The world of economic ideas was as severely rocked as was the financial world over the 18 months from 10/07 to 03/09.
The
three lessons about economic ideas that I learned were: first that economic theory is largely
nonsense. Second, there is no Phillips curve. Third, geography really
matters.
* We
had three Federal stimuli packages. The first was a cash payment to
individuals. It had no effect whatsoever. The second was a trillion
dollar stimulus package for the financial world. There is not a shred
of evidence that it had any positive effect. Lastly there was a giant
Federal jobs stimulus package which came after the economy turned
around of its own accord in mid-February. The third stimulus seems to have
made jobs even more scarce than they were before the stimulus and for an
unexpectedly long period of time.
* Second,
the Phillips curve that used to show a relationship between inflation
and unemployment is and was nonsense. The inflation of the 1970s-early
80's was caused by a rise in oil prices. While the inflation nearly destroyed the U.S. it had
no negative effect on Japan. From 1970 until today there is no
connection between inflation and unemployment. We have had no
inflation since 1993 due to low prices of Chinese imported goods.
Anything produced in the U.S. (housing, education and health care) have
gone off the top of the inflation chart. Everything else is non-inflationary. 
Money supply... who has heard anything meaningful about money supply and inflation? It doesn't exist except in the minds of Fed. governors.
* Lastly,
during an 18 month financial crash, the press who are in a terminal
industry propagated the notion of a great 1930's like depression. Many
geographic parts of the US and many parts of the commercial sector (
cars, housing and high priced goods) saw significant declines in sales, but not like the 1930's.
On the other hand, West coast cities from Vancouver to LA. did
very well (excluding Portland) because of trade with Asia and a
thriving Internet. Geography matters.
Right
now San Francisco is in the greatest boom period in 130 years,
greater than the dot.com era. The new Internet is at home in San
Francisco along with the countless small and tiny businesses that make
the modern commercial world work. (I may have had something to do with
that.)
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PS: After I wrote this I came across Robert Barro's careful, authoritative mathematical analysis of stimulus spending and tax rate cuts:
"The bottom line is this: The available empirical evidence does not
support the idea that spending multipliers typically exceed one, and
thus spending stimulus programs will likely raise GDP by less than the
increase in government spending. Defense-spending multipliers exceeding
one likely apply only at very high unemployment rates, and nondefense
multipliers are probably smaller. However, there is empirical support
for the proposition that tax rate reductions will increase real GDP.
"Mr. Barro is a professor of economics at Harvard and a senior fellow at Stanford University's Hoover Institution."