Economic equilibrium

"Theres a lot of misplaced criticism of equilibrium models. For explaining 1950-, 1960-, 1970-type business cycles, theyre a lot more robust than some people give them credit for. The failure of wages and prices to adjust is no problem because theres a lot of reasons, many of them coming from contract theory and models of enduring relationships, that would lead one not to expect the current real wage/price to adjust to clear the current labor market. [...] What we mean by equilibrium is essentially two things. First, we set out to explain data on prices and quantities as resulting from the interaction of individual decisions; thats the key thing together with the notion that markets clear in some sense. That doesnt mean everybody has a job every period. The notion of clearing may be much more complicated and may involve lotteries. There are various responses why workers are unemployed. [...] Another thing is that these environments are sufficiently complicated so that its not automatic that equilibria are optimal."