This is what Krugman has called “flaws-and-frictions” economics, and it propounds the bromide that “we already had models that told us the crisis was coming.” It follows that outsiders should ask: So why weren’t these models well represented in macro or micro textbooks and graduate pedagogy? Stiglitz is fully aware there exists a tradition of oxymoronic “New Keynesianism” that reprised a boring old pre-Keynesian story of sticky wages and prices in a neoclassical equilibrium, but he suggests there exists something else on offer more compelling. In Stiglitz’s case, there is a special caveat: the models he has in mind are found mostly in his own previous publications. While there could be no academic prohibition against tooting your own horn, there is something less than compelling about claiming a grand generality for some idiosyncratic models where the novelty quotient is distinctly low. While Stiglitz has certainly earned his Nobel, he has not effectively staunched the intellectual trend of treating markets as prodigious information processors; nor has he provided a knock-down refutation of the EMH. This has led to the distressing spectacle of Stiglitz, the great hope of the “legitimate left,” openly defending the neoclassical approach to the crisis, while not really changing it all that much. … Stiglitz has admitted that his mission all along was to undermine free-market fundamentalism from within: … [I]t seemed to me the most effective way of attacking the paradigm was to keep within the standard framework as much as possible . . .While there is a single way in which information is perfect, there are an infinite number of ways that information can be imperfect. One of the keys to success was formulating simple models in which the set of relevant information could be fully specified . . . the use of highly simplified models to help clarify thinking about quite complicated matters. … The way he sought to do this is to produce little stripped-down models that maximize standard utility or production functions, with a glitch or two inserted up front in the setup. He has been especially partial to portraying “information” as a concrete thing to be purchased, and “risk” as standard density function with known parameters. There is no canonical Stiglitz “general model,” but rather a number of specialized dedicated exercises, one for each flaw and/or friction explored. Macroeconomics then simply becomes microeconomics with the subscripts dropped.

Philip Mirowski, Never Let a Serious Crisis …, loc. 764