PAUL KRUGMAN is reading last rites to the neoclassical synthesis ("the notion that monetary and fiscal policy could be used to solve the problem of recessions and depressions, and that once you did that, conventional microeconomics — with its favorable view of free markets — could go back to its old self") which he argues has been exploded by the experience of the last six years. Mr Krugman says:

First of all, the liquidity trap is real; conventional monetary policy, it turns out, can’t deal with really large negative shocks to demand. We can argue endlessly about whether unconventional monetary policy could do the trick, if only the Fed did it on a truly huge scale; but the fact is that the Fed hasn’t ever been willing, or felt that it had sufficient political room, to do that experiment. Second, while the evidence from austerity programs strongly suggests that fiscal policy does in fact work, with multipliers well above one, the political economy of policy turns out to make an effective fiscal response to depression very difficult. So the neoclassical synthesis — the idea that we can use monetary and fiscal policy to make the world safe for laissez-faire everywhere else — has failed the test.

What's more, the end of "small-government Keynesianism" means that the rich world must become much more serious about reining in financial system leverage and dangerous financial flows, and:

[Y]ou have to ask why, if markets are imperfect enough to generate the massive waste we’ve seen since 2008, we should believe that they get everything else right.

It's a perplexing post. As Matt Yglesias argues it isn't as though regulating the financial system back to the 1950s is politically easy relative to providing fiscal and monetary stimulus. And Mr Krugman doesn't argue that the crisis changed our understanding of the nature of the business cycle—which is what motivated economists to call for macroeconomic intervention while embracing market solutions at the micro level.

But let's take a step back. Here is a useful starting point for the discussion:

This shows the path of real output from the first year of two major downturns. We are currently in year eight; the dotted line extrapolates the average economic growth rate over the past three years out through the next seven. These figures are for the American economy; the picture is admittedly different for Britain and Europe. But let's take America's experience as the best we can hope to engineer given current macroeconomic knowledge and typical rich-world political dynamics.

The first thing to point out is that, through the first 12 years of these experiments, today's macroeconomic-policy framework (consisting of a much more robust safety net, countercyclical monetary and fiscal policy, and aggressive action to prevent financial-sector collapse) is clearly better than the one we had around in the 1930s. That will be true even if the two lines do indeed converge to a similar output point 12 years after the start of the recession. The cumulative output loss through that point will have been substantially larger in the Depression than in the Great Recession. And limited historical experiences suggests that flattening out the path of GDP greatly reduces the risk of political extremism. The "massive waste we've seen since 2008" has nothing on the waste of the 1930s and 1940s. In the absence of an alternative politico-economic framework that looks capable of delivering even better results we should be extremely reluctant to abandon the current working strategy.

A second thing to keep in mind is that the policy revolutions that develop in the aftermath of a macroeconomic disaster can take decades to run their course. We can very reasonably be frustrated with the policy performance of the past six years while also remaining hopeful that the intellectual battle will eventually be decided in a positive way.

When it comes to economic matters that don't involve macroeconomic stabilisation, there are plenty of reasons to be critical of some prevailing wisdom that have nothing to do with management of the crisis. It wasn't the crisis that generated interest in changes in the distribution of income or a more nuanced view concerning the effects of trade and capital flows. At the same time, there is nothing in the management of the crisis that gave us any reason to doubt most of the prevailing microeconomic wisdom. As Mr Krugman has been at pains to point out, southern Europe's rubbish regulatory regimes have basically nothing to do with their descent into crisis. But neither has the crisis led anyone to "say shame about the crisis, but for that southern Europe's brilliant growth strategy would have paid off handsomely". Should governments' failure to stabilise demand really convince us that it shouldn't be easier to hire and fire workers in southern Europe, to start and expand businesses, to buy and develop property or introduce new products and services?

We learn from failure. It took the Great Recession to tell us where there has been intellectual progress in the fields of economics and political economy and where there has not. But there has been progress and there almost certainly will be more: building on the strengths of the broad neoclassical synthesis. If the trials of the last half decade yield one-tenth the intellectual dividend of those of the 1930s, then the world has good reason to expect the future to be quite a lot better than the past, in much the same way that the recent past is a world apart from the horrors of the 1930s.