Hopefully it made my opinion clearer. I’m sure there is still plenty wrong with my view, it is full of assumptions itself 😛

Fine questions.

My thoughts would be as follows. The current research program is definitely focused on rational expectations. However, when economists have described theory they aren’t just focused on what the strict model says, but where data has deviated strongly from the model.

In order to explain these deviations we have had a hodge-podge of New-Keynesian models, which built on the general methodology of New Classicalism (representative agents, rational expectations) with rigidities.

Now, the real issue here is that we can’t seem to come up clear answers to policy questions – unless we first make value judgments surrounding some parameters in the model.

The whole idea of endogenous growth theory (from increasing returns to scale) has made the entire idea of a single equilibrium untenable – but if we have multiple pareto ranked eqm in an economy how do we know that we are heading to the right one?

The ideas of “multipliers”, “the paradox of thrift” etc have all come back in this form over the last decade – fundamentally, these are a potential part of our models, and they can be found if we make appropriate value judgments.

Now economists like Krugman know that – they have different value judgments to a lot of the discipline, and they use the well known example of IS/LM to explain themselves. However, their underlying justification for these results still stems from modern models.

Fundamentally, I am saying that economists models are so broad that you can set them up to PRESCRIBE ANYTHING. I get annoyed with Krugman etal because, by using IS/LM they are not transparent about the value judgments they are making when doing this.

….

Let me put this another way. The last 30 years of research has broadened the domain of economics. Now economics has this great framework, but it itself it is empirically empty. The benefit of the models stems from the fact that we can make our assumptions (value judgments) transparent.

As a result, economists are doing a bad job because they aren’t making their assumptions obvious – but they are still using the last 30 years of research to make the same conclusions they would have 30 years ago 🙂

Barro and Mankiw have spilled the bean on the fact that Krugman and economists in the Obama government are ignoring the empirical research of the last 30 years on fiscal policy — a central achievement of macroeconomic research in the last 30 years.

There’s also this.

Mario Rizzo and others have pointed out that most macroeconomists are ignoring 40 years of research in the history of economic thought on Keynesian economics and the economics of Keynes — getting Keynes wrong and ignoring what we’ve learned about the inadequacies of various brands of “Keynesian economics”.

Finally, it’s not for no reason that Steve Sumner writes this:

“There is a reason why modern graduate macro texts place so little emphasis on the ideas that Keynes developed in the GT, they are very hard to justify in a model with rational expectations. What puzzles me is why concepts such as the MPC, the multiplier, the paradox of thrift, and fiscal stimulus have recently become so widely debated among economists. Do these concepts help us understand movements in nominal spending? And if so, what is the model that justifies that view?”

http://www.tvhe.co.nz/2009/02/27/are-macroeconomists-ignoring-the-research-program-of-the-last-30-years/

If we’re talking about the research program of the last 30 years, we’re talking post Lucas, right?

So how do you square Sumner with the Obama vulgar IS-LM Keynesians?