A list of unsupported narratives in macroeconomics

I was watching Money for Nothing last night (exciting Friday night, I know) and since I had just compiled a list of valid and not so valid arguments against economics I thought of adding a valid one about creating false narratives that will link to this post. Humans love to create narratives; it's one of our skills. Macroeconomics loves a good story, and Money for Nothing is a good example (most of the narratives below appear in it). 

The (potentially growing) list below will consist of a set of narratives that are not conclusively supported by data. The general takeaway is that macroeconomic theory is not yet good enough empirically to support any particular story.

"Stagflation proved Keynesian economics was wrong"

The story goes that inflation and high unemployment (H/T John) in the 1970s was not supposed to happen in Keynesian economics, and therefore it was abandoned for some other theory (monetarist, natural rate, microfounded) that gets it right.

This is one of those cases where the victors seemed to re-write the history. There was apparently no reason "stagflation" couldn't happen -- in technical terms  that the Phillips curve was structural in Keynesian economics -- as discussed here and here (and scholarship by James Forder at the links).

"The Great Inflation and the Volcker Disinflation"

The stagflation story is part of this story. Basically, Lyndon Johnson's Great Society and the Vietnam War lead to too much government spending/aggregate demand. Coupled with Johnson bullying of Fed chair Martin to keep interest rates low, the country ended up with inflation. Carter's nomination of Volcker to the Fed, and the subsequent rise in interest rates put an end to high inflation.

However, the Martin story doesn't really make sense given the data. There were two major real shocks that plausibly contributed to inflation (the oil crises of 1973 and 1979). And we can't rule out that the inflation of the 60s and 70s wasn't actually demographic (see Steve Randy Waldman).

I've written more about this here (contra Paul Romer) and here (contra Matthew Yglesias).

"The Fed caused the Great Depression/Great Recession with monetary policy"

It's not so much of saying this story is wrong as saying it's not clear how the Fed did this. There are many stories involving monetary policy in different ways. Rising interest rates do appear to precede recessions, but generally the stories behind monetary policy involve you to believe in the detailed operation of theories where there isn't much evidence of them working for normal forecasting (because not much does) or on other data besides the Great Depression/Recession.  Another way to put this is that these theories tend to be "just so" stories.

"The Fed saved us from recessions with monetary policy"

This is usually in reference to the market crashes of 1987 (which resulted in no recession) and the early 2000s (which resulted in a mild one). Again, like the causes of Great Depression, these stories require you to believe the detailed operation of theories that don't match empirical data well (because few macro theories do).