Zombie Economics

Over the weekend I finished John Quiggin’s entertaining and accessible Zombie Economics: How Dead Ideas Still Walk among Us. To switch undead metaphors a bit, the conceit of the book is that the Panic of 2008 ought to be the stake through the heart of what Quiggin calls the “market liberal” paradigm that’s prevailed since stagflation killed the postwar Keynesian consensus.

To me the most interesting thing about the book is that even though the rhetoric, tone, and ideological self-positioning are 180 degrees away from Amar Bhidé’s book the proposals on bank regulation are literally identical. The same in every way. So hopefully people who enjoy valorizing businessmen and talking about how capitalism is awesome will read Bhidé’s book while people who enjoy afflicting the comfortable and talking about the need to tame markets will read Quiggin’s book. I’ll cross my fingers and hope that Dodd-Frank and Basle III will be all we need to prevent a new financial panic, but realistically I think more far-reaching reforms will be needed and these books point the way.

On the other side of the spectrum, the most provocative argument Quiggin offers is that the contemporary world massively overrates the case for privatization of “natural monopolies” and underrates the case for new public investments. I wish this chapter had been a whole book of its own, since it’s extremely thought-provoking but I have a lot of questions about the argument. For example, instead of a case for a small number of state-owned enterprises coexisting alongside private ones, is this possibly a case for sovereign wealth funds and the state acting as a passive investor in a wide range of firms?

Big picture, when the crisis first hit I know a lot of people on the left were excited about the prospect of it discrediting the right. Now heading into the midterms, the momentum has shifted to the idea that somehow the recession may discredit the welfare state. I think if you look back to the prolonged crisis of the seventies you see that this kind of interpretative pendulum can swing around quite a bit, and Quiggin’s argument is an important intervention in recapturing the narrative.