Memory is always shaky. And my undergraduate transcript is in a box somewhere in the basement. But I believe that the semester I audited Tom Sargent's evening Monetary Economics class was also the semester I took (P/F, with lots of help from high-powered physics major roommates) Edward Purcell's Introduction to Quantum Mechanics class.

At the end of the physics class Purcell had us set up a proton--not a real proton, with its finite mass and complex internal structure, but a fake proton that was infinitely massive, possessed one simple unit of positive electric charge, and had no magnetic moment (rather ironic given what Purcell's Nobel Prize in Physics 1952 was for)--and its associated electromagnetic field, or, rather, not the relativistic QED electromagnetic interaction with its Feynman diagrams and virtual particles, but just a static energy potential. We then used the Schroedinger Equation (and where does that come from?) to calculate the position distributions associated with the first three energy eigenvalues of a single electron--but not a real electron: an electron-like object without any internal angular momentum. And I did it! I had built a full microfounded model of where the hydrogen atom's electron is in its 1s, 2s, and 2p energy eigenstates, and thus of why those eigenstates had the energy values they did, and why the hydrogen atom could emit photons of energies corresponding to 2s->1s, 2s->1s, 3s->2s, and 3s->1s transitions (and absorb the same photons) and not photons of other energies. And then it was a simple matter of programming to generalize this microfounded construct to create a fully microfounded discipline of chemistry, right?

Well. Except for the fact that the electron was not an electron. Except for the fact that the proton was not a proton. Except for the fact that the model was not relativistic. Except for the fact that the static electric potential was not the actual quantum-electro-dynamic field. All these matter for the real electron: in my model the 2s energy level was the same as the 2p energy level--there was no Lamb shift and hence no Lamb-structure lines in my hydrogen spectrum, because there was neither the self-interaction of the electron with its own electromagnetic field nor interference by virtual electrons and positrons with the photons carrying the electromagnetic forces between the proton and the electron.

And while Richard Feynman may have whispered about the Black Arts of "renormalization" and "measurement apparatus" and "sum-over-histories", plus warned his students against the "mumbo-jumbo of the collapse of the waveform" when he did his four-semester introductory course, Edward Purcell did not in his one-semester quantum mechanics intro. And while we could do our approximate calculation for one fake-electron around one fake-proton with one fake-interaction, I do not believe to this day that there are any first-principles microfounded calculations of something as basic as the electron affinities of the different elements:

Indeed, we first made astatine at the far right of the chart, just to the left of radon, 73 years ago. Yet we do not know--either by theory of by observation--many of the properties of astatine: "astatine may be dark, or it may have a metallic appearance and be a semiconductor, or it may even be a metal". And I have never met anybody who can tell me why chlorine has a higher electron affinity than fluorine while bromine has a lower electron affinity than chlorine only by frantic handwaving about "partial shielding of the nuclear charge by the electrons of the 3d subshell". And nobody has even tried to explain to me why one might from quantum-mechanical theory expect to see the electron-affinity pattern of the nine-element grouping cobalt-rhodium-iridium-nickel-palladium-platinum-copper-silver-gold.

So I was rather insulated from Tom Sargent's laying down the theoretical principle that economic models needed truly rigorous microfoundations. I listened to him present microfounded overlapping-generations models of the value of money, and learned an enormous amount--but not because the models were rigorously microfounded. The cash I carry around in its pocket does not have value because I want to buy things from people who will die before I have made anything they want to buy from me and I will also want to sell to people who will only produce things I want to buy after my death. That just isn't going on. Overlapping-generations models of money are metaphors--tractable and useful metaphors invented by the brilliant Paul Samuelson, but metaphors. They are not models that are accurate descriptions of reality at a micro level out of which we can construct accurate descriptions of reality at a macro level by simply examining their large-scale emergent properties.

It seemed to me that if Tom Sargent were correct in his methodological declarations, we might as well go home--and that the physicists and chemists should go home as well. But I knew that the physicists and chemists did not need to go home. Even though they lacked a rigorous micrfounded model of the chemical properties of astatine, when they said thing would go "boom" they tended to go BOOM!!!!

All this is a very long-winded wind-up to why I am not nearly as upset as Nick Rowe is about the New Keynesian model as studied by Jordi Gali and others. Jordi simply wants to study those equilibria of the model that converge over time to a classical full-employment long run, and that seems to me a fine thing to do. Nick Rowe, however, is very unhappy and complains:

The "canonical" New Keynesian model… has replaced ISLM as the new "workhorse" model. It has three equations. The new "IS curve"… the ratio of current demand to expected future demand is a negative function of the real rate of interest… the expectations-augmented Phillips Curve, which both defines "full-employment" and tells you the relationship between deviations of output from full employment and deviations of actual from expected inflation… the monetary policy reaction function…. This model has zero tendency towards full employment, even if you assume a sensible monetary policy. New Keynesian modelers just assume a tendency towards "long run" full employment, even though it's not there in the model.

But, at least as I see it, the purpose of the New Keynesian model is to serve as a counterexample: Robert Lucas and company claimed that models with what they called "rigorous microfoundations" could not have equilibria with broadly Keynesian conclusions. New Keynesian models are demonstrations that this is not so. Whether and to what degree actual modern economies are self-equilibrating to anything like full employment in a reasonable medium run is a very important question, but is not something that these models would be very likely to be able to tell us.

And I would disagree with Nick Rowe's claims that the Old Keynesian IS-LM-PA (price adjustment) model got us back to full employment in the medium term (as long as monetary policy was not insane). It didn't get you back to full-employment if you were in a liquidity trap. Then, as Paul Krugman says, you have to go outside the model--either to a Pigou real-balance effect of outside money on aggregate demand via consumption or to Keynes's point that eventually "use, decay, and obsolescence" of capital (plus deleveraging) would shift the IS curve out and to the right.

And I do think that once you recognize that we are no more in the genuine "microfoundations" business than even Peter Higgs and company, Paul Krugman gets the recent intellectual history right: