EconTalk: Russ and I discuss Fisher's Debt-Deflation Theory

Didn't it take until the 1990s for it to be rigorously shown, and widely accepted, that near-rational behavior in monopolistically-competitive price-setting could actually result in recessions of large magnitudes?

Note that Fisher is not advocating a debt-deflationary theory of a New Keynesian "debt is nominally rigid" stripe. It doesn't function via nominal rigidity plus monopolistic competition plus near-rational behavior, which you seem to value.

Fisher is advocating a pre-dichotomy theory where the interaction is instead between nominal rigidity and 'pessimism' and fire-sales of assets. Note, e.g., that Fisher is asserting that debt-deflation alone generates more deflation: inflation is not here everywhere a purely monetary phenomenon. This is not purely classical.

And it is also not rigorous: without price-setting power, a fire-sale of assets should just be a wealth transfer from unfortunate debtors to creditors. One can rationally describe why debtors are then pessimistic, but not creditors, without invoking a decidedly non-classical animal-spirits variable. Fisher calls it "distrust".

How would a debt deflation theory explain unemployment?

@Jason

No involuntary unemployment in debt-deflation models; any spike in observed unemployment is caused by falling labour force participation rates plus an imperfect definition of 'unemployment' not quite identical to its economic involuntary sense (i.e., people still say they are seeking jobs, but won't actually accept them at the now-lower market rate).