I think he's largely wrong--half of academic macroeconomics lives in a New Keynesian world. The other half does not. Cf. the discussion in Christina Romer's session at the 2013 NBER Macro Annual Conference.
Simon Wren Lewis: Macro workers and macro wars:
Nearly fifteen years ago I began working with DSGE models looking at monetary and fiscal interactions. Doing this work taught me a lot about how fiscal policy worked in New Keynesian models. I understood more clearly why monetary policy was the stabilisation tool of choice in those models, but also why fiscal policy--appropriately designed--was also quite effective in that role if monetary policy was absent (individual countries in the Eurozone) or impaired (the ZLB)…. So when we hit the ZLB, the reaction of policymakers in using fiscal stimulus seemed logical, entirely appropriate and fully in line with current theory….
The acid test for macro came in 2010…. Austerity replaced stimulus around the world. If academic macroeconomists had been true to their discipline, they would have been united in saying that our standard models tell us this will reduce output and raise unemployment…. Many did say that, but many did not…. So macroeconomists as a collective failed…. Why? The easy answer is to say that macroeconomists were too influenced by ideology, but I think for most (not all) it is the wrong answer….
The New Classical revolution attempted to kill off Keynesian ideas, and deny the importance of aggregate demand… this was regressive rather than progressive. Yet in many who were part of the New Classical revolution, or who were taught by its leaders, there remains a deep antagonism to Keynesian ideas…. As a result, in certain places NK theory was tolerated rather than embraced…. I think this may help explain why a good proportion of macroeconomists failed to advocate fiscal stimulus in 2009 and call the consequences of subsequent austerity…. While the New Classical revolution may have moved macro many steps forward, in condemning Keynesian ideas it took one large step backwards, and the consequences of that mistake are still with us.
And Paul Krugman Macroeconomists at War comments:
I think that Wren-Lewis is suffering from a bit of what I’ve come to think of as the Blanchard delusion (sorry, Olivier!)… that we had in fact reached some kind of resolution of the bitter macroeconomics wars…. Ot became painfully clear in 2008-2009 that many economists--especially, but not only, at the University of Chicago--not only didn’t work in a New Keynesian framework, they were unaware that such a thing existed. As far as they knew, everything Keynesian had been refuted in the 1970s….
It would be interesting to know how many graduate departments were in fact teaching New Keynesian macro in 2008. My guess is that a fair number weren’t--that students literally had no exposure to the notion that monetary policy, let alone fiscal policy, could play an effective stabilizing role. The notion that we had reached some kind of intellectual detente was, as I said, a delusion: Keynesians had rebuilt their models to make them acceptable to the other side, but the idea that there was any real dialogue was a fantasy….
Even given all that, it has been remarkable how unwilling many economists whose theoretical framework seems to be more or less Keynesian have been to go with the implications of that framework for fiscal and monetary policy; I think of people like John Taylor and Martin Feldstein. So there are deeper problems. But Wren-Lewis is, I think, too sanguine about the starting point.