Thomas Sargent on modern macroeconomics

Another entry in the debate begun by Paul Krugman as to whether the developments of the last 30 years - from the New Classical revolution to Real Business Cycles to New Keynesian macroeconomic theory - was all a waste of time. Here Mark Thoma presents an interview with Thomas Sargent, who defends "modern macro":

The criticism of real business cycle models and their close cousins, the so-called New Keynesian models, is misdirected and reflects a misunderstanding of the purpose for which those models were devised.⁶ These models were designed to describe aggregate economic fluctuations during normal times when markets can bring borrowers and lenders together in orderly ways, not during financial crises and market breakdowns.

But isn't that just Krugman's point? The profession has made tremendous progress on models of an economy where everything is going pretty well. But it is when markets break down and the world is hurtling toward depression that policymakers pick up the phone and ask macroeconomists what the hell is going on and how do we get out of this mess? And when they got that call in 2008, "modern" macroeconomists had no answer. The old fuddy-duddy Keynesians did.

The sentences following Keynes' most famous quote are relevant here: "Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."

(The preceding sentence: "In the long run, we are all dead.")