What Will Be the New Economic Paradigm?
Matt Yglesias has a great post over at Moneybox (paragraph breaks added):
… The Depression discredited the gold standard and a whole set of related notions.
The Great Inflation discredited ideas about the Phillips Curve …
We had, until recently, the Great Moderation Consensus that … the Federal Reserve has the ability to stabilize the macroeconomy by fiddling with interest rates.
Well now here we are and the Federal Reserve can’t stabilize the macroeconomy by fiddling with interest rates.
That calls for the creation of a new regime.
I’ve dumbed it down a bit here. He also talks about employment, for instance, including this great line:
…if the government isn’t abandoning the idea of full employment then they have a mighty strange way of showing it.
But I think I’ve imparted the main question. We’ve been or are going through a paradigm-falsifying “moment.” (As always, some good thinking will be cast aside along with some bad.)
What will move into the vacuum left by the (at least partially) ravaged Great Moderation paradigm?
Personally, I fondly envision some coherent amalgam of the M&M gang: Market Monetarists (NGDPers) and Modern Monetary Theorists (with a decent dose of the Austrian’s insight into real-economy production and productivity). I’m guessing that some have already ventured (some parts of) this amalgamation, quite possibly in posts I’ve already read and since forgotten. Thoughts? Links?
(Even as I post this I find that vimothy, JKH, and Steve Randy Waldman are worrying productively at parts of this very question in the comments here.)
Cross-posted at Angry Bear.