The problem with academic macroeconomists is that they’re terrible at telling stories. We say recessions are caused by real and nominal shocks and people snore. And monetary policy is too boring to be the best aggregate demand policy.
“You mean to tell me that buying and selling some debt instruments is the key to solving all of our problems. What, no knight in shining armor riding down from Capital Hill to save us? No brilliant grand plans from genius economic advisors in the White House?”
When I taught the Great Depression this summer, you could see the disappointment on my students’ face when I told them that bad monetary policy was the primary cause of its depth and breadth. They wanted epic stories about Wall Street versus Main Street, evil cabals of foreigners or bumbling Presidents. A student dropped the course when he realized the monetary policy explanation didn’t involve a conspiracy of bankers but just the Fed’s legitimate misunderstanding of the role of money in the economy. He told me “this class isn’t teaching me real economic history”.
Arnold Kling says recessions are caused by Great Recalculations, credit cycles and monetary fluctuations. He talks of great showdowns like “folk-Minsky-ism” v. “folk-Keynesian-ism” or academics v. policy makers. He tells good stories.
As far as I can tell, though, his stories map completely onto what he calls the scholarly consensus in monetary economics. Recessions, including this last one, are caused by real and nominal shocks.