This is a must read paper for every economist. Two links and an appetizer follow:

Here is an appetizer, part of the introduction:

” The new methodology had a profound effect on macroeconomics. Five separate neutrality results overturned aspects of macroeconomics that Keynesians had previously considered incontestable. These five neutralities are: the independence of consumption and current income (the life-cycle permanent income hypothesis); the irrelevance of current profits to investment spending (the Modigliani-Miller theorem); the long-run independence of inflation and unemployment (natural rate theory); the inability of monetary policy to stabilize output (the Rational Expectations hypothesis); and the irrelevance of taxes and budget deficits to consumption (Ricardian equivalence). These results fly in the face of Keynesian economics. They undermine its conclusions about the behavior of the economy and the impact of stabilization policy. The discovery of these five neutrality propositions surprised macroeconomists. […]

We shall see that with such preferences, even in the absence of frictions, each of the five neutralities will be systematically violated. Specifically:

—a realistic norm regarding consumption behavior will make consumption directly dependent on current income, in violation of the neutrality of consumption given wealth;

—a realistic norm will make investment directly dependent on cash flow, in violation of Modigliani-Miller;

—a realistic norm will make wages and prices dependent on nominal considerations and thus violate natural rate theory;

—a realistic norm will make income and employment dependent on systematic monetary policy, and thus violate rational expectations theory; and

—a realistic norm will make current consumption dependent on the current generation’s social security receipts, in violation of Ricardian equivalence”.