'Five Zombie Economic Ideas That Refuse to Die'

[midcan5]

"Two years after the financial crisis, the U.S. economy has steered clear of total disaster, with the Dow Jones industrial average currently near its pre-crash level. But the theories that caused it all are still out there, lurking in the shadows."

By John Quiggin

This was my favorite, you read it everyday on USMB.

"The Trickle-Down Hypothesis: the idea that policies that benefit the wealthy will ultimately help everybody.

Unlike some of the zombie ideas discussed here, trickle-down economics has long been with us. The term itself seems to have been coined by cowboy performer Will Rogers, who observed of U.S. President Herbert Hoover's 1928 tax cuts: "The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover ... [didn't] know that money trickled up.""

Five Zombie Economic Ideas That Refuse to Die - By John Quiggin | Foreign Policy

Five Zombie Economic Ideas That Refuse to Die - By John Quiggin | Foreign Policy

 

[CrusaderFrank]

Massive Keynesians government deficit fuel economic growth and lower unemployment is #1, amiright?

 

[loosecannon]

The hardship of the great recession is minor in the face of recognizing that as a rule we have not only learned nothing from the event, but we have actually reinforced in our conventional wisdom the very ideas that caused the crisis.

Economists esp seem to have failed entirely to recognize the fallacies of their own ideologies exposed. Like Monetarism has been proven to be a flawed, nearly useless mechanism.

If we can't learn from our mistakes there is no hope. We are doomed to fail by our own efforts.

 

[antagon]

The hardship of the great recession is minor in the face of recognizing that as a rule we have not only learned nothing from the event, but we have actually reinforced in our conventional wisdom the very ideas that caused the crisis.

Economists esp seem to have failed entirely to recognize the fallacies of their own ideologies exposed. Like Monetarism has been proven to be a flawed, nearly useless mechanism.

If we can't learn from our mistakes there is no hope. We are doomed to fail by our own efforts.

crisis is an invitation for economists to say i told you so. looking at the vulture-like feeding frenzy which economic idealogues have turned the great depression into, i've got no doubt that the same will befall the great recession. each will dawn shades to see their economic religion tinted in rose.

they'll nearly all be right until they suggest actual policy.

 

[Toro]

I agree with four of the five "myths." I disagree with the comment about privatization. Privatization doesn't work in all cases, but it usually does. There are some functions that should remain within government, but government generally does a poor job allocating capital. That should be done primarily by the private sector.

 

[antagon]

good lineup in this article. i'd add the myth that there is a correlation between economic liberation and economic returns, then remind the author that the baby's in the bathwater before he chucks out all of these theories in their entirety.

 

[loosecannon]

crisis is an invitation for economists to say i told you so. looking at the vulture-like feeding frenzy which economic idealogues have turned the great depression into, i've got no doubt that the same will befall the great recession. each will dawn shades to see their economic religion tinted in rose.

they'll nearly all be right until they suggest actual policy.

You really know how to cheer a guy up.....

Economists and financiers are both threats to our survival. That's the real lesson here.

 

[loosecannon]

I agree with four of the five "myths." I disagree with the comment about privatization. Privatization doesn't work in all cases, but it usually does. There are some functions that should remain within government, but government generally does a poor job allocating capital. That should be done primarily by the private sector.

bubbles.

That is how the private sector allocates capital.

Rational market theory and efficient market theory have been exposed as fraud, imo.

 

[loosecannon]

good lineup in this article. i'd add the myth that there is a correlation between economic liberation and economic returns, then remind the author that the baby's in the bathwater before he chucks out all of these theories in their entirety.

liberation or liberalization?

As per baby/bathwater....a lot of ideas work well at an appropriate scale but fail miserably when they exceed their scope.

But the world economy is more than a drive train, it is our survival mechanism. We, the 7 billion, deserve a lot more than to have our very means of survival upended by folks whose only concern is short term personal gain.

That IS The very foundation of society.

I would rather suffer no law and no rule of law replete with mob rule and gang rule than to suffer no accountability by the overlords of our economy. The latter are the more dangerous. IMO.

 

[antagon]

liberalization i guess... with the same baby/bathwater caveat.

 

[Toro]

I agree with four of the five "myths." I disagree with the comment about privatization. Privatization doesn't work in all cases, but it usually does. There are some functions that should remain within government, but government generally does a poor job allocating capital. That should be done primarily by the private sector.

bubbles.

That is how the private sector allocates capital.

Rational market theory and efficient market theory have been exposed as fraud, imo.

Markets are efficient over time. Much of the time, they are very efficient in allocating capital in the short-term. At times, they go off the rails, however.

The best thing governments can do is set the rules of the game and increase the flow of information to market participants. But governments are usually very poor at allocating capital.

 

[loosecannon]

I agree with four of the five "myths." I disagree with the comment about privatization. Privatization doesn't work in all cases, but it usually does. There are some functions that should remain within government, but government generally does a poor job allocating capital. That should be done primarily by the private sector.

bubbles.

That is how the private sector allocates capital.

Rational market theory and efficient market theory have been exposed as fraud, imo.

Markets are efficient over time. Much of the time, they are very efficient in allocating capital in the short-term. At times, they go off the rails, however.

The best thing governments can do is set the rules of the game and increase the flow of information to market participants. But governments are usually very poor at allocating capital.

Agreed, at least they are limited to their budgets.

But are markets and governments the only choices? Don't people allocate more capital than either? And aren't there other options?

Relying on a model of societal evolution that dictates that private profit motive should steer everything is insane in the best of times, but it is beyond insane when doing so is actually radically destructive.

It is like, or recently has been like, letting addicted gamblers manage every household budget in the world.

 

[Norman]

I think the 3 grand myths of all:

#1 Economy is driven by consumption, and savings/investment doesn't matter.

#2 You can create wealth through printing press (I am not talking about books here BTW).

#3 Property rights are unimportant. (Not that this is around).

There are probably a lot more.

The Trickle down hypothesis... Is it really about making policies that subsidize the rich, or just the hypothesis that if you let rich be free they just get rich and don't give anything back?

If it is the 1st I have to agree, if it is 2nd, I disagree.

 

[Norman]

bubbles.

That is how the private sector allocates capital.

Rational market theory and efficient market theory have been exposed as fraud, imo.

Markets are efficient over time. Much of the time, they are very efficient in allocating capital in the short-term. At times, they go off the rails, however.

The best thing governments can do is set the rules of the game and increase the flow of information to market participants. But governments are usually very poor at allocating capital.

Agreed, at least they are limited to their budgets.

But are markets and governments the only choices? Don't people allocate more capital than either? And aren't there other options?

Relying on a model of societal evolution that dictates that private profit motive should steer everything is insane in the best of times, but it is beyond insane when doing so is actually radically destructive.

It is like, or recently has been like, letting addicted gamblers manage every household budget in the world.

If by "markets" you mean wallstreet mafia and not mainstreet I do have to agree. But why not gamble when it's heads we win, tails you lose

 

[midcan5]

Interesting comments, it was nice to see more thought than fluff. I want to review comments on line before they disappear. Often magazine sites eventually archive and then charge.


"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary." Adam Smith

 

[CrusaderFrank]

Was it written by a High schooler because it had an "Oh snap! Look at Dis! Reagan said Trickle down and ketchup is a vegetable" style of "Analysis" to it?

 

[CrusaderFrank]

I'll go through one of his 5 because frankly, I don't have the patience to deal with all that stupidiity in one sitting.

From Quiggan's sophomoric article, "The Great Moderation: the idea that the period beginning in 1985 was one of unparalleled macroeconomic stability that could be expected to endure indefinitely.

Even when it was alive, this idea depended on some dubious statistical arguments and a willingness to ignore the crises that afflicted many developing economies in the 1990s. But the Great Moderation was too convenient to cavil at.

Of all the ideas I have tried to kill, this one seems most self-evidently refuted by the crisis. If double-digit unemployment rates and the deepest recession since the 1930s don't constitute an end to moderation, what does? Yet academic advocates of the Great Moderation hypothesis, such as Olivier Coibion and Yuriy Gorodnichenko, have stuck to their guns, calling the financial crisis a "transitory volatility blip."

Yes, John, if you ignore the government distorted housing market, then nothing at all changed between 1985 and today. The collapse didn't just happen for no apparent reason, the Federal Government sat it's 900 pound gorilla ass on the scales and cause the distortion to the point where they said they would buy No income No asset paper. That had an effect, that distorted the market, that caused the collapse.

 

[loosecannon]

Frank, I hope you feel better, because that was a non sequitur. The article isn't about the cause of the crisis, but about myths that landed us on it's doorstep.

The great moderation is a belief that was prevalent for over a decade that monetarism had become such a refined science that it could sustain indefinite economic stability by merely adjusting the money supply via interest rate targets.

That idea was a crock of shit. It has now been disproven due to the fact that the monetarist approach can do nothing to address the bank's willingness to lend or to dislodge us from a kind of deflationary trap.

In short Alan Greenspan has been exposed as a reckless steward who inflated bubbles instead of stimulating real economic growth. Or alternatively perhaps that the economy is never formulaic in nature, but always a sum of unique real world intangibles. A complex dynamic system resist to confinement within simplistic models.

 

[Toro]

I will add Myth #6: Cuts in personal income taxes pay for themselves.

Of course, no economist worth his or her salt believes this - notice that the article deals with debates amongst economists. However, a wide swath of a certain part of the political spectrum continues to hold this belief as if it were a religion. Those people don't know the difference between a stove and a stochastic. But it is a widespread myth nonetheless. And all tribes need their myths.

 

[CrusaderFrank]

People need to get used to the idea that the US Economy and the Federal government are 2 separate things. Tax cuts allow business to dedicate more resources to their business which expands the private sector which then pays taxes on a bigger baseline.

Some people just look at the Federal government side and see a tax cuts as attempted murder. You're taking money away from the government! This is a very limited and GubbamintCentric World view.