Edmund Phelps

"What theory can we use to get us out of the impending slump quickly and reliably? To use the new classical theory of fluctuations begun at Chicago in the 1970s – the theory in which the "risk management" models are embedded – is unthinkable, since it is precisely the theory falsified by the asset price collapse. The thoughts of some have turned to John Maynard Keynes. His insights into uncertainty and speculation were deep. Yet his employment theory was problematic and the Keynesian policy solutions are questionable at best....At the end of his life Keynes wrote of modernist stuff, gone wrong and turned sour and silly. He told his friend Friedrich Hayek he intended to re-examine his theory in his next book. He would have moved on. The admiration we all have for Keyness fabulous contributions should not sway us from moving on."

"The stampede toward “rational expectations” — widely thought to be a “revolution,” though it was only a generalization of the neoclassical idea of equilibrium—derailed the expectations-driven model building that had just left the station. In the end, this way of modeling has not illuminated how the world economy works."

"When public spending in the form of transfer payments makes various services and benefits free of charge, work is discouraged. Yet it is precisely Social Security that legislators fear to cut"