It’s rather telling that Greg Mankiw has no answer to the main substance of Robert Murphy’s takedown of Mankiw’s overall macreconomic vision. Instead, Mankiw fires his giant Harvard guns on an issue that was recognized long ago by economists without need of the unreal mathematical machinery of “new Keynesian analysis”. But the heavy mathematical machinary doesn’t solve the scientific question at issue, which can be asked this way: Is the groping process of the market better appreciated by microeconomic market process thinking (see, e.g. Kirzner, Boettke or Horwitz) — or by the unreal / artificial fake-microeconomic constructs of “new Keynesian” macroeconomics? And in the re-coordination phase after an artificial boom can a centralized monetary policy possibly deal with the problems across time more successfully than heterogeneous participants in the market? It would be useful if Mankiw could provide us with arguments and evidence — excluding arguments based on a cartoonish understanding of “science” — for thinking his fake-micro / econometric machinery really did give us a sounder and deeper insight into the coordination process and impediments to that process than does heterogenous market process microeconomics. And ditto with his claim that a centralized monetary policy could reliably be counted on to deal more successfully with the knowledge problems across time than participants in the market. Bonus question: is it possible to construct a neutral econometrics to adjudicate between microeconomic market process thinking and the fake-micro new Keynesian math constructions as rival modes of understanding market coordination across time in real-world disequilibrium environment not subject to mathematically tractable formal modeling — i.e. involving heterogenous capital goods?
UPDATE: Murphy challenges Mankiw on the empirical facts here and here. Note also that Mankiw gets Murphy’s position wrong — falsely associating it with a “new classical” perfect markets position that Murphy does not hold. Here’s a bit of Murphy on Mankiw:
in November, Mankiw called for the Fed to promise to pump in new money in the present, to combat any falling prices. And then just a month later, he started calling for the Fed to promise to pump in new money in the future, because…the imperfect market economy doesn’t allow for prices to fall in the short run.
And let me also recommend David Glasner’s remarks found below in the comment section.