I tweeted last night that:
Larry Summers just said DSGE models played no role at all in WH policy response to crisis. It was all IS-LM augmented by liquidity trap.
continuing... Summers says Ptolomy model outperformed Copernicun model for 50 years after discovered. Same for IS-LM vs. DSGE... #INET2011
Here's a better description of what Larry Summers said in his conversation with Martin Wolf:
What the economists knew, Free Exchange: ...The conference is being held in Bretton Woods, New Hampshire, in the same hotel where the original Bretton Woods conference of 1944 was held and certainly, Keynes is very much in the air. ...
The highlight of the first evening's proceedings was a conversation between Harvard's Larry Summers, till recently President Obama's chief economic advisor, and Martin Wolf of the Financial Times. Much of the conversation centered on Mr. Summers's assessments of how useful economic research had been in recent years. .... Mr Summers was ... measured, refusing to be drawn into making blanket statements for the sake of being controversial. (He's tried that and found it doesn't always go down well, he quipped. Later, he added that he was "one of the few people who went to Washington to get away from politics".) But in its own way, his assessment of recent academic research in macroeconomics was pretty scathing.
For instance, he talked about all the research papers that he got sent while he was in Washington. He had a fairly clear categorization for which ones were likely to be useful: read virtually all the ones that used the words leverage, liquidity, and deflation, he said, and virtually none that used the words optimizing, choice-theoretic or neoclassical (presumably in the titles or abstracts). His broader point—reinforced by his mentions of the knowledge contained in the writings of Bagehot, Minsky, Kindleberger, and Eichengreen—was, I think, that while it would be wrong to say economics or economists had nothing useful to say about the crisis, much of what was the most useful was not necessarily the most recent, or even the most mainstream. Economists knew a great deal, he said, but they had also forgotten a great deal and been distracted by a lot.
Even more scathing, perhaps, was his comment that as a policymaker he had found essentially no use for the vast literature devoted to providing sound micro-foundations to macroeconomics. (So that would be most macroeconomics since the original Keynesian revolution?) On the other hand, he pointed out that while there was clearly a need to be prudent while applying research to the real world, it would also be unwise to attack it wholesale. ...
Let me add one more thing from a talk by Kennth Rogoff last night, something echoed by Summers. Rogoff said that he took a class with Kindleberger while he was writing his famous book on Manias, Panics, and Crashes, but because it was non-mathematical and mostly narrative, the students didn't think he was doing "real" research. Summers said he had similar views as a grad student, views that have evolved over time. The message was that the sociology of the profession needs to change so that it embraces this type of work. I agree, and expect will hear more about this on the panel on economic education later today [program].