John Quiggin, Zombie Economics, Princeton, 2010
The collapse of the world economy brought a lot of economics down with it, and while we should not expect economics departments to care much about this, some individual economists are participating in discussions going on outside the university. John Quiggin’s contribution to this discussion is as good as any, and you should buy and read it. (Disclosure: back in the days when I had some hope for the world I trolled the Crooked Timber website where Quiggin resides, and he has even thrown an acknowledgment my way. But I bought my copy with my own money).
“Zombie economics” lives on even after it’s been disproven. Quiggin specifically talks about “The Great Moderation”, “dynamic stochastic general equilibrium”, the efficient markets hypothesis, trickle-down economics, and privatization. These were all key components of the center-right-to-far-right political consensus that dominated politics and government in the U.S. (and globally) during the last thirty years (and probably still does). But of the five of them, only dynamic stochastic general equilibrium ever really claimed to be an actual economic theory. The other four were merely wishful hypotheses or rough policy guides which conformed to the prejudices of the movers and shakers.
I have no quarrel with the specifics of what Quiggin says, but I think that his professional bias makes him exaggerate the role of economic theory in the events of that era. Economists were just mercenary auxiliaries in the service of the political actors who transformed America starting in 1980. The economy itself cannot be reduced to politics, but given its inconsistency, incompleteness, uncertain empirical grounding, and corruption, economic science can be. Starting around 1968 an effective majority of Americans, at least, moved from being grudgingly willing to make small sacrifices in order to improve the lives of others, to a more enthusiastic willingness to make small sacrifices in order to make sure that others get hurt.
Quiggin seems to assume that most people and most economists think that inequality, poverty, and suffering are bad things, but many do not. To a pure economist of the dominant school, inequality is a good thing, and poverty, etc., are bad only if they drag down the economy as a whole — one of them recently calculated that poverty is a bad thing only if the security cost of repressing the underclass rises too high.
Conservatives in general, whether economists or not, believe that suffering is inevitable and godly and that it is sinful to try to reduce it much. They’ve grudgingly come to accept modern medicine (except in the case of AIDS), but they despise political attempts to wipe out poverty or reduce inequality. Whether as punishment for sin, or as the unavoidable outcome of inevitable misbehavior, or as a way of weeding out the gene pool, or as a way of incentivizing the lazy, or as a way of intimidating and disempowering potential evildoers, or as a way of marking the limits of acceptable behavior so everyone knows what they are, or merely as the stakes in the great game of life (the agony of defeat needed to enhance the thrill of victory), to conservatives misery, suffering, crime, and punishment are necessary and useful parts of God’s great plan. And not everyone needs even that much justification: there are many conservatives who oppose social spending for the same reasons that they used to set cats on fire. (Selfishness has something to do with it, of course, but in recent decades a lot of noses have been cut off in order to spite faces too.)
And to that must be added the drug-fueled euphoria that gave us Dow 36,000, etc. The optimistic mix of Wall Street numerology, pop psychology, prosperity Christianity (mixed with Armageddonism), visionary futurology, quantum fractal pop science, self-help, pyramid scams, get rich cults, Ponzi schemes, self-affirmation prayers, Tom Friedman metaphors, etc. that made up the mind of the Nineties was too powerful for any but incurably grumpy to resist, and it infected a lot of people who should have known better (including, be it said, the liberal globalists). A flood of infectious delusion persuaded the chump majority that they were actually insiders in the con game of America.
In public politicians have to say that you strongly want equality and opportunity for all and that their policy proposals are designed toward that end, but they don’t have to believe it. The virtually continuous success of the Democratic Party between 1932 and 1968, together with Eisenhower and Nixon’s acceptance of the New Deal, concealed the fact that all during that time there was a large, often wealthy minority that never accepted any of it and basically wanted to turn the clock back to the McKinley era. (To a serious Republican, Theodore Roosevelt, like his cousin, was a traitor). These men (mostly) never gave up, and when liberalism finally faltered in 1968, they were ready to strike.
Certainly, economics provided them with some of the propaganda weapons they used to attack Carter and the Democrats and to justify their own plans, but the economic weapons were only one part of a large arsenal, and the right wing never cared much whether it was good economics or just propaganda trash like the Laffer hypothesis. Punitive resentment and magical thinking were certainly more important factors.
The politics was there first, and the science was built under it. The Laffer Hypothesis was almost instantly refuted and abandoned, but who cared? The Great Moderation was just a hypothesis, too: a certain regularity was observed and pumped up into a law which happened to be highly convenient to one political tendency, but there never was any law there — it was like a lucky gambler ‘s system for winning the numbers game. The Efficient Markets hypothesis was much the same. Its weak spots were known from the beginning, but there was no way to force its backers to admit anything, and it was only finally tested when it it was written into policy and the world economy collapsed. The experiment that falsified the Efficient Markets and Great Moderation hypotheses is the world we live in – a world which may never recover from what is already the longest and deepest recession since 1929. But the political agenda is rolling on, because, really, who cares? The next thing we need to do is reduce Social Security benefits.
Economists can only test their theories by taking political power; otherwise these theories are purely scholastic and hypothetical. By 1980 the Democrats and Keynesian Republicans had been in power for 48 years, and a number of things had recently gone wrong, including the economy (along with the Vietnam War and a rise in crime). The Keynesian remedies did not work, and a new economic team, allied to a new political team, was ready and waiting. When these new eco0nomists took over, they brought along their own political principles and the political principles of their political sponsors. As part of this new and successful political alliance, their economic ideas became the default for several decades. But how much does this have to do with economic theory, and how much of it is just a political and cultural power shift? One set of pseudo-scientific economic rules of thumb posing as science was replaced by a different set. The science was never really there, either way. (As Quiggin says on p. 81, “Money supply targeting [the panacea of Reagan's Chicago School economic team] did not work particularly well and was later replaced by policies managing interest rates, but the resurgence of the Chicago School was not reversed”.)
This is not to say that there was never anything there at all. The Keynesian set of policy guidelines and rules of thumb was a perfectly nice one, but not robust enough to survive LBJ and Nixon. (Think about that: Nixon was the last Keynesian. How could anything possibly have gone wrong?) The incoming Chicago school policy guidelines were probably perfectly nice too, at least for anyone who believed that the lower orders needed to be slapped around a bit. But the Chicago rules were tested by George W. Bush (who seemed to be dabbling in Keynesianism at the same time), and the disastrous outcome was hardly a surprise. Nixon and Bush were like kids who take the word “unbreakable” as a challenge and an insult.
LBJ and Nixon tested Keynesianism by fighting a credit-card war, and the economy ended up with problems which Carter couldn’t solve with Keynesian or any other method. Was this really a refutation of Keynesianism, this one single experiment? Suppose that LBJ and Nixon had been more prudent Keynesians, and that the problems hadn’t arisen – would Keynesianism then still be true? Even after the political transition Reagan still governed as a pseudo-Keynesian anyway, and thirty years later George Bush did the same thing with another credit-card war. Once in power, Reagan and the Bushes pushed through their political agendas, but what they were doing had little to do with economic theory.
So now an other school of economics lies in the rubble, if anyone cares. Another voodoo economist will show up sooner or later. All they will have to do is prove that you can cut taxes, maintain military spending, and balance the budget all at the same time.
What’s happening now is politics, and what we really need is a political movement of the radical or populist type, not an additional and supposedly better economic theory. But the Democrats have spent the last 75 years or so expelling everyone capable of leading such a movement, and they have degraded the Democratic brand so badly that they haven’t even been able to keep the Koch brothers — two of the ten richest men in America – from proclaiming themselves to be the leaders of a populist revolt.
Life is sweet these days for economics nihilists.