Because I stopped reading it at about the third paragraph where he starts listing all the things that macroeconomists do but claims they don’t do (e.g. financial channels, model robustness, unemployment), can someone explain to me the argument Krugman makes?
From Sumner’s critique it sounds like Krugman wants to go back to old school Keynesian modeling. Cool. If we can test those models and they have more to say than our current models, I’m down. Anyway, I gather from Sumner’s post that Krugman says we should make this move because modern macroeconomics has nothing to say about about depressions and deflations and the zero lower bound.
How does he get from the failure of models to understand once in three generation events to the failure of models in between those events? I mean couldn’t we have two theories? One for the 95% of the time where the lower bound doesn’t hold and another for when it does?
I’m probably wrong because I can’t make heads or tails out of the General Theory, but confusing this point — thinking Keynes’ policy prescriptions for getting out of the Depression applied outside moments of depression — led to the failure of post-war macroeconomics. It lead to terrible monetary policy and the mistaken idea that Feds could fine-tune the economy.