We Walked With The Zombies, Economist Says

The ideas responsible for the recent financial crisis are lurking around like zombies, ready to attack again — and suck the brains out of the market, according to John Quiggin, writing in Foreign Policy.

Much like the banks and insurance firms that now walk the earth as shadows of their former selves, driven by unnatural sustenance (a.k.a. government bailout money) – the ideas that kept economists and analysts from seeing the flimsy underpinnings of the credit market are still stumbling around, Quiggin says.

Atttacking an excess of "market liberalism," Quiggin aims at five approaches to economics that he says are holding us back. They are: the efficient markets hypothesis; trickle-down theory; the great moderation; privatization; and Dynamic Stochastic General Equilibrium.

It's a good read, one that offers plenty of ammunition for America's newest pastime: talking about the economy. To me, Quiggin's strongest point is that economists rely too heavily on the "rigor" of economics as an academic pursuit – while not being concerned enough with creating an accurate reflection, and predictor, of real-world circumstances.

Calling for a workable alternative to replace the "zombie" approaches, Quiggin says, "The prevailing emphasis on mathematical and logical rigor has given economics an internal consistency that is missing in other social sciences. But there is little value in being consistently wrong."

It's time for economists to clear the decks of the deadwood, Quiggin says. And quoting Socrates – "The wisest man is he who knows that he knows nothing" – he encourages today's economists to start over. Quiggin says their goal should be to form a new approach to economics:

Every crisis is an opportunity. 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.

I'll warn you: Quiggin's analysis is concise, but it's hard to boil five schools of economic thought down to the level of an elevator speech. And even with the necessary simplifications, it still gets a bit jargony — which may limit your ability to pass off some of Quiggin's points as your own at parties.

For instance, not many of my friends rail at Dynamic Stochastic General Equilibrium – in fact, many of them are likely to use only one of those words – "General." And it's often preceded by the word "the," in discussing a certain hopped-up orange Dodge Challenger.

But maybe your friends are different from my friends.

Quiggin's piece sparked a lively debate on the FP site — and also a stern rebuttal from a commenter on Reddit. Basically, his conclusions — and his politics — are called into question.

And just like their silver-screen brethren, the theme of the economic undead will live on: Quiggin's article heralds his new book, called Zombie Economics. It's not yet clear if Foreign Policy has planned a full series of Halloween columns.