To me, it seemed that the coup-de-grace was delivered by Justin Wolfers:
When I pointed Mr. Friedman to this critique of his analysis, he simultaneously accepted and rejected it
He accepted it, telling me that “I may have made a mistake.”
But he also rejected this critique, arguing that his figures are based on an alternative view of the world, stating: “To me, when the government spends money, stimulates the economy, hires people who spend, that stimulates more private investment. That remains, and at the next year, you’re starting at the higher level.” He admits that this “is not standard macro,” and described it as the understanding of an earlier generation of economists — a sub-tribe of Keynesians he called “Joan Robinson Keynesians.”
When you get someone to admit they made a mistake in their analysis, it seems like it's over. Friedman admits he made a mistake and then says that his conclusion was right anyway, because we can go find some alternative assumptions that make his original conclusion hold. To me this is transparently assuming the conclusion. That's a big no-no, and while a lot of macroeconomists probably do this, it looks really bad to admit to it!
(I'm also starting to realize that "Joan Robinson" is a sort of an invincible rhetorical refuge for lefty macro types, the way "Friedrich Hayek" is for righty macro types.)
But anyway, the fracas quieted down, but now it's back. Friedman and allies are no longer saying that their analysis is "just standard economics", since they had to switch to non-standard economics to make the conclusions come out the way they wanted. The line now is that Krugman, the Romers, et al. are just a bunch of pessimists, who are unintentionally playing into the hands of conservatives.
Here's Friedman, writing at the INET website:
Professional economists tend to embrace an economic theory that government can do little more than fuss around the edges. From that stance, what do they have to offer ordinary people for whom the economy is not working? Not a whole lot...The angry reaction to my report revealed that by some combination of rationalization and the dominance of neoclassical microeconomics since the 1970s, liberal economists have virtually abandoned Keynesian economics..
There is, of course, a politics as well as a psychology to this economic theory...The role of economists and other policy elites (Paul Krugman is fond of the term “wonks”) is to explain to the general public why they should be reconciled with stagnant incomes, and to rebuke those, like myself, who say otherwise[.]
And here's Mason, being interviewed in Jacobin:
The position on the other side, the CEA chairs and various other people who’ve been the most vocal critics of [Friedman's] estimates, has been implicitly or explicitly: “This is as good as we can do.”...“No you can’t.” That’s the other side here: all the reasons for why you can’t do anything. Just give up! Then this notion that Republicans make everything impossible is just another bit of ammunition for “No you can’t.”...
Right now, we have a system that says as soon as wages start rising, you have to throttle back demand. In many ways, the people running the show don’t necessarily want very fast growth. They prefer an economy that’s sort of sputtering along because it’s one that involves a lot of insecurity and a lot of weakness for working people. When there’s a chronic oversupply of labor people can’t rock the boat.
On Twitter, Mason clarified that when he talks about "the people running the show," he meant the Republicans, not Krugman, the Romers, et al. Basically, he's accusing mainstream liberal economists of unintentionally playing into the hands of conservatives.
The claim that economists like Christina and David Romer bought into the New Classical revolution is both absurd and dishonest...[W]e critics do admit we are below full employment and we have been calling for fiscal stimulus. On this score, the latest from J.W. Mason is even more dishonest than the latest from Gerald Friedman. Guys – you do not win a debate by lying about the other side’s position.
I think PGL is going a little far here - Friedman and Mason aren't lying about their liberal opponents' positions. They aren't claiming Krugman, et al. are New Classicals, only that in the current political and economic situation, they might as well be. Also, Jacobin appeared to put words in Mason's mouth.
But anyway, I don't like what Friedman and Mason are doing. I think economists have a duty to look at the facts as objectively as they can, regardless of their emotions and desires. You shouldn't prefer Model B over Model A just because one leads to "hope" and the other to "hopelessness".
Suppose you're a doctor, and your patient has knee pain, so you prescribe some anti-inflammatories. The inflammation goes away and the knee pain gets somewhat better, but doesn't go away entirely, and you conclude that inflammation wasn't the only thing that was causing pain. You don't prescribe a 10x dose of the original anti-inflammatory just because doing otherwise would mean abandoning hope. That would be silly! Even if the patient has an evil boss who doesn't want him to recover, you still don't recommend the 10x dose of anti-inflammatories.
Friedman and Mason seem to be arguing that our belief about the facts should be driven, at least in part, by our desire to avoid a feeling of powerlessness. They also seem to be saying that if the facts seem to support conservative policies, even a tiny bit, we should reinterpret the facts.
I don't like this approach. It seems anti-rationalist to me, and I think that if wonks behave this way, they'll end up recommending lots of bad policies.