Krugman on 2013 vs 1958 macro

But is there all that much evidence that modern macroeconomics has had any influence on central-bank policy-making.

Greg mankiw in 2006 in his engineers versus scientists essay in the Journal of economic perspectives did a wonderful take-out of a biography of a federal reserve board member saying that his insights were sophisticated and nuanced about the macroeconomy but didn’t show any knowledge of modern macroeconomics in coming to his conclusions.

My two brothers graduated in economics in the early 1970s. I think what they knew of economics is about as much central bankers do now; they would not have to update to have a conversation with a central banker.

John Quiggin

At the recent American Economic Association meeting in San Diego, Brad DeLong chaired a panel on ” Stimulus or Stymied?: The Macroeconomics of Recessions“, and has posted a transcript. Paul Krugman was there and picked up my claim that macroeconomics has, on balance, gone backwards since 1958. I’ve extracted his section here. Lots of useful stuff, but I’d stress this:

the whole basis on which we constructed monetary policy during the Great Moderation, which is that stabilizing inflation and stabilizing output are the same thing, is all wrong: you can have a sustained period of low but not negative inflation consistent with an economy operating far below its potential productive capacity. That is what I believe is happening now. If so, we are failing dismally in responding to this economic crisis. This is in contrast to what some central bankers are saying—that we have done well because inflation…

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