By Steven Pearlstein. The profile says a lot of good things about Blanchard, most of which are true. But it also includes this:
But for Blanchard, who had spent the better part of his career helping to build the new consensus, the crisis had not only revealed the inadequacies of what had been done so far but raised questions about whether it was possible to come up with one all-purpose economic model.
…“We ignored the financial plumbing,” Blanchard said. “We thought we could model it with a few simple equations,” he explained, based on what turned out to be false assumptions about the ready availability of buyers and sellers and the easy substitution of one financial instrument for another.
I would say that Pearlstein’s article suffers a bit from an excessive reliance on MIT insider economists as sources. And as Larry Summers put it, “But insiders also understand one unbreakable rule: They don’t criticize other insiders.”
The insiders created the artificial consensus around representative-agent, rational-expectations models with no institutional or historical perspective on finance. And they have not really moved very far from that consensus. For better or worse, macroeconomics is where it is today because of MIT’s insider economists, exemplified by Blanchard.
Good reading, although bits such as this one are groan-inducing: “…an economics profession whose pretense to science has been badly undermined by ideological divisions and a series of crises that it failed to anticipate or even comprehend. …a lifelong effort to restore economics as a disciplined way of thinking about the world that is truthful, intuitive and useful.”
This is a Hollywood narrative. In truth, there is not *enough* division in the profession; there is one dominant paradigm, and talk of Keynes is only for policy circles. Anticipating crises… well by definition a crisis is what you did not anticipate, so that’s nonsensical. Comprehend, well, 20 years of Great Moderation (Olivier Blanchard himself a few years ago: “The State of macro is good.”) gave researchers no incentives to look deep into crises. Friedman’s and Bernanke’s work on the Great Depression seemed pretty thorough. And as for “truthful, intuitive and useful”, have they read Blanchard’s papers? How are they different? It’s the same MIT model approach. Usefulness is hard to gauge in macroeconomics–maybe impossible because we don’t have an experimental setting (Dr. Kling writes about a high causal density). So yes, he’s a smart and hardworking fellow, but the rest is Hollywood make-believe.