Krugman and Sumner in Their Own Words.

     The knock on Krugman by people like Tyler Cowen is that he gives short thrift to the views of people he doesn't agree with, that he's unfair. Let's look at something he's said that displeased a lot in the Macro profession-the idea that if had failed during the crisis:

     "too much of the economic profession had lost the hard-won understanding of earlier generations. So instead of a common call for action, we got acrimonious argument, with quite a few economists essentially acting as spoilers, undermining the credibility of those trying to get governments to do the right thing. And as I said, to a remarkable extent the “learned” arguments against government action were actually repeating fallacies like Say’s Law and the Treasury View that had been thoroughly refuted in the 1930s."

http://krugman.blogs.nytimes.com/2012/03/05/economics-in-the-crisis/?pagewanted=all

     Let's have Scott answer this:

    "DeLong makes things worse by implying that Robert Lucas also doesn’t understand the basics of demand-side macro, by including a Lucas quotation mocking fiscal stimulus right after the Fama and Cochrane quotations. Here’s what DeLong needs to think about. As of 10 years ago fiscal stimulus had basically been removed from elite macroeconomics. I’m not just talking about freshwater economics; I mean elite New Keynesian economics as well. Lucas knows this and so does DeLong. They also both know the reason, if you have an inflation targeting central bank, there really isn’t anything for the fiscal authorities to do (again, on the demand side.) The “Treasury view” holds in an inflation targeting world."

    http://www.themoneyillusion.com/?p=10155

    More from Sumner:

    "Now for a short period in late 2008 and 2009 the entire economic profession lost its head, and forgot everything they knew, or were supposed to know. The Keynesians forgot that the zero bound doesn’t stop central banks from inflating, and the right forgot that markets are efficient, and therefore that it’s a really, really, bad thing to let TIPS spreads plunge into negative territory. Brad DeLong published an article in early 2009 called “Four Ways Out” where he denied that monetary stimulus works in a liquidity trap. Fiscal stimulus was the only way out. To his credit, he did eventually rediscover the merits of monetary stimulus at the zero bound, and joined my crusade to have the Fed pump up NGDP. Indeed by earlier this year he was fighting off left wing skeptics of QE2, by pointing out that rumors of QE2 had boosted inflation expectations. So right now I’m much closer to DeLong than I am to Lucas."

     Krugman:

     "The political scientist Henry Farrell has carefully studied policy responses in the crisis, and has found that the near-consensus of economists that the banks must be rescued, and the semi-consensus in favor of stimulus in the initial months (mainly because the freshwater economists were caught by surprise, and took time to mobilize) was crucial in driving initial policy. The profession’s descent into uninformed quarreling undid all that, and left us where we are today."

     "And so we got the division of macroeconomics. On one side there was “saltwater” economics – people, who in America tended to be in coastal universities, who continued to view Keynes as broadly right, even though they couldn’t offer a rigorous justification for some of their assumptions. On the other side was “freshwater” – people who tended to be in inland US universities, and who went for logically complete models even if they seemed very much at odds with lived experience."

     So freshwater economics has beautiful models but little empirical truth, saltwater economics little beauty and "rigor" but it is largely empirically true. The knock on IS-LM is that it's "ad-hoc."

     A great line from a Krugman commentator, Peter from Pelham:

     "3 sophomoric comments. 1) "rigor envy." lol. Also the contrast of Keynesian economist & Freshwater economist demonstrates two great jokes about economists

     2) "An (keynesian) economist, an engineer, and a physicist are stranded on an island with nothing to eat but a can of beans. Unable to open the can, the engineer suggests they build a method to open it. The physicist suggests they heat the can until it explodes open. The economist suggests, "assume we have a can opener..."

   3) "a freshwater economist looks at his colleague's model and replies, "sure it works in practice, but does it work in theory?"

      Pete, I hope you take it as a compliment if I use 3) now and again.