Where do we go from here? Krugman in his 2009 paper that called out the macreconomic profession for a major failure, for "mistaking beauty" for truth got a lot of heated reaction among economists. Recently Noah Smith asked whether or not the Krugman Insurrection failed. His conclusion was no although it's not like macroeconomists have all become IS-LM Keynesians again.
"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."
"So the battle over Keynesianism may be over, with the New Old Keynesians fought to a bloody standstill, but the wider Macro Wars have only begun. As for how this affects the blogosphere and the rest of econ's public face, one thing is for sure - we're not going back to talking about how abortion affects crime rates."
In a more recent post he did make the case that the public largely buys Krugman's argument but that the economists themselves have been more resistant.
"Krugman has convinced a huge chunk of the populace that there is something seriously wrong with macroeconomics. That is good. But he seems not to have made much headway in garnering intellectual support for more active countercyclical policy. As an illustration of this, consider the recent push for "structural" explanations of our current high unemployment rate. Raghuram Rajan, David Brooks, and Tyler Cowen are all confidently asserting that our problems are structural, not cyclical. This point of view is seconded by Greg Mankiw and John Cochrane and echoes recent comments by Jim Bullard."
Of course this depends on how you look at it. Sumner in a January post quoted from Greg Mankiw's 1991 paper on the New Keynesian economics. Indeed, what's striking about it was how little part Keynes had in New Keynesianism to say nothing of his General Theory-which was the point of Sumner's post as the title pointedly warned Krugman "Be Careful What You Link Too."
He quoted a paragraph of Mankiw:
"For the purpose of analyzing economic policy, a student would be better equipped with the quantity theory of money (together with the expectations-augmented Phillips curve) than the Keynesian Cross. In the United States today fiscal policymakers have completely abdicated responsibility for economic stabilization. Their inability to cope with persistently large government deficits has left them unable to even imagine trying to reach consensus on countercyclical fiscal policy in a timely fashion. All attempts at stabilization are left to monetary policy. When a recession ensues, as it did recently in the United States, fiscal policymakers merely begin discussions of what the Federal Reserve did wrong."
"Reading this brought tears to my eyes. A mere 20 years ago we were in a golden age of macroeconomics. Now a new dark age has set in, as the forces of old Keynesianism have made Mankiw’s vision seem like a distant dream."
A big part of Sumner's project is to undue the lack of confidence economics has had since 2008, to bring it back to it's Neoclassical faith in itself.
So where is the profession and where is it likely to go-I ask as an interested laymen. This an interesting question as revolutions in economic theory don't happen that often. Here I'm thinking about what Kuehn says about revolutions in science. What Noah's quote above about how Krugman has not won over the profession at large means that we haven't seen the profession change over night as it did because of Keynes in the 30s or Robert Lucas in the 70s
Yet Noah also rightly thinks that the Macro Wars are just beginning. We won't simply go back to pre-2008. What does seem possible is that we will see a time of multiculturism in economics where there will be several competing schools or theories. There are of course lots of economists who want to make economics more like biology or Noah's original discipline physics.
Indeed, Roger Farmer recently did a guest post at Noah about the idea of a model with multi equilibria.
Farmer argued I thought pretty persuasively why we should abandon a single equilibrium point though I must say I found his argument against disequilibrium less persuasive. Recall that the old Hicks IS-LM model had both multiple equilbria and disequilibrium.
Then too as I understand there is a lot of good empirical work done by younger members of the profession many who are less concerned about models and theories. This is not to say that ultimately you don't need theories. However it's a change of pace from the pre 2008 status quo that was so theory bound as to often lapse into the world of being a "pure theory."