Tyler Cowen regrets the direction that the IS-LM debate (in the blogosphere) has gone, and suggests that an alternative to the particular set of "technocratic curve-shifting" could be public choice economics (which he adds is still underrated by today's profession) as an alternative starting point of macroeconomic analysis.
Tyler lists others, including New Institutionalism, but I think his suggestion for public choice economics is spot on. If the crisis has taught us anything, I would argue that it has taught us about the necessity to treat politics as endogenous to the model of policy choice. Buchanan and Wagner's Democracy in Deficit still represents the best starting point for understanding what went wrong with the Keynesian model of technocratic economic management. And Wagner's work on political manipulation and the boom-bust cycle is the most underrated of the public choice contributions to macroeconomics.
If you treat politics as endogenous, then I believe even many of the more market oriented proposals for macroeconomic policy will meet with frustration. Imagine, just imagine if you will, what fiscal and monetary policy would have to look like if we took seriously the Humean dictum that in designing governmental institutions we must presume that all men are knaves. Just imagine if you will, if the Hayek-Buchanan focus on the generality norm and politics by principle, not interest, were widely accepted. Just imagine what the implications are of Milton Friedman's argument in Capitalism and Freedom, when he says that in reference to the Fed and the Great Depression:
It may be that these mistakes were excusable on the basis of the knowledge available to men at the time – though I happen to think not. But that is really beside the point. Any system which gives so much power and so much discretion to a few men that mistakes – excusable ornot – can have such far-reaching effects is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic – this is the key political argument against an "independent" central bank. But it is a bad system even to those who set security higher than freedom. Mistakes, excusable or not, cannot be avoided in a system which disperses responsibility yet gives a few men great power, and which thereby makes important policy actions highly dependent on accidents of personality. This is the key technical argument against an "independent" bank. To paraphrase Clemenceau, money is much too serious a matter to be left to the Central Bankers. (emphasis added)
When will we catch up to Milton Friedman? Let alone James Buchanan? Or even F. A. Hayek? The path to a robust political economy must begin with treating political decision making (and the incentives and information embedded in that process) in the realm of policy making not as a footnote caution, but at the very beginning of the analysis.