Kocherlakota argues that macro has largely gotten beyond the "saltwater" - "freshwater" schism that has, I think, been overplayed in much of the conversation about macroeconomics and the recession (including Krugman's widely noted NYT magazine article, that I responded to in this post). His picture is of a field that is more pragmatic than ideological. For example, he suggests the use of "social planner" solutions in dynamic stochastic general equilibrium models has been more a matter of convenience than of a rigid belief that perfectly competitive market conditions hold at all times. He writes:
My own idiosyncratic view is that the division was a consequence of the limited computing technologies and techniques that were available in the 1980s. To solve a generic macro model, a vast array of time- and state-dependent quantities and prices must be computed. These quantities and prices interact in potentially complex ways, and so the problem can be quite daunting.
However, this complicated interaction simplifies greatly if the model is such that its implied quantities maximize a measure of social welfare. Given the primitive state of computational tools, most researchers could only solve models of this kind. But—almost coincidentally—in these models, all government interventions (including all forms of stabilization policy) are undesirable.
With the advent of better computers, better theory, and better programming, it is possible to solve a much wider class of modern macro models. As a result, the freshwater-saltwater divide has disappeared. Both camps have won (and I guess lost). On the one hand, the freshwater camp won in terms of its modeling methodology. Substantively, too, there is a general recognition that some nontrivial fraction of aggregate fluctuations is actually efficient in nature.
On the other hand, the saltwater camp has also won, because it is generally agreed that some forms of stabilization policy are useful. As I will show, though, these stabilization policies take a different form from that implied by the older models (from the 1960s and 1970s).