Zombie Economic Ideas That Refuse to Die


From Foreign Policy:

Theories, factual claims, and policy proposals that seemed dead and buried in the wake of the  financial crisis are now clawing their way through the soft earth, ready to wreak havoc once again. Five of these zombie ideas seem worthy of particular attention and, if possible, final burial:

1. The Great Moderation: the idea that the period beginning in 1985 was one of unparalleled macroeconomic stability that could be expected to endure indefinitely. 

2. The Efficient Markets Hypothesis: the idea that the prices generated by financial markets represent the best possible estimate of the value of any investment.

3. Dynamic Stochastic General Equilibrium (DSGE): the idea that macroeconomic analysis should not be concerned with observable realities like booms and slumps, but with the theoretical consequences of optimizing behavior by perfectly rational (or almost perfectly rational) consumers, firms, and workers. 

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

5. Privatization: the idea that nearly any function now undertaken by government could be done better by private firms.