The Friedmanites take up Calvinball

[pscot]

If you come at the current Lesser Depression from my angle, there’s no great mystery. Consistency in modeling isn’t always a virtue, but still, it’s striking how much continuity there is in the analysis of slumps: there’s a clear line of descent with only moderate modification running from Hicks 1937 to liquidity-trap models of Japan (pdf) to models that add in debt/deleveraging. The situation we’re in seems fully comprehensible.

But at Chicago and elsewhere in the freshwater universe they’re playing Calvinball (and what a good coinage that was from Mike Konczal). All kinds of novel and implausible effects — effects that weren’t in any of the models they were using before the crisis — are invoked to explain why we’re in a sustained slump; strange to say, all of these newly invented models just happen to imply the need for tax cuts and a shrunken welfare state.

But I don’t think it’s just political bias: part of what’s happening, I’m sure, is intellectual embarrassment. These people come from a movement that declared, with great arrogance, that Keynesian economics was dead – then failed to produce a workable alternative, and now finds itself in what is very recognizably a Keynesian world.

http://krugman.blogs.nytimes.com/