Or, who else misunderstood the nature of the financial crisis and recession
As I was reviewing material to use in teaching how new classical models relate to the popular aggregate demand/aggregate supply models  used in policy analysis, I ran into this forecast in the real business cycle vein from October 26, 2008.
Barring a nuclear war or other violent national disaster, employment will not drop below 134,000,000 and real GDP will not drop below $11 trillion.
All this is to illustrate that in the fog of business cycles, one’s got to be careful about making forecasts (the rest of the article is a must-read, as is this rousing defense by Professor Mulligan in October 2009). Here is the actual evolution of nonfarm payroll employment.
Figure 1: Nonfarm payroll employment (000′s, January release). Dashed line at October 2008. Source: BLS via FRED.
At first glance, Professor Mulligan’s forecast of GDP does better.
Figure 2: Real GDP in Ch00$, SAAR. Source: BEA, 2011Q4 advance release, in Ch.05$ adjusted by ratio of 2000 GDP deflator in 2000 to 2005, and author’s calculations.
Of course, while Professor Mulligan did condition on no-nuclear war, he didn’t condition on ARRA.
Figure 3: Real GDP in Ch00$, SAAR (black), and counterfactual assuming low end of CBO estimates of impact (red) and high end (blue). Source: BEA, 2011Q4 advance release, in Ch.05$ adjusted by ratio of 2000 GDP deflator in 2000 to 2005, CBO (Nov. 2011), and author’s calculations.
Depending on one’s view of the multipliers, in the absence of the ARRA, the economy would have breached the $11 trillion. Now, in Professor Mulligan’s world, as I understand it, the ARRA would have little or negative impact, so his view regarding the course of GDP could be vindicated. And in fact, since Professor Mulligan believes that unemployment insurance reduces employment (see discussion here), then it’s fair to say he could be viewed as being vindicated, insofar as he conditioned on no ARRA. Of course, then you have to disbelieve a lot of empirical evidence indicating that output and hence employment is sustained by such measures (including the range cited by CBO). I might also note that it’s unclear whether Professor Mulligan conditions on the Fed’s extraordinary measures to support the credit markets; I think he believed they were not necessary, given this October 2008 post supporting the Minneapolis Fed working paper debunking the existence of a banking crisis (my discussion of Chari et al. (2008), aka wp 666 here).
I think all this is useful to recall the next time we hear a criticism of forecasts generated by models of the aggregate demand/aggregate supply mode, and forecasted responses to the ARRA, without any reference to conditioning statements  (Incidentally, the CBO has just released its latest assessment of the ARRA’s impact. There’s an excellent discussion of the range of models used in the CBO’s analysis in the Appendix.)