Do We Need a New Keynes?

John Cassidy, a journalist who writes for the New Yorker, wonders where the New Keynes is lurking. Cassidy states:

At the end of the [radio] show, Leonard asked me an interesting question: Has the financial crisis and Great Recession produced any big new economic ideas? My immediate response was that it hasn’t, or, if it has, I wasn’t aware of them.

I seems that what excites journalists is the personal, and the large. A nice, readable story is one that focuses on an individual with a "big" idea, that can be stated crisply in a few lines.

Unfortunately for Cassidy, but fortunately for the rest of us as it turns out, modern economics is not set up to give journalists tasty sound bites. In my generation, and in younger ones, it's hard to identify the "big" people with the "big" ideas, as economic research is a collective effort - much more so than in the days of Keynes, or even in the generation of Lucas, Prescott, Sargent, and Sims. The big idea that is helpful in understanding the financial crisis, its causes, and what should have been done or should be done about it, is the idea that was developed by the information theorists of the 1970s - Akerlof, Stiglitz, Townsend, Rothschild, Holmstrom; by the mechanism designers - Hurwicz, Maskin, Myerson; by the monetary theorists - Wallace, Townsend (again), Kiyotaki, Wright; by the financial intermediation theorists - Diamond, Dybvig, Townsend (again), Prescott, Boyd; by the dynamic contracting theorists - Green, Abreu-Pearce-Stacchetti, Atkeson-Lucas; by general-equilibrium financial-frictions people - Gertler, Bernanke, Smith, Kiyotaki-Moore. That idea is much much bigger, and immensely more solid science than Keynes.