Zombie Economics ..

‘Zombie Economics’ Stalks Planet Bloomberg World Of Finance

Picture Ben Bernanke as a zombie in a horror film. Staggering slack-jawed through the bullets, he groans a terrifying phrase: “Great Moderation, Greeeeeeat Moderaaaaaation!” Erroneous economic ideas resemble the living dead, writes John Quiggin in his smart new book, “Zombie Economics.” They are dangerous yet impossible to kill. Even after a financial crisis buries them, they survive in our minds and can rise unbidden from the necropolis of ideology. Consider the undying notion that booms and busts can be tamed in a New Era of endless prosperity. The latest incarnation of this zombie idea -- the Great Moderation popularized by Federal Reserve Chairman Bernanke -- died in a storm of bailouts and foreclosures. Yet the Great Moderation endures in academia, says Quiggin, an economics professor at the University of Queensland in Australia. “Research projects based on explaining, measuring and projecting the Great Moderation were not abandoned,” he writes. “The intellectual commitments on which those projects are based have proved tenacious.” Zombie ideas are legion, ranging from trickle-down economics to Dynamic Stochastic General Equilibrium modeling, Quiggin says. Taken together, they form a bundle of theories, policies and catchphrases that he terms “market liberalism,” seeking a neutral name instead of pejoratives such as Thatcherism and Reaganism. “Unlike other monsters like werewolves and vampires, zombies always come in mobs,” he writes. “Individually, they seem easy enough to kill, but in a group their strength can be overwhelming.” One of the more vulnerable zombies is the strong form of the Efficient Markets Hypothesis, which postulates that it’s impossible to beat the market because stock prices already incorporate all information held by traders. Though this zombie should have perished in the dot-com bust, its advocates “went on as if nothing had happened,” Quiggin says. Only the Great Credit Crackup drove home the lesson that markets can be mispriced and downright irrational. A little humility wouldn’t hurt, as Quiggin writes. “The Global Financial Crisis gives the economics profession the chance to bury the zombie ideas that led the world into crisis, and to produce a more realistic, humble and above all socially useful body of thought.” Until then, expect endless reruns of “Night of the Living Dead.” “Zombie Economics: How Dead Ideas Still Walk Among Us” is published by Princeton. Conclusions The Star February 2010 Voodoo Economics http://bit.ly/auVlOh