First Bank of the Living Dead
That’s the title of Daniel Drezner’s review Zombie Economics along with several other post-crisis books. I’m glad he likes the title, but he offers what seems to me to be a rather unfair representation of my argument. As the author, I’m not exactly unbiased, so see what you think.
… Quiggin is clear-eyed about Keynesianism’s failures as well as its successes, but he believes that:
The failures of the 1970s were the result of mistakes that could have been avoided with a better understanding of the economy and stronger social institutions. If so, the current crisis may mark a return to successful Keynesian policies that take account of the errors of the past.
He might be right, but if so it would contradict everything else contained in Zombie Economics. Quiggin thinks he’s only writing about the failure of free-market ideas, but he’s actually describing the intellectual life cycle of most ideas in political economy. All intellectual movements start with trenchant ways of understanding the world. As these ideas gain currency, they are used to explain more and more disparate phenomena, until the explanation starts to lose its predictive power. As time passes, the original ideas become obscured by ideology, caricature and ad hoc efforts to explain away emerging anomalies. Finally, enough contradictions build up to crash the paradigm, although current adherents often continue to advance the ideas in zombielike form. Quiggin demonstrates with great clarity how this happened to the Chicago school of economics. How he can think it won’t happen with whatever neo-Keynesian model emerges is truly puzzling.
And here’s the full quote from the book along with the preceding couple of paras
How then, should we think about the Keynesian era and its failure?
One possible interpretation, a pessimistic one, is that business cycles are so deeply embedded in the logic of market economics, and, perhaps of all modern economies, that they cannot be tamed. Success breeds hubris, and hubris leads us to ignore the lessons of the past: that resources are always constrained, that budgets must ultimately balance, that wages and other incomes cannot, for long, exceed the value of production and so on. It the 1960s and 1970s, this hubris manifested itself in unsustainable budget deficits and the wage–price spiral. In the 1990s and 2000s, it was seen in the speculative frenzy unleashed by the self-styled Masters of the Universe in the financial sector.
But this is not the only possible interpretation.
Perhaps the failures of the 1970s were the result of mistakes that could have been avoided with a better understanding of the economy and stronger social institutions. If so, the current crisis may mark a return to successful Keynesian policies that take account of the errors of the past. (emphasis added)
It’s only one omitted word, but I think it makes a difference.