How can one incorporate the idea of the importance of the banking system (separate from its importance to the money creation process)? One very simple static model is provided by a twenty year old paper by Bernanke and Blinder.
I am not persuaded that macroeconomists had a good model for this crisis. I think that Peter Schiff comes across as much better than the average macroeconomist.
I'm supposed to do a bloggingheads next week witih Mark Thoma on macro, and I am going to be making the case that macro is really off base. I think that one of my issues with macro is that it tries to look like physics, with laws and constants.
But picture Isaac Newton scribbling down the laws of physics every day, and every night God comes in and erases the scribblings, changes the laws, and fiddles with the constants. That is what macro is like.