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Socialist Party of Great Britain - Capitalism In Crisis - Zombie Economics: Economic Ideas that Refuse to Die..

As fans of horror films know only too well a zombie is a manifestation of the living dead usually popping up in a graveyard after some voodoo incantation. The Australian economist, John Quiggin, author of ZOMBIE ECONOMICS: HOW DEAD IDEAS STILL WALK AMONG US (2010), transfers the idea of the fictional Zombie to economic theory. He explains in considerable detail just how hard it is to kill off bad economic theories – from the “Great Moderation” (a belief in a crisis free capitalism) so beloved by the likes of Alan Greenspan and even Ben Bernanke, “the efficient markets hypothesis” (strategies for gambling in the casinos of the financial markets), the exotically named “dynamic stochastic general equilibrium” (rational economic man armed with perfect information), to Ronald Reagan’s “trickle-down economics” (capitalism benefits the poor) – even in the face of overwhelming evidence that they don’t work.

Professor Quiggin defines a Zombie idea as “one that keeps on coming back, despite being killed” (p.5). And he has in his sights one particular “zombie” idea; that capitalism left to its own devices can ensure indefinite “full employment and steady economic growth”. Quiggin reminds us that we have been here before. In October 1929, on the eve of the Wall Street crash, the leading economist of his day, Professor Irving Fisher, announced that “Stock prices have reached what looks like a permanently high plateau” (p.5). Fisher believed in a crisis-free and harmonious capitalism but he was wrong. Yet the theories which justified his view persist.

In the 1960’s, after economic liberalism was replaced with the ideas of Keynes, economic advisors to John F Kennedy believed the government had the power to prevent economic crises and trade depressions (p7). The optimism of government controlling the trade cycle did not last a decade. Amid the stagflation of the 1970’s, Keynes’ ideas of “fiscal control of the economy” were seemingly killed off. THE TIMES (13th February 1976), told its readers that “unemployment… will decline as fast and as soon as we all forget Keynes”. And then it was the turn of economic liberalism to roam the universities and economic policy institutes with its boast of “sustained growth” and “No more boom and bust”. Two economic crises later with economic liberalism’s monetarist doctrines guiding government policy, unemployment in the UK, twice peaked at over three million following deep economic crises.

Since 2009 the economic pendulum has swung back to Keynes, championed by his latter day supporters like Professor Paul Krugman, James Tobin and, of course, John Quiggin himself. Now the economic liberals are fighting back pretending that the recent economic depression was not really a depression at all and was, instead, the fault of former President Clinton forcing the US banks to lend mortgages to the poor. Capitalism can never be held to account although it was Marx who showed that economic crises were just a manifestation of capitalism’s destructive and contradictory economic laws. On the trade cycle he wrote:

…capitalist production moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crisis and stagnation (WAGES, PRICE AND PROFIT in Selected Works Volume I, p. 440 1975).

This is an accurate description of capitalism and it is interesting to note that Marx gets no mention at all in Professor Quiggin’s index although it is hardly surprising since he associates “Marxism” with either the failed state capitalism of Russia (p.137) or “mechanistic determinism” (p.175), whatever that means. Marx did not write CAPITAL and other works to guide economists and politicians in the management of capitalism. Quite the reverse. Capitalism, for Marx, was anarchic and acted as a fetter on production. CAPITAL was written as a critique of political economy and a dismissal of “vulgar economics” (which would include the entire Zombie economics described in Quiggin’s book) as a mere apology for the interests of the capitalist class. The former could not get outside its “bourgeois skin” while the latter had no interest in a scientific understanding of capitalism.

Professor Quiggin is surprised economic liberalism persists despite its abject failure although he shouldn’t be. No economist can ever say to the politicians or to the capitalists who pay their salaries “the game is up, Marx was right, capitalism can never be made to work in the interest of the working class” anymore that economists can truthfully say that social wealth derives from the exploitation of the working class in the production process. It would be the equivalent of a theologian admitting that atheists were correct and God was, in fact, a social fiction.

In science poor theories are generally replaced with better theories. A new theory is adopted in physics or chemistry which explains phenomena the previous theory was unable to explain. This is not the case with economics. Whereas in science defective theories are jettisoned, in economics bad theories persist from one generation to the next. Economic theories claiming capitalism can evade economic crises should have been dead and buried after the economic depression of the 1930’s and certainly after the depressions of the last three decades of the Twentieth Century.

It is ironic that the philosopher of Science, Karl Popper, attacked “Marxists” in his book CONJECTURES AND REFUTATIONS (1963) for holding on to theories which had been refuted by experience but did not extend his criticism to economic liberalism. If there is any candidate for the title “pseudo-science” surely it is economic liberalism. As Professor Quiggen observes “… a theory that can’t be refuted by any conceivable evidence isn’t really a theory at all” (p. 64). Quite so.

Professor Quiggin berates economic liberals like Milton Friedman, F. A. Hayek, Robert Lucas and other free market economists for dodging Popper’s falsification theory, where failed theories are defended by their authors through the adoption of “immunising strategies”, yet he does not apply Popper’s criteria to Keynes’s own failed doctrines to prevent periodic crises and trade depressions. He wants special pleading for Keynes (“we need a newer Keynesianism” p. 121) but the fact remains that Keynesianism falls into the same category as the “Zombie Economics” of economic liberalism. So, there is equally a stench of death coming from President Obama’s Keynesian “fiscal stimulus” policies just as there is a sickly sweet smell emanating from the economics justifying Cameron’s policy to privatise everything that moves, de-regulate and sweep as much government, Central and Local, into the private sector as possible. Both economic policies are candidates for the sobriquet “Zombie economics”.

And this brings us on to a fundamental failure of the book; the support by Professor Quiggen for a “mixed economy” (pp. 200 -204) against the privitisation policies enacted today in most capitalist countries, either imposed by the World Bank and the International Monetary Fund or the belief by politicians in the magic of the market. For the best part of 80 years there has been an intense debate between rival economists and politicians of whether the State or private capitalism is the more rational than the other and whether a regulated capitalism is more efficient than free market capitalism. As far as the interests of the working class are concerned – and this includes trade unions who erroneously champion the public sector– whether there is absolute privitisation or absolute state capitalism or a myriad of shades in between, workers still remain an exploited class producing more social wealth than they receive in wages and salaries.

And the sterile debate between privitisation and government intervention in the economy has nothing whatsoever to do with a capitalist or a Socialist alternative. Nationalisation or a regulated economy is not Socialism or an approximation towards Socialism. Nationalisation or government legislation prohibiting the free movement of capital is not the same as the common ownership and democratic control of the means of production and distribution by all of society.

How do we kill a zombie? In some very sad internet chats rooms a great deal of time is spent discussing how to kill zombies, apparently a shot gun is the weapon of choice. What, though, of the failed economic ideas which refuse to die? Professor Quiggen has no answer although Marx offered an explanation of why failed economic ideas persist even though they should have been killed off by experience. He pointed out:

In the domain of political economy, free scientific inquiry does not merely meet the same enemies as in all other domains. The peculiar nature of the material it deals with summons into the fray on the opposing side the most violent, sordid and malignant passions of the human breast, the Furies of private interest (CAPITAL. VOL. I Preface to the First Edition, Penguin 1996 p. 92).

Modern economics does reflect “the most violent, sordid and malignant passion of the human breast”. Economists; at least the leading theorists in universities and political think tanks, are paid to further the interests of Capital; to produce ideas defending commodity production and exchange for profit, justifying the private ownership of the means of production and, in the case of Keynes, “saving capitalism from itself”. As ideology, economic liberalism and Keynesianism are useful intellectual tools to counter Marx and his revolutionary conclusion that the working class should replace capitalism with Socialism. And these economic fictions will persist until Socialist ideas become to dominate the thinking of the working class. That is how to kill “Zombie Economics”; by workers coming into contact with Socialist ideas, reading Marx’s account of capitalism and becoming Socialists. In short, by winning the battle of ideas.

Finally, Professor Quiggen asks what sort of economics we want for the Twenty-First century. It is the wrong question. Economics is bound up with commodity production and exchange for profit. Socialism would be free from economics’ subject-matter; prices, wages, markets, capital, commodities and so on. So, do we need an economics for the 21st century? No, instead we need Socialism; production for use by free and voluntary labour.

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