It’s true that if you bought completely into rational-expectations macroeconomics, the crisis in the economy should be causing a crisis in your faith — although as far as I can tell, the freshwater types remain smugly convinced of their rightness. But those of us who hadn’t forgotten Keynes, who paid attention to things like Japan’s lost decade and developing-country financial crises, aren’t feeling all that at sea.
More specifically, we knew all about liquidity traps, and had at least thought about balance-sheet crises, a decade ago. Remember, I wrote the first edition of The Return of Depression Economics in 1999. The world we’re now in isn’t that different from the world I suspected, back then, we’d find ourselves in.
So at what point will the gold bug, inflationistas and other econo-cranks be subject to tough questions on why they are wrong? My guess never.