In 2009, I taught Jeff Hummel's Masters class in Macro at San Jose State University while he was on sabbatical. I did so to relearn macro and to learn what's new in macro. It worked.
However, the segment I was most unhappy with my performance on was the one where he linked the Keynesians and the monetarists and went back and forth between the two, showing the implicit assumptions the Keynesians were making. So when he covered that topic, I wanted to be there. He covered it last night and I drove up to attend. My co-author, Charley Hooper, attended also. Jeff did a masterful job: one, though, that's hard to summarize. The main text for the course, which I became a big fan of when I taught out of it, is Brian Snowdon and Howard R. Vane, Modern Macroeconomics.
His lecture caused me to go back to my lecture notes and I found that, although I didn't do it as well as Jeff, I didn't do badly. A couple of highlights follow.
From Jeff's lecture, a quote, in Snowdon and Vane, from Axel Leijonhufvud, who taught me macro when I was in the Ph.D. program at UCLA:
Macroeconomics seemed to have taken a turn very similar to movies: more and more simple-minded plots but ever more mind-boggling special effects.
From my lecture notes on why the Keynesian cross is such a poor way to do analysis. (These notes are consistent with Jeff's treatment.):
In the late 1960s, when I was an undergrad, this was the model in all principles texts. The only one we learned. This is one reason Jeff Hummel referred to the 1950s and 1960s as "the Keynesian dark ages."
It was used despite its strange assumptions:
1. P level is constant (no inflation or deflation)
2. Interest rate is constant
It seems hopeless to analyze a macro economy this way. What if we had always assumed full employment? Everyone would have seen through that.
Another segment from my notes for my lecture that is consistent with what Jeff said in class:
Does this mean that neoclassicals thought you couldn't have recessions in Short Run? Of course not. Over half of the economists who made lasting contributions to economics were in Britain and Britain had had recessions since the time of Adam Smith. They weren't naïve. But in their view, you had recessions because firms and workers confused nominal and relative prices. So the reason you didn't want to take a wage cut is that you thought it would buy less--you didn't notice that prices had fallen. So temporary unemployment.
Average length of depression (they didn't have the word "recession") was 1 to 2 years.
(Tell Stigler at White House in October 1982 story.)
Once the economy got back to the right price vector, you were back to potential output.
What should government do in this case? Nothing. Laissez-faire--allow markets to adjust.
I withheld one good line last night because I was a guest and I believe that guests should never interrupt simply to tell a smart-ass joke. The background: in discussing the real-balance effect, Jeff pointed out that the late Don Patinkin had handled this masterfully in his classic, Money, Interest, and Prices. In the book, Patinkin had shown all of the aspects of the real-balance effect, not just the effect that Keynes highlighted. One of the students asked how "Patinkin" was spelled: was it the same as the last name of the actor named Mandy Patinkin? Jeff said yes, and I immediately thought of my favorite line of Patinkin's character in The Princess Bride, and adapted it for the issue at hand. I can picture Patinkin saying to Keynes:
I do not think that term--the real-balance effect--means what you think it means.