Most economists don’t get this. That’s in part because they have never been near, let alone run, a real business. But it’s also because they do not want to get it because it makes the maths of their economic models hard. So, most pure neoclassical economists assume there is no lag in the economy between a change in possible circumstances (call it an economic reopening) and its consequences being seen. Things ‘clear’, as they would put it, perfectly. New-Keynesians think there is a delay in the clearing process, but that it happens. And the reality is that there is no guarantee of that clearing happening at all.
No, the immediate market clearance is an assumption of classical economics. It’s a useful idea in new classical economics too. But neoclassical and new classical are not the same thing, not the same thing at all. Neoclassical insists that things happen at the margin (The Marginalist Revolution) and inherent in that is that we don’t in fact have a phase shift but a dribble, a trickle, of change.
New Keynesians – you know, like such heterodox people as Greg Mankiw – do indeed think that things take their time. So therefore that’s what’s taught at Harvard (where Mankiw has been teaching Econ 101 for many a year) and is in the leading textbook (author, Mankiw, G.).
As to the change not fully working through at all that’s standard Keynesianism – itself a neoclassical derivative – because that’s how it is possible to end up with non-optimal equilibira.
And to think, the quote comes from someone who was hired to teach economics in a British university. Someone who simply does not know the difference between new classical and neoclassical.