Navel Gazing

The economics profession has been thinking hard, in the light of the fact that the credit crunch doesn't fit in with most modern macroeconomic models too well, about whether its macro theorising has been going up a blind alley. See this article by Krugman who thinks that a large part of the profession went wrong just after 1970, ended up doing real business cycle theory, and not even knowing anything about Keynesian economics. This is how leading figures in the profession can make elementary errors such as the "Treasury View" (see my earlier post on the subject) or misunderstand Ricardian equivalence. This article from the Freakonomics blog ends up being a bit more optimistic about the way the profession is heading.