Zombie Economics

ZOMBIE ECONOMICS: How Dead Ideas Still Walk Amongst Us

JOHN QUIGGIN

Black Inc., 2012, 265 pages, $26.95 (pb)

Review by Phil Shannon

“Being already dead”, says John Quiggan of zombie ideas in economics, “they can absorb all kinds of damage and keep lumbering on” – so, despite severe reality checks such as the historical Great Depression and the contemporary Global Financial Crisis (GFC), classical free market economics continues to lead its undead life in the neo-liberal form of what Quiggan calls “market liberalism”.

These zombies include the so-called ‘Great Moderation’, the seemingly endless economic boom from the mid-1980s which was heralded as ending the business cycle of boom and bust until it, too, joined its dozens of failed capitalist prosperity nirvana predecessors in economic recession. Built on doomed-to-fail policies of financial liberalisation, the current era of finance-driven capitalism may have delivered large and growing macro-economic aggregates but these merely masked the ever-increasing economic risk, staved off only by debt, faced by households.

When the dodgy finance products came home to roost and the GFC dust settled, whole national economies had been destroyed, millions thrown out of work and collective budget deficits had hit the trillions. From the carnage, however, there re-emerged the zombie market liberal idea that the GFC, in the words of one commentator, was but a ‘transitory volatility blip’ which had only temporarily waylaid the next capitalist economic miracle.

This blind hope also necessarily fails to see that the halting, post-GFC recovery has been due to the “very measures that market liberalism was supposed to have rendered obsolete”, namely massive government economic intervention. Amongst such Keynesian measures were bailouts, government spending stimulus and nationalisations of private corporations, the latter a seemingly fatal blow to one of the market liberals’ favourite zombies – privatisation of public assets and services.

Privatisation may bring one-off increases in revenue to fund recurrent government expenditure but the loss of future earnings, and the decline of customer service and increase in consumer prices, quickly becomes evident, and has even prompted some re-nationalisations (rail in Britain, rail and airlines in New Zealand). Privatisation remains, as always, the gift of taxpayer-funded assets to the capitalist class.

As equally robust as the privatisation zombie is “the ultimate zombie idea” of ‘trickle-down economics’, which maintains that by making the rich richer (chiefly through tax cuts to supposedly remove disincentives to investment), the benefits (jobs and wages for workers, more revenue for government social spending) will trickle down to everybody. The ‘rising tide’, however, rather than ‘lifting all boats’, instead engulfs the worst-off with a wave of growing income inequality. Unsurprisingly, says Quiggan, “policies to benefit the rich at the expense of the poor have done exactly that”.

All these zombie ideas have thrived in Australia where, in addition, says Quiggan, the “most distinctive” contribution of the local market liberals, in their heyday known as ‘economic rationalists’, has been a “relentless focus on productivity” – not through technological progress or education, with some of the benefits flowing on to workers through increased leisure time, but squeezing more output per worker i.e. making employees work harder, faster and longer, the benefits flowing to employers. Although ‘economic rationalism’ has fallen into linguistic disuse, this particular micro-economic ‘reform’ fetish continues to live the life of the undead amongst the Australian economic policy elite of conservative politicians, business organisations, think-tanks and economic commentators.

In comparing the economic record of market liberalism with its Keynesian alternative, Quiggan reminds us that whilst Keynesianism comes out ahead, it, too, met its post-war economic Waterloo in the “chaos and failure of the 1970s” with interest rates, inflation and unemployment running wild. Quiggan raises the prospect, only to dismiss it, however, that this failure was inevitable because the boom and bust cycle is “deeply embedded in the logic of market economies”, whether neo-liberalism or Keynesianism pulls the levers.

What Quiggan instead poses as a “genuine Third Way” between Keynesianism (and its embarrassing cousin, ‘state socialism’) and laissez-faire capitalism is a judiciously-balanced ‘mixed economy’, a state and private sector partnership in ‘civilising capitalism’. Capitalist economic ideology is not necessarily full of “transparent fictions designed to protect class interests”, says Quiggan. So, for example, he allows privatisation, especially for “firms that never really belonged in the public sector”, and dismisses “comprehensive public ownership” as “an extremist position”.

Private capital, however, has only one rationale - profit - and, in the face of deepening ecological and social crisis, the political power of private capital looms as the largest obstacle to a habitable world. Quiggan’s ‘mixed economy’ is still a capitalist economy, after all, with the state ensuring optimal profit-friendly conditions for capitalist growth whilst keeping workers in slightly less grumpy line. Publicly owned, community controlled and climate-benign industry and services, with economic policy in the democratic hands of the people – socialism, in short – can be an effective zombie-killer. Keynesians and “sensible proponents of the mixed economy” aren’t up to it.