There's that old cliché that you can't judge a book by its cover and that's certainly true of John Quiggin's Zombie Economics from Princeton University Press. The jacket looks like a comic book or a poster for a psychotronic film which is unusual for the usually stodgy looking economics book, but don't let that dissuade you from believing this is not a serious or well written piece of work. Peppered with humorous quotations, theory and history, Quiggin has assembled a compelling read about the misguided intellectual economic assumptions of the last forty years and also gives possible solutions to our current financial dilemma.
The book is divided into five chapters which deal with various economic theories that have permeated the academic economic landscape for the past half a century: the Great Moderation, the Efficient Markets Hypothesis, Dynamic Stochastic General Equilibrium, Trickle-down economics and Privatization. Each chapter gives you the background of the birth, life and, finally, the death of the theory caused by the ongoing global economic crisis. Quiggin also discusses the reanimation of these theories in contemporary economic circles and gives alternatives to the academic status quo which in essence is same dog, different fleas. Throughout Zombie Economics, the author takes pot shots at his contemporaries with quotes like: "It is clear there is something badly wrong with the state of economics. A massive financial crisis developed under the eyes of the economic profession, and yet most failed to see anything wrong.". Although Quiggin is among this ilk, he attempts to defuse the bomb by coming up with common sense suggestions to help better our financial system.
One such suggestion is to create a "narrow banking" system. This new order would begin with the old guard in finance such as banks and insurance companies. These institutions would offer: "...a set of well-tested financial instruments with explicit public guarantees for clients.". Quiggin goes on to say: "Publicly regulated (and guaranteed) banks and other financial institutions should be prohibited from engaging in speculative trade on their own account and from extending any form of credit to institutions engaged in such speculation.". The author does not suggest that, "...it is necessary to prohibit risky investments, or even prevent speculators from developing and trading in risky new financial assets. What is crucial is that these operations should not threaten the stability of the system as a whole.". He goes on to say they should be left to sink or swim, like in the true free market. So what you can infer is that he is promoting a two pronged approach that is in part controlled by the government and the remainder left to the ebbs and flows of the market.
There are many common threads throughout the book. Right from the get go, it's very apparent he is in utter disagreement with a majority of his colleagues about the success of "Reaganism", "Thatcherism", or what ever you want to call the economic policies of the past 40 years. Quiggin, an economics professor at the University of Queensland in Australia, is very much a champion of the poor and middle class and feels the rich have only gotten richer with the free market approach to capitalism. Quiggin is really in the middle of the road because he feels there should be a combination of prudent government intervention along with some laissez-faire policies.
I learned a lot from this book. Concepts like the Greenspan put, Black-Scholes model, Minsky's Keynesian theory, random walk financial markets and cost-push inflation were just some of the topics explained in not so much conversational language, but easy enough to understand academic-speak. It's not a page-turner, it's an economics textbook, so you have to read it in small increments if you want to absorb much of the beneficial information in Zombie Economics. Many times when you are watching Bloomberg or CNBC, the jargon that comes out of the mouths of some of the talking heads can go right past you. This book makes me better prepared to understand in detail what they are talking about and it can do the same for you, too.