"This discussion has so far one major lack: it does not tell us what "depression economics" is supposed to replace--it does not tell us what non-depression economics is, or was.
So let me try my hand at a definition of non-depression economics.
Non-depression economics believes that:
* Short-run economic policy should be left to the central bank--the legislature and the executive should focus on the long run and keep their noses out of year-to-year fluctuations in employment and prices.
* The highest priority for central banks should be to maintain their credibility as guardians of price stability.
* Once that highest goal has been achieved, central banks can turn their attention to trying to keep the economy near full employment.
* They should try to keep the economy near full employment by influencing asset prices--pushing asset prices up when unemployment threatens to rise, and pushing them down when an inflationary spiral appears on the horizon.
* Central banks should influence asset prices through normal open-market operations--by buying and selling short-term government securities for cash, thus changing the safe interest rate and the price of longer-duration assets.
* Central banks should stand ready to intervene to prevent bank runs. Otherwise, central banks should let the financial sector run itself with a light regulatory hand--financiers can take care of themselves, and the central bank should view itself not as chaperone or duenna but rather as the designated driver in the case of financial speculative excess.
That is what Paul Krugman is arguing is no longer sufficient doctrine for our age."
I think "our age" is grandiloquent. Why is that no sooner do we have a crisis showing the poverty of prediction than people start predicting a whole age ? And, yes, even Paul Krugman's "predictions" seem very general.
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