Something I've often said, and which few people seem to agree with me on, is that I've never noticed any particular correlation between intelligence and flexibility of thinking. I'm probably reacting to this because of having a strong similar reaction to reading Schumpeter's Capitalism, Socialism, and Democracy, which I expected to be much better,* but Mulligan's "Exceptions to Keynesian Theory" post struck me today as particularly narrow minded.
Mulligan has been doing a series of posts showing that supply still has some impact on things such as hiring even during a recession. Well, duh. However, this doesn't contradict anything I've read of Keynesian theory, despite his shrill insistence it does, and taking some Krugman** posts out of context.
I'll leave it to proper economists to get into the details, my formal training in economics is fairly slight with the partial exception of political economy. My confidence in my own self-study is not such that I'm prepared to take on a professional economist within the narrow confines of economics. What is obvious to me is that Keynesian theory is primarily a macro aggregate level theory and not a micro theory. Mulligan's examples are all micro examples. Aggregate level theories tell nothing (perhaps more precisely little) about distribution within the aggregate area under study. Once the aggregate body is opened up relative competitiveness within the area under discussion will matter a great deal, however this competition will have little aggregate impact.
And here's the key thing with studying any social science, you can't explain everything. There will always be activity that falls outside of the model, the test is which model explains the greatest amount of the available evidence (and which sets, different models explain different things, explaining aggregate impacts and distribution between two of these different things). A model also requires clear falsifying conditions (I don't claim to know what these are for Keynesianism), but variation in micro level sectoral changes is not sufficient to discredit a macro model, it doesn't really say anything about it at all, much less discredit it. Social science tends to be tough on people who are rigid thinkers generally, policy tends to be completely impossible for them.
In political science we teach the levels of analysis. The key thing about this is that at each level different explanations of behavior are available, each step contributes to different portions of the overall result. So we can use say, Waltz's defensive realism to describe the overall international conditions facing various states and the probabilistic outcomes (actually I don't think this theory is developed enough to result in actual probabilities, but it helps to think things through and this would be an intelligible eventual objective), various takes on national level politics to describe the incentive effects faced by individual leaders in response to this, and then individual level political psychology theories to describe the actual choices that are made by leaders at the individual level. The existence of each of these theories and the evidence supporting them does not discredit any of them, rather it provides a greater level of descriptive detail to the researcher able to master the various perspectives allowing a more complete and accurate description and possibly prediction of events.
And this is all I see happening with Mulligan's critiques. I tend to think Krugman is basically right about the overall macro picture of the economy, however, this tells us little about how individual workers are being impacted. Mulligan's work seems to be describing the variable impact on diverse groups and particular sectors, we know from other evidence as well that the recession is not having the same impacts on all groups, his attempts to disprove Keynesianism are simply providing a more detailed picture of the micro effects.
* There's a reason why I can never motivate myself to read anything from an Austrian perspective, I find their description of human nature preposterous. Schumpeter's description of Marxism as scientific socialism also made me cringe, I see both perspectives as being little more than updated scholasticism, both rely on logic more than they rely on empirical evidence to describe the world. Science is basically the rejection of this perspective in favor of rules bound testing and reliance on observation, there's no science in socialism and neither is there in Schupeter's description of capitalism. Of course, I don't believe that there is even an identifiable system that can be called capitalism, there is too much in common with earlier forms of organization and no clear dividing line that I'm aware of, so it's not surprising I have no sympathy for this perspective. It is also worth noting that many of my disagreements with Schumpeter involve beliefs that were common in his time that have since been thoroughly discredited, though this does not explain all points of difference. I'll review the book when I think I can be more dispassionate, at this point there's so much I see wrong with it that I'd be writing a small novel to criticize it.
** While I think Krugman can be shrill, he does have an excellent track record. Also, while I think sometimes he exaggerates his positions, I respect that he is willing to call people out and say they are wrong when he has good reason to do so, we need more of this. This doesn't excuse his tendency to target things when he doesn't have strong arguments to back up his critiques, but this tends to be the exception, rather than the rule. David Frum's writing on Krugman's basic accuracy is worth reading. Myself, I tend to disagree with him most strongly about China, domestically my disagreement is rarely about facts though sometimes I think he has a tendency to use apocalyptic language and to over simplify the political aspects of what he is saying. I am in agreement with him about the dangers of market fundamentalism, though I disagree with making this only about Republicans rather than about that philosophy more generally. On the whole however, while Krugman is a strong partisan, I do think he has shown the mental flexibility that I find lacking in Mulligan. He never gives me the impression that he doesn't understand the other sides arguments, he just tends to use his understanding as a platform to launch further attacks. And for the record, Krugman's writing on China did inspire me to write a paper whose nucleus was disagreeing with his analysis, I'm happy to share it with anyone interested in the political economy of the Chinese currency dispute. I had been considering getting it into shape for academic publication but realized that I can't afford to spend that kind of time working on something for free.