I am very surprised I can’t find a good example of this, and yet I can’t…. I have read at least two popular Keynesian bloggers (of the fame of Karl Smith and Matt Yglesias, I’m not talking about You-Know-Who) critique the standard Real Business Cycle account of recessions along these lines:
“OK, let’s assume for the sake of argument that the housing bubble years were characterized by mass illusion, and that everybody thought he was richer than he really was. Then in 2008 reality sunk in, and everybody realized with horror that he consumed way too much (saved way too little) during the last 5 years. OK great, so then the optimal response to this new information would be to enjoy LESS leisure and work MORE. So how the heck does this kind of story explain why millions of workers are sitting on their couches?”
Does the above ring any bells? I tried emailing Karl about it, but haven’t heard back.