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LSE blogpost

November 26th, 2010

Slightly anachronistically, here’s what I wrote for the LSE blog in advance of my lecture last night. The blog as a whole is well worth reading.

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  1. stockingrate
    November 28th, 2010 at 07:56 | #1

    I see the claimed success of the stimulus in Australia is an extension of the “great moderation” zombie(which I would define as excessive focus on low real GDP volatility) – in that it requires eyes to be closed to private (including foreign ownership) and contingent and non-contingent public balance sheet damage, and requires eyes firmly on avoiding negative GDP at the cost of setting up a bigger fall ie a worse but delayed Minsky moment.

    Government has been heavily involved in encouraging in housing debt in both the USA and Australia- stimulating the economy which works in GDP terms until it doesn’t, but doesn’t work from day 1 if success is defined to include debt.

  2. Ikonoclast
    November 28th, 2010 at 14:13 | #2

    Quote – “Professor John Quiggin argues that we need to abandon theories based on absolute individual rationality and better understand the ‘animal spirits’ that can lead to boom and bust.”

    Admittedly, I am taking this quote solo and out of context. And I think JQ is arguing for a bit more than this. However, to criticise the quote.

    It is not supportable that animal spirits lead to boom and bust except in the broadest and most trivial sense. (Since we are animals then our animal spirits must lead to everything we do.) Animal spirits is in any case an ill-defined concept; as ill-defined and meaningless as the word soul (for example) in any scientific discussion. Perhaps it’s shorthand for irrationality. In any case, qualitative judgements about rationality or irrationality have no place in political economy.

    Booms and busts in many cases can be traced to the credit cycle. Steve Keen’s analysis of excess credit causing assets price booms is apropos. The failure to control credit is political. This political failure grows out of the dominant unfettered capitalism ideology. Instead of looking at animal spirits we should be looking at and exposing the legitimising discourse of the dominant ideology. That is, the discourse which denies that excess credit causes these boom-busts and thus denies that regulation is required.

    I’m sure when I read JQ’s book, I will find he essentially says this (though perhaps in less idelogically charged language than mine).

  3. JamesH
    November 29th, 2010 at 10:09 | #3

    Paul Krugman has written something very similar in a post titled “The instability of moderation” that deserves to be widely read.
    I must say, though, that as a fairly far-lefty I am irritated Krugman and Quiggin’s implicit assumption that there is no coherent economics to the left of New Keynesianism (discounting Marxism for the moment), that Keynesianism had “no response” to the inflation of the 70s, and now we have to start again almost from scratch.

    On my desk I have a little book (not red) called “A guide to Post-Keynesian economics”. It contains a coherent Kaleckian explanation of how a real terms-of-trade supply shock (the OPEC crises) can lead to an inflationary/nominal wage-price spiral as oligopolistic businesses and strong unions each attempt to push the real loss onto each other. It was written in 1978. Makes a hell of a lot more sense than Friedman’s “rational expectations” argument that (stripped of all the blather) in 1972 everyone suddenly woke up and said “hey, the rising living standards of the past thirty years should lead to uncontrolled inflation! I’d better start radically raising my bargaining position now to account for the inflation I suddenly forsee happening despite not having been troubled by it since 1945!”

    There is a lot of recent post-Keynesian literature out there and John, as one of Australia’s economic opinion leaders, could do a lot of good by acknowledging and drawing attention to it.

    PS Ikonoclast, “Animal Spirits” is Keynes’ term. I always understood it to refer to the herding behaviour of investors in the stock market; they buy because everyone else is buying and panic (and stampede) because everyone else is panicking.

  4. JamesH
    November 29th, 2010 at 16:15 | #4

    PS. Those interested in knowing more about non-Marxist left economics might find the upcoming 9th Annual Society of Heterodox Economists conference interesting. 6-7 December at the Coogee Bay Hotel.

  5. Alice
    November 30th, 2010 at 19:53 | #5

    Ive long been a fan of the heterodoxies!

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