Noah Smith:
Noahpinion: Microfoundations would be nice if we had them: [T]he big problem with "microfounded" macro, as I see it, is that the "microfoundations" are bad: not credible, and generally not consistent with anything microeconomists have actually found. Bad microfoundations are worse than none at all.
Indeed. Equities are not claims to the fruit of a fixed number of trees with fruit amounts that drop according to a random walk with drift. The underlying technologically-limited potential productivity of workers does not drop in a recession. People are not trapped on islands, knowing their nominal wages but uncertain of the prices of the goods and services they will buy with those wages.
