Friday, December 10, 2010

Reading Note: Zombie Ecnoomics

  John Quiggin's Zombie Economics has achieved a respectful reception.  It does have its virtues but on the whole I found it a bit of a disappointment.

Virtues: Quiggin does have a knack for explaining complicated economic ideas in a straightforward and intelligible manner. He has the makings of a good teacher though I certainly hope he is prepared to say it all more than once if expects to get adequate comprehension from ordinary undergraduates.  In any event, he's a pretty good cheat sheet on some of the structural issues that define or beset modern macro.

Defects: one defect is that the book bears all the earmarks of a rush job.  I can only guess--he wanted to respond to the moment, on is own or at the urging of others; or he simply wanted to move on to other things. Still, you can' escape the feeling that this is the product of months when it could have profited from the gestation of years.

Two: I do think Quiggin rigs the game in his favor at more than one point.  Example: his treatment of the Efficient Capital Market Hypothesis.  He does a creditable job of demonstrating just how intellectually bankrupt ECMH is in dealing bub bles and the bursting thereof.  So far so good.  But he glides over the core of good sense at the heart of ECMH which underlies its role (or non-role) in understanding the late meltdown.  That is: prices impound information.  Not always, and not as quickly or completely as its proponents pretend.  But faster than most investors can move.  The practical fact  is that investing remains a savagely competitive game at which amateurs will achieve an upper hand over professionals only with an extraordinary mix of luck, skill, and hard work.  Anybody who doubts tht the market was and remains broadly "efficient" in that sense--any such investor will soon part with his portfolio.

Another example:  privatization.  I think Quiggin states the case in favor of privatization in  manner that makes his own job too easy.  He says "the central teneet of the ideology of privatization is simple."  That is:
It is the claim that an economy in which all  major decisions on investment, employment and production are left to private firms will outperform a mixed economy where governments play a significant role in such decisions.  Provided private firms are free to compete on a "level playing field," this means they will always have a higher value than they would have under public ownership.
The italics are mine but the exaggeration is his. I wonder who has thought that all major decisions must be left in private hands and that properly guided they will always have a higher value.  Perhaps Murray Rothbard or Ayn Rand.  I doubt that Milton Friedman believed it, or Friedrich Hayek--certainly not on their good days. What they did believe--what I believe--is that there are sound practical and moral reasons to favor decentralized decision-making, and good experiential reasons to suspect that governments may impede more often enhance the likelihood of achieving the desired goals.  This doesn't justify selling government capital assets to cover cyclical budget shortfalls, nor the transfer of public monopolies into the hands of unregulated private monopolies.

I don't know of anyone who has tried to do a comprehensive assessment of the effect of privatization over, say, the period since World War II: probably way too ambitious.  Still, I suppose we could all agree that the pell-mell privatization of post-Soviet Russia was a horrendous botch which greatly enhanced the suffering of masses of ordinary Russians (and bye the bye, led to a spectacular increase of the death rate).  We could go further and say that at least part of the blame lies on meddling Western economists with ideological blinders.  But do we really pine for state-run Soviet industry--bloated and senescent, draining the lifeblood out of a society and putting wealth into the pockets of only a selected few?

And it is hardly Russia alone: rail as one will against Maggie Thatcher and her ism, was Britain a better, stronger, happier country when the sovereign owned coal and steel?  Actually, Quiggin may think so; I do not.

I could go on but let me segue instead to my other major complaint which follows naturally from what has gone before.  That is: however shrewd and sophisticated Quiggin may be in seeing  intellectual bankruptcy of modern economics in the markerplace, he is utterly slack-jawed when it comes to his evaluation of the state.  A few fragmentary passages aside, you'd think he'd learned nothing from all the good work that has been done over the past couple of generations by way of critique of state as an institution.  Granted that the critics may have gone overboard; granted that they may harbor the unworthy purpose of destroying the state by fair means or foul.  There are tangential bibliographic references to James Buchanan and Gordon Tullock; also to Anthony Downs, on what Quiggin calls "the 'market for votes' model of [politics."  But then he says:? "In one of my own earliest papers ... I pointed out numerous problems with the public choice approach."  Well, I guess that settles that.   But readers who think that the critiques of the state cannot be dismissed with the flic of a self-citation--those readers will find themselves disappointed that his critique of the state is so flaccid as contrasted with his critique of the market.

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