Zombie economics alive and well and destroying our future

Friday, February 27, 2015

Zombie Economics: How Dead Ideas Still Walk Amongst Us
John Quiggin
Black Inc., 2012
265 pages, $26.95 (pb)

“Being already dead,” says John Quiggin of zombie ideas in economics, “they can absorb all kinds of damage and keep lumbering on.”

And so, despite severe reality checks such as the historical Great Depression and the more recent Global Financial Crisis (GFC), classical free market economics continues to lead its undead life in the neoliberal form Quiggin calls “market liberalism”.

These zombies include the so-called Great Moderation — the seemingly endless economic boom from the mid-1980s. This 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. Yet 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 in 2007, and the GFC dust settled, whole national economies had been destroyed, millions thrown out of work and collective budget deficits had hit the trillions.

The humanitarian crisis now seen in countries such as Greece, caused by austerity justified by its national debt, is one such consequence of the GFC.

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” that had only temporarily waylaid the next capitalist economic miracle.

This blind hope also fails to see that the halting, post-GFC recovery was due to the “very measures that market liberalism was supposed to have rendered obsolete”, namely huge government economic intervention.

Among such Keynesian measures were bailouts, government spending stimulus and nationalisations of (failing) private corporations. The last measure was a seemingly fatal blow to one of the market liberals’ favourite zombies — privatisation of public assets and services.

Privatisation brings one-off increases in revenue to fund recurrent government expenditure. However, the loss of future earnings, and the decline of customer service and rise in consumer prices, quickly becomes clear. 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”. This maintains that by making the rich richer (chiefly through tax cuts to supposedly remove disincentives to investment), the benefits (jobs and higher wages for workers, more revenue for government social spending) will trickle down to everybody.

Rather than “lifting all boats”, however, the “rising tide” instead engulfs the worst-off with a wave of growing income inequality. Unsurprisingly, says Quiggin, “policies to benefit the rich at the expense of the poor have done exactly that”.

All these zombie ideas have thrived in Australia. Here, says Quiggin, the “most distinctive” contribution of the local market liberals, in their heyday known as “economic rationalists”, has been a “relentless focus on productivity”.

This has been pushed not through technological progress or education, with some of the benefits flowing on to workers through increased leisure time, but by squeezing more output per worker. In other words, by making employees work harder, faster and longer, with the benefits flowing to employers.

The term “economic rationalism” has largely fallen into disuse. However, this particular micro-economic “reform” fetish continues to live the life of the undead among Australia's economic policy elite of conservative politicians, business groups, think tanks and economic commentators.

Quiggin compares the economic record of market liberalism with its Keynesian alternative. And while Keynesianism comes out ahead, Quiggin points out how it, too, met its post-war economic Waterloo in the “chaos and failure of the 1970s” with interest rates, inflation and unemployment running wild.

Quiggin raises the prospect, only to dismiss it, that this failure was inevitable because the boom and bust cycle is “deeply embedded in the logic of market economies”, whether neoliberal or Keynesian.

Quiggin instead poses what he calls as a “genuine Third Way” between Keynesianism (and its embarrassing cousin, “state socialism”) and laissez-faire capitalism. In his vision, this is a judiciously-balanced “mixed economy”, a state and private sector partnership to create a “civilising capitalism”.

Quiggin says that capitalist economic ideology is not necessarily full of “transparent fictions designed to protect class interests”.

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. In the face of deepening ecological and social crisis, the political power of private capital looms as the largest obstacle to a habitable world.

Quiggin’s “mixed economy” is still a capitalist economy, after all, with the state ensuring optimal profit-friendly conditions for capitalist growth while 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.