http://krugman.blogs.nytimes.com/2010/06/29/learned-helplessness-in-macro
Paul Krugman - New York Times Blog
June 29, 2010, 7:59 am
Learned Helplessness In Macro
Mark Thoma and Brad DeLong point us to James Morley's critique of
modern macro (pdf). I actually wrote about much of this some time ago.
As I said then, the basic story of "modern" macro runs like this:
1. Lucas and his disciples agree that the economy looks Keynesian --
that is, it surely looks as if monetary and fiscal policy have real
effects -- but argue that an equilibrium approach with imperfect
information can explain why, while rejecting Keynesian policy
implications. And they ridicule Keynesian economics.
2. By 1980 -- three decades ago! -- it is already clear that the Lucas
project has failed. Equilibrium models with imperfect information
cannot, in fact, explain key facts about business cycles, especially
the way recessions persist even though everyone knows that they're in a
recession.
3. Rather than admitting that they went down the wrong track, however,
the advocates of freshwater macro double down; they decide to forget
about what they used to know about the apparent effects of demand
shocks, and explain the business cycle in terms of real shocks.
4. This approach also falls short; in an attempt to rescue the models,
ever more epicycles are added, and whatever clarity may once have
existed gets lost.
5. Freshwater economists declare that the business cycle is deeply
puzzling, and that we need much more research before we can make policy
recommendations.
In short, what we're looking at is learned helplessness. Economists who
didn't go down this path, who didn't flush everything the profession
had learned between 1936 and 1973 down the memory hole, aren't
especially baffled by the situation we're in now; on the contrary, it
looks like an extreme version of a fairly familiar event, and policy
recommendations aren't hard to make.
It's only if you're committed to a failed research project -- a project
that failed a generation ago, but refused to admit it -- that you're
baffled.