onto the “Efficient Markets Hypothesis” which sounds laughable given the extent of the bubble that burst in 2008. You might as well believe in Unicorns. Despite the absurdity economists still argued that the hypothesis was correct – even after the great crash. As Quiggin astutely observes such a hypothesis “can’t tell us much of interest about anything” since it couldn’t predict a crash nor prevent a bubble forming.
“The logical implication is that a mixed economy will outperform both central planning and laissez-faire, as was indeed the experience of the twentieth century.”
Real world economics is about this “Goldilocks zone” where we achieve balance between the two. The kind of balance we enjoyed after World War Two when enormous wealth was generated to rebuild a shattered world at the same time as raising up the middle classes and smashing inequalities. Regrettably our politicians are not on course to restore the old balance that worked. As soon as some ‘normality’ returns they will let the markets return to their destructive business as before – unregulated. All debate about returning to that other ‘normality’ of the post-war settlement is beyond-the-pale – banished from acceptable thought. ‘Normality’ is only a return to the pre-crash bubble. It is NOT taken to be a return to stability and economic resilience. Politicians have short memories. The 1950s are another country – unless it comes to social policy. Then our right-wing politicians become very keen to return to the worst aspects of history. They remain blissfully unaware of the very good things of history that do not fit within their narrow ideology.
So to point 3 “Dynamic Stochastic General Equilibrium” – to be honest you do not need to know what this is as you may be none the wiser after reading the description contained here. All we need to know is that this academic conceit came crashing down in 2008. The elegant theory all fell apart when the banks collapsed. The theory said they should not. They did. The theory had no answers to what should be done next. So the politicians and economists got out the history books and did what they did in the 1920s. In the words of one economist “There has essentially been no advance in our knowledge in 80 years.”
This represents a massive failing of policy and of the Economics profession. They had argued for years about how to fit so many angels on the head of a pin. Their science was exposed as the useless theology that it was. It reminds us greatly of the Wizard of Oz as Toto peels back to curtain to find that Great and Powerful one to be nothing more than an old man pulling levers to scare children. There was no real power, no wisdom had been gained. Concludes Quiggin:
“..the economy is not a simple machine for aggregating consumer preferences and allocating resources accordingly. The economy is embedded in a complex social structure and there is a continuous interaction between the economic system and society as a whole.”
How frank, how refreshing.
“Several decades of research in behavioural economics, decision theory, and other fields have demonstrated, to anyone willing to look, a wide variety of ways in which real economic behaviour differs from the neoclassical ideal.”
Are we willing to look? The author tells us that “macroeconomics needs new, and more realistic, foundations“. Human beings work in herds, we are social animals. The clues are there – we are not the sum of our parts. Together we are irrational. Our social groups reinforce implicit assumptions to the point where failure is not considered. Everyone just KNOWS they are correct.
“Evidence against those assumptions will be ignored or explained away.”
…and that is exactly what happened. It is exactly what we keep doing. Ideas of “trust” and “confidence” need to be rationalised inside the economics models. Somewhere that ‘Goldilocks zone’ exists:
“Stagflation was seen as a demonstration that attempts to resist the logic of the market must ultimately fail. It took several decades to relearn the Keynesian lesson that an uncontrolled financial system will fail even more disastrously.”
So onward we march through Quiggin’s book into Chapter 4 on Trickle-Down Economics – a theory so thoroughly debunked that pretty much everyone knows that it is nonsense. Yet it serves the needs of power to believe that if the rich get richer that has to be good for everyone. This can never be true yet the very top 0.1% so benefit from the myth that it has been written into the very DNA of politics. It is now part of the operating system and is never questioned. Indeed Qiggin is very quick to point out how this Zombie is…
“…capable of rising again, no matter how many times it is killed and always at the service of the rich an powerful… Indeed, as long as there have been rich and poor people, or powerful and powerless people, there have been advocates to explain that it’s better for everyone if things stay that way.”
It was how Apartheid lived for so long into the modern age.
“The renewed popularity of trickle-down economics coincided with a resurgence of the political right, and with financial globalisation, which constrained the ability of governments to redistribute income from capital to labour.”
At this moment Quiggin veers close to sounding like Noam Chomsky as he described the United States as being a “land of opportunity” – an idea that…
“…is central to the American self-image. The belief that this high social mobility derives from free markets is widely shared.”
Yet it is demonstrably a myth. Social mobility can be measured. The results show that the USA is one of the most socially immobile countries in the developed world. It is closely followed by the UK which stands alone amongst the better-performing Social-Democracies of Europe. This is no coincidence. We keep the poor poor because of limited resources. There is not enough to go around. In order for a few to be outrageously rich most people have to be very poor. It is a zero sum game in which most of us lose by design. The belief that giving more and more money to rich people will enrich us all was faulty. It failed. The poor bolstered their diminished income with credit cards and by re-financing their homes during a property boom. It was a bubble that just had to burst eventually. Eventually the middle classes will be gutted and the rich will require a rising middle class in somewhere like China to drive global demand and keep their money-making schemes ticking over. This will be so until all the wealth is hoovered up into the hands of a few and the entire system collapses. It will eat itself whole. Maybe this was the ultimate contradiction that Marx felt would destroy Capitalism. The contradiction that wealth cannot be allowed to accumulate to fewer and fewer people because that is not sustainable. Widening the gap between rich and poor makes it harder and harder for the poor to climb the ladder. Those who make it to the top kick the ladder away.
“As one of the signs at Wall Street noted, “they only call it class war when we fight back.” “
Now our senior politicians were all educated at Eton and are millionaires. So it self-perpetuates. Forever… until the point of self-destruction.
Next Quiggin moves onto that other great piece of economic cannibalisation pursued by politicians in a short-sighted desire for cash & power – Privatisation. There is now a revolving door between Government and big business. The relationship is so close and incestuous that what is good for the City is often confused with the public good. We would literally sell grandma to the devil for a quick buck. It is a very British form of corruption that has spread around the English-speaking world despite its many failings.
In this area Quiggin’s arguments, although sophisticated, remain simple enough that the average Joe can understand it. The argument goes like this: it is very cheap for a government to raise cash by borrowing. Hence the income forsaken from the sale of a Nationalised industry has to be compared to what could have been done with that money if it was used to service the debt. So, for example, the under-pricing of a sale of British Telecom shares by the UK government in 1984 actually cost the British Government £15 billion in lost income. It doesn’t always have to be this way. Given the right circumstances a privatisation can be profitable for the public purse – but it is not pursued in the full knowledge of serving the public good. It is pursued as ideology. Politicians have faith that this zombie will serve them well instead of eating their brains. Too often they loose that bargain.
“Where a competitive market can be sustained, and there is no special requirement for close regulation, privatisation has usually been successful.”
Nationalisation was often used as a tool to fix market failure yet privatisation was invoked without fixing these underlying failings. Where substantial monopolies remained the failings remained and ill-served the economy. In the absence of appropriate regulation public ownership is often the best solution. We have forgotten the lessons of the mixed economy. We do not have to choose between laissez-faire capitalism and socialism. We must find that ‘Goldilocks zone’ again. This is not a compromise no more than a fine wine blend is failing the grape. An effective interaction is all that is required.
So finally we turn to the deadliest zombie of them all. An insidious mutant call “Austerity” that was roundly debunked in the 1930s and was NEVER tried again because everyone knew it would fail. Then came 2008 and resurgent right-wing governments who thought the rule didn’t apply to them and they could defy the laws of gravity and thermodynamics. Again – it was all ideology – the concept that Government spending “crowds out” private investment hence all Government had to do was make more space for private capital. But it doesn’t work, and it cannot, as has already been demonstrated. The myth has been perpetrated that Governments have been over-spending beyond their means and this had to be restrained. Of course it is nonsense – the financial crash required bailouts. Yet framing is everything – the reality is so repulsive people would prefer the fantasy of the “virtues of thrift and the need for sacrifice as a response to adversity“. A great narrative if you are running family finances or a small business but these rule do not apply to government.
Even more assiduous about this myth is that it was disastrous in the 1930s and lead to Fascism and World War Two. The conservative government of Heinrich Brüning came to office in Berlin in 1930 and pushed austerity. It left space for the extremist parties to grow into and Hitler was the result within three years. How close these events touch us today. In Britain in 2016 foreigners are blamed for everything that the Government has done. European partnership has been rejected regardless of any evidence to the contrary. [Quiggin points out that although events in pre-war Imperial Japan took a slightly different path Austerity was again a key component.]
Quiggin blames the re-emergence of the Austerity-zombie on the work of Alesina and Ardagna in the 1990s who suggested that there were several empirical examples of it working.
“They attracted the support of central bankers, ratings agencies, and financial markets, all of whom wanted to disclaim responsibility for the crisis they had created and get back to a system where they ruled the roost and profited handsomely as a result.”
If that little sentence doesn’t make you angry nothing will. (Quiggin uses the example of Australia to show that the work of Alesina and Ardagna was packed with half-truths hence was misleading.) The shift to austerity was “politically convenient” to the neo-liberal elite. It allowed them also to pretend that it was not their policies that drove the market crash. In fact Austerity became a vehicle in which this disastrous policies could be pushed even further. Hence we ushered in the age of “disaster capitalism” as described by Naomi Klein. Never waste a good crisis. Hence the burden of fixing the crisis of neo-liberal policies was passed onto “ordinary workers, public services, the old and the sick“. Beyond this we have the obvious issue of utter moral peril – or, in other words, we are digging a hole for ourselves even deeper than before. Yet with each crash the system is no longer self-correcting. Government power no longer mediates between labour and capital to achieve balance. Capital is all. Corruption is everywhere within the operating system. Since the system profits from cigarettes and cancer we prescribe more Nicotine for all our ill-health.
Sooner or later that patient must die.
The latter influence of Occupy movement becomes obvious in the “new” Austerity chapter:
“Expansionary austerity is not simply a zombie economic idea. It forms the basis of a political strategy of class war, undertaken by the financial and political elite (the “1 percent”) to hold on to the wealth and power they accumulated during the decades of market liberalism and to shift the costs of their failures on to the rest of the population.”
This flies under a flag of political convenience – the continued idea that what is good for the 1% is good for everyone. Hence everyone ‘benefits’ from their power, influence and wealth hence “everyone” has to pay when the bad times come. Both sides of this equation present zombie ideas. The general population did NOT benefit during the good times and making them pay after a crash won’t fix the economic slump that results. Making the innocent pay represents a failure of the system to self-correct. It rewards failure. Profits are privatised whilst costs are socialised. Risk will never be mitigated because there will always be someone else to pay. Socialism for the rich, capitalism for the poor. Hence it is in this updated section of the book the Quiggin moves beyond his academia and argues for “a political movement to mobilise resistance“.
Quiggin sketches out some general ideas for what might replace such a disastrous policy. It represents some rather underwhelming advice about GDP and growth targets whilst pursuing full employment. He talks up a dream of combining both fiscal and monetary policy together to achieve the result: a new ‘mixed economy’ combining the best of the old ideas with the best of the new. The author concludes the following focus is “what is needed in economics“:
- “More on realism, less on rigour
- More on equity, less on efficiency
- More on humility, less on hubris”
Amen to that. Quiggin bravely states that his profession failed us: “there is little value in being consistently wrong“. In short “economics must move on“. Economics is messy and chaotic and defies simplistic reduction. Yet these reductions are the very things that politicians like since such fantasy-economics can be cherry-picked to suit the counter-ethics of the day. It suits the powers-that-be.
What I wanted so much from this book was real passion, real anger. We needed Quiggin to mow down these zombies with machine gun in one hand and machete in another. Yet he mostly just belittles them for their poor dress sense. This book condemns the lack of real-world economics in the Economics professions yet doesn’t move far from academia. It is a genteel, other-worldly, conversation between the author and a few colleagues. No campaigning, no anger. It doesn’t serve-up much of a road-map. It is a few cheap snapshots. What the Occupy movement needs is a manifesto for progressive economics. They need a little red book to wave from the barricades of the old economy. These ideas are coming from Piketty, Stiglitz, Richard Murphy & Mariana Mazzucato, et al.
Few will remember Quiggin’s contribution ten years from now but he has just one thing that we should leave you with: he has framed the idea well. The concept of “zombie ideas” is the sort of language the progressive Economics and Political professions need to embrace. As we learnt from the War In Iraq, the debate on Climate Change and from the disastrous Brexit result from the UK EU Referendum – facts mean nothing in the face of “framing”. Beyond all the over-whelming evidence the progressive liberal-left needs to seize back the initiative. Facts are not enough – we must reclaim concepts of ‘freedom’ and ‘choice’ back from the right and place responsibility for failure back on the shoulder of those who genuinely failed. In short we need vision, honesty and justice. When will that arrive? It is way too late already.