Voodoo Economics: Policy Responses to the Global Financial Crisis

The late twentieth century, US President Ronald Reagan discovered voodoo economics. In framing policy responses to the global financial crisis, central bankers and governments have increasingly embraced more exotic forms of voodoo.

Since the early twentieth century, economics has been preoccupied with the business cycle. Economists, from John Maynard Keynes to Milton Friedman, have developed theories to explain boom-bust cycles. Most importantly, they sought to develop tools to manage these cycles, fostering progress and the creation of wealth whilst reducing the disruption and high cost of periodic crises.

Despite complex doctrinal differences, Keynes’ and Friedman’s followers believe that the correct policy measures allow a high degree of control over economies. During Le Belle Epoque from the late 1980s to around 2007, economists and policy makers luxuriated in the belief that most major problems of economics and management of economies were well understood, if not entirely predictable and controllable. The global financial crisis exposed significant problems in the state of human economic knowledge and also the ability to control events. (read more)