“Theories, factual claims, and policy proposals that seemed dead and buried in the wake of the crisis are now clawing their way through the soft earth, ready to wreak havoc once again.”
Foreign Policy magazine’s article, Five Zombie Economic Ideas that Refuse to Die by John Quiggin (15 Oct. 2010), confronts and once again tries to put a stake through the brain of a few apparently unkillable ideas:
- Privatization: “the idea that nearly any function now undertaken by government could be done better by private firms.”
Not so much, when the private firms lobby for and enjoy the same benefits of monopoly that the public sector had:
“Rather than introducing a new era of competition, privatization commonly replaced public monopolies with private monopolies, which have sought all kinds of regulatory arbitrage to maximize their profits. … Sensible proponents of the mixed economy have never argued that privatization should be opposed in all cases. … But the idea that change should always be in the direction of greater private ownership deserves to be consigned to the graveyard of dead ideas.”
- The Efficient Markets Hypothesis: the idea that “it is impossible to outperform market valuations on the basis of any public information….
“The absurdities of the late 1990s dot-com bubble and bust ought to have killed the notion.” Still, the notion that “governments should leave financial markets to work their magic without interference” lives on, even though that line of behaving “came to the edge of destroying the global economy in late 2008.
- The Trickle-Down Hypothesis: “the idea that policies that benefit the wealthy will ultimately help everybody.”
Er, um … no:
“Most of the benefits of U.S. economic growth went to those in the top percentile of the income distribution. By 2007, just one out of 100 Americans received nearly a quarter of all personal income, more than the bottom 50 percent of households put together. The rising tide of wealth has conspicuously failed to lift all boats. Median household income has actually declined in the United States over the last decade and has been stagnant since the 1970s.”
- The Great Moderation: “the idea that the period beginning in 1985 was one of unparalleled macroeconomic stability that could be expected to endure indefinitely….
“If double-digit unemployment rates and the deepest recession since the 1930s don’t constitute an end to moderation, what does?”
- Dynamic Stochastic General Equilibrium (DSGE), which we’re all familiar with and needs no further explanation. Ha. Well, it sounds like a sort of theoretical, academic analysis of non-real-world people and situations in an attempt to explain ideal economic behaviour. In any case, “DSGE models failed to predict the [current] crisis.”