Tuesday, 10 August 2010

A rave review for Professor Quiggin

You just have to visit the blog site of economist John Quiggin to know he's a man with a self-deprecating sense of humour. I mean, how could you not like a man who heads a list of Testimonials with these words from Senator Richard Alston, the Liberal ex-Minister for Communications: "I do not know how he is a professor, but anyway he purports to be an economist" and follows up with a Jason Soon declaring that he is "more intelligent than Britney Spears"?
And should further proof be needed that Prof Quiggin is no dry as dust academic, herewith the cover of his latest book:
The book, not being published by Princeton University Press until Halloween in October , has this week earned a rave review from the Buttonwood's Notebook financial markets column on the website of The Economist.
It is an entertaining and thought-provoking book by an Australian academic John Quiggin, which also works as a good summary for non-specialists of how the economics debate has developed... The analysis is quite worrying.
As Mr Quiggin points out, this school [the Chicago monetarists led by Milton Friedman] generally saw government as a problem and argued that economies, left to themselves, will generally tend towards equilbrium. Elaborate models were created that showed how smoothly economies would work, given rational consumers and producers. This led them to struggle to explain why recessions did occur. Economists came up with "real business cycle theory" and "dynamic stochastic general equilibrium" to explain why such fluctuations happened. This ended up blaming the Great Depression, for example, on the New Deal policies of Franklin Roosevelt, even though he didn't take office until 1933 when a lot of the damage had already been done.
The problem, as Mr Quiggin argues, is that economists develop their elegant models, with rational consumers, perfect information and liquid markets and then try to adapt it to reality. In other sciences, one would surely take the world as we find it, full of irrational consumers, imperfect information and markets that suddenly freeze.
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