Macro as Phrenology: A More Nuanced View

Willem Butler (via Mark Thoma) offers an account--far more elaborate and sophisticated than my own, of the similarity between Macro and Phrenology:

The most influential New Classical and New Keynesian theorists all worked in what economists call a ‘complete markets paradigm’. In a world where there are markets for contingent claims trading that span all possible states of nature (all possible contingencies and outcomes), and in which intertemporal budget constraints are always satisfied by assumption, default, bankruptcy and insolvency are impossible. ...

Both the New Classical and New Keynesian complete markets macroeconomic theories not only did not allow questions about insolvency and illiquidity to be answered.; They did not allow such questions to be asked. ...

But read the whole thing, it'll scare the daylights out of you. There's also useful commentary by Thoma and a somewhat half-hearted rear guard defense by Brad DeLong.

Update: Looks like the theme is almost viral.