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Shelf Life

Zombie economic ideas still among us

Marketplace Staff Oct 29, 2010
Shelf Life

Zombie economic ideas still among us

Marketplace Staff Oct 29, 2010


KAI RYSSDAL: It is, I suppose, full disclosure time. I’m not really a Halloween kind of guy. Just don’t enjoy being scared, really. So the whole werewolf, vampire, zombie thing that happens this time of year always bothers me a little bit. Forget the monsters for a second, though. It turns out economic ideas can be zombies too — theories that refuse to die no matter how wrong they are proved to have been. John Quiggin is an economist at the University of Queensland in Australia. He’s got a new book out called — wouldn’t you know — “Zombie Economics.” John, good to have you with us.

JOHN QUIGGIN: Good to be here.

RYSSDAL: So you quote several places in this book. You quote John Maynard Keynes and his book, “The General Theory of Employment, Interest and Money.” Is there a general theory of zombie economics? Can you tie all these things together?

QUIGGIN: Well, I think I can tie together the package of ideas I’m talking about under the name market liberalism, that we really need to leave as much as possible to markets and get governments out of the road; as opposed to the kind of idea of a mixed economy with a role for both governments and markets that prevailed for most of the post-war period.

RYSSDAL: All right. So let’s pick one and hash it out, shall we?

QUIGGIN: That’s a good idea.

RYSSDAL: All right. So this idea of the Great Moderation, that we have beaten the business cycle, that economic volatility is over. Certainly the past two years put that one to rest, didn’t they?

QUIGGIN: That’s right. And this idea is itself pretty old. We had it here in the 20s and in the 60s and yet another with the so-called Great Moderation. But nonetheless, people are still defending the idea and central bankers are looking forward to a resumption of business as usual.

RYSSDAL: Well let me ask you this, then. If we’ve got economic models failing right and left all over the place, what are we to believe? Is the problem not perhaps the models, but perhaps the economists, you know?

QUIGGIN: We have to admit that there’s an awful lot that we don’t know about how something as complex as the macro economy works, but then try and at least look at the large-scale relationships, which do suggest, for example, that a fiscal stimulus applied at the right time can have a positive effect, that we need to be pay attention of aggregated imbalances of the kind that were building up. Those kinds of things tend to be obscured by an excessive focus on elegant theory.

RYSSDAL: What are we to do then? How do you — not to carry the metaphor too far — but how do you put a stick through the heart of one of these zombie theories?

QUIGGIN: After I wrote the book, I saw the movie “Zombieland,” and rule number two is double tap. You always have to hit them twice. I talk about the trickle down theory, that when you help the rich that helps everybody. I think a theory so convenient to powerful people is never going to be cured permanently.

RYSSDAL: And the theory about trickle-down economics is in some way coming back to the United States in this debate we’re having about the Bush era tax cuts.

QUIGGIN: Absolutely. It’s suggesting that keeping on giving tax cuts to the top 1 or 5 percent of the population is going to help everybody else. The evidence is very clear that that’s not the case. That the vast majority of benefits of economic growth have gone to people in the top 10 percent of the income distribution. Within that 10 percent, the top 1 percent has done much better than the remaining 9 percent, and within that 1 percent, the top tenth of a percent has done even better.

RYSSDAL: Can we have a global economic recovery while these zombie ideas still do walk among us?

QUIGGIN: Well, we’re bound to have some kind of a recovery. Obviously we’re past the absolute worse of the crisis, although we’re bumping along, not going very well. So there will be some kind of a recovery. The problem is more that unless we address these ideas and the policies based on these ideas, we’re bound to have another crisis. If you look at the efficient markets hypothesis, really the evidence from the dot-com bubble and bust ought to have been enough to tell the policy makers that our financial markets aren’t rational in that way. Instead, what we got was the Sarbanes-Oxley reforms. Within a couple of years after the crisis, the conventional wisdom was this was an overreaction, our financial markets are great, let’s just keep on going.

RYSSDAL: John Quiggin is professor of economics at the University of Queensland, down in Australia. His new book is “Zombie Economics: How Dead Ideas Still Walk among Us.” Professor, thanks so much for your time.

QUIGGIN: Thank you.

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