Key Insights:
Josef Schumpeter’s “depressions are… forms of something which has to be done, namely, adjustment to previous economic change. Most of what would be effective in remedying a depression would be equally effective in preventing this adjustment…” is perhaps the most zombie of zombie economic ideas.
Schumpeter’s zombie leads to episodes of dorkish zombie economic derp like John Cochrane’s claim in November 2008 that we needed a recession because we were then—in November 2008—building too many houses and employing too many people in construction:
2008Q4: exactly the wrong moment to claim that construction spending & employment are unsustainably high, and that a recession is needed and desirable to cool the sector off and transfer resources elsewhere… Another destructive zombie idea is the idea that the Phillips Curve and adaptive expectations guarantee that you only need to worry about inflation—the unemployment will take care of itself, and that if policy errs and pushes unemployment up too high above the natural this year, you will get it back because unemployment will then necessarily be an equal amount below the natural rate in some future year—as long as inflation is stabilized.
The PCAE zombie leads to episodes like today, when a surprisingly large number of people who should know better are worrying not about unemployment but only about inflation
To mix metaphors, when we go hunting for zombie economic ideas, there are lots of fish in barrels for us to shoot. We do not have to try to shoot them all. Indeed, we should not.
We should, instead, listen to Markus Brunnermeier at 12:30/09:30 EDT/PDT every Thursday at <https://bcf.princeton.edu/markus-academy/>
Hexapodia!!
References:
Markus Brunnermeier & Friends: Markus’ Academy <https://bcf.princeton.edu/markus-academy/>
Paul Krugman (2020): Arguing with Zombies: Economics, Politics, & the Fight for a Better Future <https://books.google.com/books?id=iyefDwAAQBAJ>
John Stuart Mill (1844): Review of Thomas Tooke, “An Inquiry into the Currency Principle” & Robert Torrens, “An Inquiry into the Practical Working of the Proposed Arrangements for the Renewal of the Charter of the Bank of England, and the Regulation of the Currency” <https://www.marxists.org/reference/archive/mill-john-stuart/1844/currency.htm>
John Quiggin (2012): Zombie Economics: How Dead Ideas Still Walk Among Us <https://books.google.com/books?id=DOn09O3ncy4C>
&, of course:
Vernor Vinge: A Fire Upon the Deep <https://books.google.com/books?id=fCCWWgZ7d6UC>
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PODCAST: Hexapodia XVI: Zombie Economic Ideas