"Ahh … the Great Moderation – now wasn’t that a laugh. Today I have been examining data in preparation for a new project I am beginning on inflation response functions. Thinking about the data made me recall the sheer arrogance of my profession. And an article in the Melbourne Age prompted this further by way of coincidence. The idea that the economics profession had solved the business cycle by implementing inflation targeting-type policies and pursuing fiscal austerity was the flavour of the late 1990s and early 2000s. I was even told several times in the last decade that I was mad running a research centre which focused on unemployment because that problem had been solved too. Economists of my persuasion were regularly ridiculed at conferences and meetings. And then … the crisis struck confirming everything that us “idiots” had been saying for more than a decade. And yet, the chief proponents of the Great Moderation lie still aspire to top public office."
Some remember it differently:
"I will include one exact quotation from the 1991 paper:
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."
Yes, Sumner likes Greg Mankiw's brand of "Keynesianism" and misses the day when there was near unanimity save a few eccentrics as Mitchell was treated.
For me and many like me, the eccentric idea in 2005 would be that unemployment had been whipped. This is why there was so much mainstream mockery of Joe Stiglitz's Rolling Stone piece-while for the layperson-those thankfully innocent of so much Marcro orthodoxy-the idea that there have been deeply structural problems in the economy sounds very plausible.
Here in the US the mainstream still remembers the 2001 recession as unusually short and mild. Nothing can be further from the truth. It's less the numbers than the people unemployed that was notable. It was really the first long running "white collar recession" we've seen-the dry run for this was the 1991 recession under the first Bush.
Even after it was officially over and most job losses were recovered the quality of the new jobs was much lower than the old ones. This fact few in mainstream Macro till today seem to understand. Indeed, what they do is accuse you of Macro ignorance as job losses in one industry or among certain industries should have no larger Macro effect-as these displaced workers need to just pack up and go to other industries that are hiring,
What they can't accept is that technology gains could in the long term displace workers. So there can't be any structural employment problems based on technological redundancy. However, it seems clear to me that what the productivity gains we got from the rise of computers and the Internet did was convert many white collar workers into burger flippers. And to this day many have never recovered.