Revolutionary Wonk

[A] layperson might conclude that the insurgency that Krugman launched in September 2009 - and which has consumed and defined the econ blogosphere since then - was ultimately defeated. But I do not believe that this is the case. Although the battle for New Old Keynesianism is mostly over, the Krugman insurgency launched a much deeper, more profound, and more long-lasting war. It shook the philosophical foundation of macroeconomics, and that foundation is still shaking.

Since 2008, everyone had been asking: "Why did macroeconomists miss the crisis?" Even the Queen of England asked it! Shouldn't we expect macro theory to help us avoid macroeconomic disasters? Of course, the profession at first closed ranks against the criticism. Economists protested that Rational Expectations or the Efficient Markets Hypothesis made it impossible to predict a crisis. These protests mostly fell on deaf ears (and rightly so, because they are logically fallacious). Still, the reflexive wagon-circling made it hard to pin down exactly where economists had gone wrong - after all, if all the experts insist that experts have value, who are non-experts to disagree?

But when Krugman, a Nobel Prize winner, came out and said publicly that the macro profession had allowed itself to be satisfied with uselessness and irrelevance, it broke the facade of unity. Like Greg Smith departing Goldman Sachs, here was an insider who was willing to stand up and say that the whole system was rotten. And then Krugman went further. After revealing that top economists were dissatisfied with macro's ability to predict crises, Krugman revealed that they also couldn't agree on how to deal with crises. That's where the push for Old Keynesianism came in. It may not have resulted in a permanent sea change in macroeconomists' modeling consensus, but it told the public that there were deep divisions within the profession on the question of how to fight recessions.

And that, really, was all the public needed to know. If macroeconomists hadn't conclusively discovered how to avert crises and also hadn't conclusively discovered how to recover from crises, what good had they done for society? Why were we paying professors hundreds of thousands of dollars to study this subject if nothing usable had emerged?

Of course, it would be wrong to paint the challenge to macro as a one-man Krugman Show. It isn't. Even the stalwarts of the profession have been questioning how much macroeconomists really understand - see John Cochrane and Greg Mankiw, for a couple of examples. But it was Krugman who took this argument public, who took the case to the wider educated lay populace, and aired macro's dirty laundry to millions of engineers, scientists, financiers, businesspeople, politicians, lawyers, and journalists. What Krugman (and Brad DeLong) did to macro was similar, in some ways, to what Lee Smolin and Peter Woit did to string theory - except on a much bigger stage, since Krugman is such a huge name in his field, and macroeconomics has a lot more important policy ramifications than the theory of black holes.