Scott Sumner (how many times have I started a post off with that?) tries to troll the left-econoblogosphere:
Suppose we were back in the 1990s, and unemployment was 5.0%. But now suppose the economy was growing slowly due to slow growth in the working age population and slow growth in productivity. A “Pop Keynesian” says that we can solve this problem with fiscal stimulus. What do the smart 1990s Keynesians say in reply?
What do they say today?
Tyler Cowen re-trolls us all by quoting it and adding a new title: Questions that are rarely asked. I guess I'm feeding the trolls.
Scott's question is rarely asked because it's a dumb question. The US in the 1990s wasn't in a liquidity trap as inflation was 4% and interest rates were higher. Many economists didn't think a liquidity trap as an issue, although some were concerned at the time about the proper inflation target to keep away from the zero lower bound on nominal interest rates. No Keynesian would suggest fiscal stimulus in the 1990s in the US. There is a difference in the answer between 1990s and today because today the US (and Japan) seem to be persistently undershooting their inflation targets, a sign of a lack of traction for monetary policy and a liquidity trap. In a liquidity trap, fiscal stimulus becomes a viable option.
This is one of those dumb 'gotcha' questions where Sumner is saying: You say X now when you used to say Y -- ha ha! Really what is happening is that f(x, y, z, t = 1990) = Y and f(x, y, z, t =2015) = X.
And Scott would understand that if he understood the Keynesian model. But Scott Sumner does not understand the Keynesian model.
He doesn't know whether an independent central bank matters or not.
He doesn't know the effects of fiscal stimulus or what qualifies as fiscal contraction.
He doesn't know how to measure the impact of fiscal stimulus or contraction.
We should take his pronouncements on anything Keynesian with a grain of salt. Better yet: ignore them altogether.
And it doesn't matter if Keynesian economics, broadly construed, is wrong. Maybe it is. Scott doesn't understand it either way. It could be the aether or general relativity. It doesn't change the fact that Scott doesn't know what it is.
What Scott does is substitute market monetarism (Green Lantern Institutional Bank theory) for Keynesian economics and then tries to understand Keynesian policy prescriptions in terms of GLIB theory.
I've recently discovered that his inability to understand Keynesian economics (and instead inexplicably filling the gaps with GLIB theory) is part of a more general inability to understand any macro model besides market monetarism.
You see ... Scott Sumner doesn't understand RBC theory:
My counterfactual is that had NGDP kept growing at 5% in 2008-09, then RGDP would have also kept growing (although it would have slowed slightly for supply-side reasons) and I claim that wages would have continued growing at about 4%. An RBCer would not agree. In their view the counterfactual result would be high inflation and high nominal wage growth, indeed wages soaring at perhaps 10%/year, or something like that. And because wages would have soared by 10%, the stable 5% NGDP growth would lead to 5% fewer hours worked, and the unemployment rate would soar from 5% to 10%. RBCers don’t believe than nominal shocks have real effects. The Great Recession was caused by real factors, in their view.
The math fits, but how plausible is that counterfactual? And keep in mind, BTW, this is the ONLY possible counterfactual to my claim that stable NGDP growth would have maintained high employment in 2008-09 ...
An RBC economists would say that if NGDP and RGDP had kept growing at roughly the same rate as it had before, then there couldn't have been any real factors causing a recession. Massive changes in wages isn't the only possible counterfactual -- nothing happening at all is also completely consistent with Scott's counterfactual path of NGDP and RGDP. RBC economists don't believe you can have a recession but keep NGDP and RGDP growing at their trend rates. They think Scott's GLIB theory counterfactual is impossible while still having a recession. I have no love for RBC, but at least I get it.
I have a rule of thumb:
All existing theories are superficially consistent with the qualitative behavior of the data.
That is to say there is probably some way that any theory can describe some set of data or some thought experiment; your job as a critic is to find out what that is and present your critique in a way that takes that into account. It's essentially being charitable towards other theories (in a way, a corollary of "Feynman integrity"). That's why I knew there had to be a problem with the way Scott was critiquing RBC theory -- there had to be a way to make it superficially consistent with his counterfactual.
My problem with market monetarism (GLIB theory) is that finding that plausible consistent story is too easy. Any data or thought experiment can be made to fit the theory. Market monetarism isn't falsifiable. There are no states of the world that are inconsistent with its statements. That's probably why an army has gathered behind Scott (Noah Smith makes a joke about terra cotta grad students).
Scott doesn't take my rule of thumb into account in his criticisms of Keynesian economics or any other macro theory. He can't! He doesn't understand the other theories ! And of course it's easy to show how something is consistent with market monetarism -- everything is! Counterintuitive macro results are easy to understand if you have a theory that can't be wrong .
So you have the Dunning Kruger effect colliding with an unfalsifiable theory, and the result is glib criticisms.
 I think this goes a long way towards explaining why he doesn't understand information equilibrium even though when he wrote down his model, he wrote down an information equilibrium model.
 If you think market monetarism is falsifiable, please let us know. But I can assure you that you are wrong. All you have to do is take the supposedly unobservable state X and add and expectations operator to make E[X]. If it can be expected, it can come out of market monetarism.