The short article by Menzie is a pithy summary of the most important “missing link” in most intermediate macro… unfortunately not that easy to incorporate into the model without seeming very ad hoc, and without ending up with a $20 bill on the sidewalk… and yet it happens!

The NY Times “Room for Debate” recently had a forum on “Rethinking How We Teach Economics”, with contributions by Blinder, Taleb and Skidelsky, among others. In my contribution, I focused on the importance of asymmetric information and self-reinforcing feedback loops:

In the typical introductory textbook, wages and prices adjust so that labor is fully employed and goods are sold at the right price. A more sophisticated treatment shows up in more advanced texts, but even in some graduate texts, there is an emphasis on the self-correcting aspects of the modern macroeconomy. Recessions are eventually overcome as prices adjust to the right levels, even in the absence of government policy.

via Econbrowser: Lessons from the Crisis for Teaching Macro.