There Is No Zombie Free Lunch


It is a story that could make The Return of the Living Dead 6.  A group of good people huddle on a roof, with a limited supply of raw meat.  A crowd of zombies surrounds the house: hungry, mad, aggressive.  Fear spreads and bodies collapse; the odour is terrible.  The zombies smell blood and flesh on the roof; they scream and start climbing the walls.

The moment you stop feeding zombies they will come after you and we all turn into the living dead.  So you keep feeding them in the hope that by the time the next night comes around, a new helicopter will arrive that — just in time — can drop new batches of zombie food.  It’s the only way to survive.  Attacking these creatures is very dangerous: when one zombie was destroyed a few months ago, the rest got so angry that they ate alive the entire nearby town.

This zombie danse macabre can be observed in real life.  The people sitting on the roof are United States taxpayers; the zombies gathered around are bankers screaming for more and more support; the taxpayers’ money is turning into zombie food.  The roof commanders say: “We’ve got to feed them or they will come after us, shutting down credit to zero, selling all world assets, depressing prices to rock-bottom — and we all turn into financial zombies.  There is no other option than to feed the zombies.”

And the new supplies keep coming.  Ben is a very skilful helicopter pilot; his master manoeuvres always drop new zombie-food supplies in the right place, at about the right time.  Ben has recently taken on a new crew member, Barack, who came with a fresh idea to keep zombie bankers away from the house: “Let’s feed them much more: maybe if they have lots of food, one by one they will transform back into humans.”

But as time passed, zombie bankers were joined by zombie car manufactures, and with the death virus spreading more zombies are on their way.  Barack is undaunted.  With Ben nodding beside him, he yells down to the beleaguered rooftop group: “No matter how many come, we will feed them to save you.”

Two Secrets

Now comes the first of two big secrets.  Barack plans to borrow more than $2.5 trillion from the rest of the world to pay for the zombie food.  His people are spreading rumours in major financial newspapers that the only zombie-free place in the world in the United States.  It might have been thought that United States is the native habitat of zombie bankers, as Romania is home to Dracula: but now — it is the safest place on Earth to keep your money.  At least, so the zombie financial media (“Safe, Good, Transparent, Liquid, Trust, Home, Love”) say and the zombie rating agencies (“Super-safe”) write.

Here is the second secret, concealed or garbled by zombie marketing: we, the people of the world, keep on putting money into the zombie homeland.  In 2009, we will lend to the government of the United States in excess of $2.5 trillion (which amounts to 5% of the global GDP); and a large part of this loan will be used to feed the zombies.  We get 2.5% interest on this loan, while the only way out for the United States from this zombie trap is to create inflation or default.

Kenneth Rogoff, former chief economist of the IMF, was candid in his Project Syndicate column of December 2008 in saying that central banks should create inflation in the range of 5%-6%, with a risk of a brief period of much higher inflation (he mentions 20%).  Now it can be seen why feeding the zombies is so cheap for the US government: if you borrow at the nominal interest rate of 2.5% and then create 6% inflation (with a risk of higher inflation) then lenders lose part of their loan, and the borrower (Barack) has a free zombie lunch (or midnight feast).  There is very little risk that one night Ben and Barack’s helicopter will fail to show up and the zombies will climb to the roof.

The True Cost

I am sitting in faraway Warsaw, Poland and watching this danse macabre with growing concern, on two counts.  First, without my agreement, 5% of my income this year will go into feeding the zombies, even as I am aware that part of this loan to the US government will be lost, most likely because of the higher inflation.  Second, I am even more concerned about the fact that instead of feeding zombies we could do so much good with this money.

If we are worried about world demand, we can help restore this demand by investing hundreds of billions of dollars in emerging markets.  For example we are nowhere close to achieving the Millennium Development Goals set in 1990.  Some measures — such as the number of people living in extreme poverty in sub-Saharan Africa, or the number of people infected by HIV — have actually worsened instead of improved.  You can feed $100 billion to a zombie bank one night and it is gone by morning; imagine how many schools, roads, and hospitals you could build in Africa with $100 billion.  How many teachers you could hire to teach illiterate people in poor countries, how many doctors’ wages you could pay to provide health coverage to millions of poor children who do not have access to a doctor.  How much good can be done if zombies skip just one midnight feast — and they keep eating every night.

I was very disappointed when I saw the grand Obama plan.  It does promise to cure some of the short-term (falling demand) and long-term (social security, medicare costs, high carbon-emissions) problems of the US economy and society; but at the same time, by sucking in almost all available world savings it deprives emerging countries from access to capital markets, with the result that many poor or emerging countries suddenly find themselves in a situation where they are unable to borrow.

Now the true cost of feeding the zombies can be seen.  The cost is that large parts of the world will not be able to finance necessary investments, and some developing countries will not be able to pay their (once again growing) food bill.  So the poor will become even poorer.  There is no free zombie lunch.

Is this the change we believed in?  Maybe the zombies did.

Krzysztof Rybinski is a partner in Ernst & Young and assistant professor at the Warsaw School of Economics.  He was deputy governor of the National Bank of Poland (March 2004-January 2008).   His website is at <>.  This article was first published by openDemocracy on 18 March 2009 under a Creative Commons license.