This long Sumner post is well worth it. My favorite part is all of it but bloggy customs require an excerpt:
The intuition is that if the Fed always targets the forecast, and if Fed forecasts are pretty close to the consensus private sector forecast, and if the Fed never targets an NGDP growth path which is expected to generate a recession, and if recessions are avoidable right up to the moment they begin, then recessions will never be predicted by the consensus forecast. It may seem implausible that recessions are avoidable right up to the last minute, but recall that the recession that began in December 2007 saw positive real GDP growth in the first two quarters of 2008. A highly expansionary monetary policy in mid-2008 might well have prevented a downturn in the second half, and the first half of 2008 might not have been retrospectively labeled a recession. Recessions are not just downturns, they are prolonged downturns, and hence are preventable even after they have started.
Despite that fact that we teach our students out of textbooks that suggest the zero lower bound doesn’t prevent highly effective monetary stimulus, and despite the many foolproof escapes from a liquidity trap put forward by Bennett McCallum, Lars Svensson, and even Ben Bernanke himself, there never in fact was any kind of consensus that the zero bound did not inhibit monetary stimulus. The profession as a whole is just as afraid of a liquidity trap as was Keynes, maybe even more so.
The argument is that policy makers had it all figured out, resulting in the the 20 beautiful years of the Great Moderation, but lost faith when interest rates hit zero.
By screaming about liquidity traps, Paul Krugman caused the recession!