I don't like [DeLong's] framing of banking camp versus macroeconomic camp. Even the banking camp thinks it is doing what it can to stabilize the broader economy. I don't think their concern is simply to help bankers, I give them more credit than that. It's just that some members of the Fed do not believe the Fed has much influence over the economy beyond stabilizing the financial system. Once that is done, the Fed's powers are very limited (when at the zero bound) and--in the eyes of some members of the Fed--the risks of further aggressive action, e.g. QE, outweigh the potential benefits. So I think both camps have the same goal, stabilizing the macroeconomy, the difference is in the view of how much the Fed can do without risking bubbles, inflation, etc.
I would say that in order to belong to the Banking Camp it is pretty much necessary that you think both (a) the Fed can't do very much, especially at the ZLB, other than stabilize financial conditions; and (b) once financial conditions are stabilized the economy will normalize itself quickly--and if it doesn't normalize, it means that the problems are "structural" anyway. Can't do much and shouldn't do much seems to me to be the point of view.
Now it is possible for somebody to believe (a) "can't do much" and (b) "shouldn't do much" and also believe (c) "high unemployment is a disastrous and avoidable national tragedy", in my experience that is rare. There are people who believe in (c) and (a)--but they believe in (not b), and want the Federal Reserve to move aggressively because they think they might be wrong in their belief in (a). Most of the time, I think, the avoidance of cognitive dissonance prevents people who believe in (a) and (b) from also believing in (c). If you are in the Banking Camp, you are likely to believe that stabilizing the macroeconomy is just not that important a goal.
Mark Thoma continues:
I believe the Fed should do more, that it could help some, but I am also doubtful about how much more the Fed can accomplish in helping with the unemployment problem. What we need is sane fiscal policy, that's what could really help the unemployed, but instead we are focused on the Fed chair, dividing economists into camps, etc. We need fiscal policymakers to be in the macroeconomics camp rather than the political/ideological camp that is driving things like austerity, potential government shutdowns over manufactured crises, worries about the debt used to push for smaller government, and so on that are harming the recovery.
DeLong and Summers were trying to help along these lines with their Brookings piece showing the benefits of government spending in deep recessions, but that effort has subsided and for the most part there hasn't been much push from economists on the fiscal policy front. Yes. it's politically unlikely that a fiscal policy package could get through Congress, but that doesn't mean we should give up our role in educating the public about just how terrible the performance of fiscal policy has been. And if we speak out, perhaps it could even matter at the margin, an extra infrastructure project here and there perhaps. Every additional job matters tremendously to families who are still struggling to get back on their feet.
I just can't understand why so many people are letting fiscal policymakers off the hook. It's not for lack of time or space--a considerable amount is written daily about the Fed. We ought to be skewering both politicians and economists who are standing in the way of fiscal policy measures, infrastructure in particular, that could strengthen the economy and put people back to work--both theory and the empirical evidence are clear on this point--but instead it's mostly silence.