I learned macro from the guy's book, so when he takes notice of my blog it's worth linking to. He writes:
"Weird? Krugman said macroeconomics was rotten and half the field should be displaced. I don't know how you read that as a dispute with Fama, who is not a macroeconomist, or Casey Mulligan, who may be a macroeconomist but is not taken seriously by anyone I know. What's true, which I think you understand, is that Krugman has wrapped himself up in contradictions. Back in the day, he did normal economics as a trade theorist, but he doesn't think macroeconomists should be allowed to do normal economics. We should be put back in the IS/LM box."
1. Whenever Krugman gets specific about what bothers him about "freshwater", he talks about strong Ricardian equivalence, the Treasury View, and demand denialism. I've said a couple times now that I agree Krugman overstates the extent to this, but it is out there and the thing is casual statements to this effect are even more common. And casual allusions to these sorts of things are what mislead the public and policymakers, which is why Krugman is so concerned about it I think.
2. I don't know what contradictions Williamson is thinking of here, and I have no idea what he means by "he doesn't think macroeconomists should be allowed to do normal economics". Huh? You are not helping to convince me your reaction isn't weird, Prof. Williamson.
3. On IS-LM: I think Krugman has a point here, that it's not as defunct as people suggest. I don't think he's arguing for a resurgence in formal economics, but the point is the old workhorse is clearly not as useless as a lot of people thought. Think about what we've replaced it with: an AD relation, plus a Phillips Curve, plus a monetary policy reaction function. All that is built up from various microfoundations in a way the original wasn't. So we've put an endogenous money spin on the LM curve and sometimes we don't even call the IS curve an IS curve, but the story is basically still there, which is precisely why you can get the same results in new consensus models that you got out of the IS-LM model. So it's not really the relic or the embarrassment that a lot of people treat it as - it was a first cut at the same things we still talk about today. I think Krugman talks about the IS-LM model because every one of his readers who ever had a macro course has seen it at some point, and also because it just goes to show that we do not need to reinvent the wheel to understand a lot of what's going on.
Of course none of this is really what I thought was weird about Williamson's post!
So while I have his attention, let me try to get back to that. The post began going on about how Krugman isn't up on modern macro. In a detailed sense this is almost certainly true, but Williamson overstates his case: Krugman has a good grasp of the broad architecture of the new consensus in macro and probably a better sense of the details of it than most other economics bloggers out there. He probably doesn't have the same sense of it that people who just went through it (like Noah Smith) do or people who are active in the work (like Stephen Williamson) do, but lets not go overboard.
So after making these accusations about Krugman, Williamson starts to talk about this modern macroeconomics that Krugman allegedly doesn't get. And what does he serve up to us?
Forty year old macro that is well integrated into all the work that Krugman does and all his monetary and fiscal policy views.
Come on, Prof. Williamson. That's kind of a weird reaction, you have to admit!
My original point is that I know you're on top of modern macro, and that's exactly why this reaction of yours is so disappointing. I know Krugman probably isn't up on all the details of modern macro work. So why don't you share some of those details with us that might give us pause about some of Krugman's claims! Don't give us forty year old theory and tell us it's over Krugman's head.