Paul Krugman says that The State of Macro is Sad, and that OJ Blanchard is too polite to write that he agrees. He also says that Tobin was right all along so the rational expectations revolution was not only unsuccessful but also un-necessary (what a Schama). It isn't surprising that Brad DeLong agrees. They are nowhere near as shrill as Paul Romer.
This will be a long boring unoriginal post commenting on Krugman (comments on Romer here).
First I claim that the state of macro has been sad for longer than Krugman recognised back in August. Then (as often) he praises Friedman while criticizing those who think they are Friedman's followers. He agrees that the Stagflation of the 70s demonstrated that Friedman had made a huge contribution when he presented the natural rate hypothesis in 1968.
The theory of a natural rate of unemployment got a big boost when the Phillips curve turned into clockwise spirals, as predicted, during the stagflation of the 1970s.
I have argued that Friedman was setting up and knocking down a straw man, because old Keynesians didn't use models which ruled out stagflation. I also argue that stagflation does not imply that there is a natural rate. I often direct readers to James Forder
This makes Krugman's post on Tobin interesting to me.
along the way I’ve found myself rereading some writings of actual James Tobin from the time; and it has been a revelation.I love to say "I told him so" but I told him so (same link as above). This means that the one victory of fresh water economists over old Keynesians (which Krugman sometimes concedes happened) didn't actually happen. I also look forward to telling Krugman so again (as I have in the past). The recent post on Tobin isn't the first time he has noted that Tobin was right about the Phillips curve and that the standard intellectual history is based on systematic misprepresentations
Let me focus in particular on Tobin’s 1972 presidential address to the American Economic Association, “Inflation and unemployment” (sorry, I don’t see an ungated version.) I remember how that address was seen among my fellow grad students a few later: it was seen as Tobin’s last stand, a desperate rearguard action in the debate with Milton Friedman over the natural rate hypothesis. And everyone knew that Friedman won that debate, vindicated by stagflation.
Except if you read Tobin again now, he’s the one who looks vindicated.
So how does the decade of the 1980s end up being perceived as a defeat for Keynesians? To see it that way you have to systematically misrepresent both what happened to the economy and what people like Tobin were saying at the time. In reality, Tobinesque economics looks very good in the light of events.
In all the strange thing is that I have the very strong impression that even the shrill one himself can't resist Ballance. He often feels the need to concede something to the Chicago economics Department and to admit some of the blame belongs to old Keynesians. From time to time, he notes that both sides didn't have a point (at least not an original point). But Friedman's defeat of the stable expectations unaugmented Phillips curve keeps coming back from the dead (in Krugman's terms Krugman's concession to Chicago is a cockroach -- uh oh now I've gone and typed it).