"Professor Krugman [ in a recent speech] argued that the current nightmare is one that wasn’t meant to happen especially given the conventional wisdom regarding the effectiveness of monetary policy as a means of controlling unexpectedly large demand-side shocks."A sudden change in the variety of goods we demand is supposed to be handled by the monetary authorities?
Even if central bankers could scale money up or down, the main problem remains, relative pricing. How does a common scale factor help? Real interest rates are set by economy to price the value of a new future different than the current future. They are low, not because some central banker dictated the rate, they are low because during this restructuring of the economy growth will be low and we do not know yet what the new future looks like.
I have no idea where the hubris comes from that made economists think that change has been tamed by them.
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