Greg Mankiw thinks B-School economists are “practical” and “empirical” while Econ Dept economists are free to be abstract and theoretical.
I don’t think this is true for the research done by economists differs across these two types of schools but it is true that the teaching is different. The MEDS Dept at Kellogg where I work is somewhat different from other business schools as it has always been very theory focused. The Econ group at Stanford GSB is similar. Some of the best work in game theory, contract theory and decision theory came out of these departments.
It is the case, as Mankiw says, that teaching has to be practical and useful in a B School. Whether that drives research or not depends on the philosophy of the school. I have never felt any pressure for my research to be practical.
Mankiw writes his post to answer David Brooks’s query about why B School economists are giving him better answers about the current state of the economy. As finance is a B School specialty, it very natural that B schools profs may know more about what a CDS is without having to look it up on Wikipedia! But again, finance economists are not more “practical” or “empirical” than econ dept economists. I bet Doug Diamond and Milt Harris at Chicago GSB have really perceptive things to say about the financial crisis as has Oliver Hart at Harvard Econ. They will use simple, clear models (hopefully!), to explain their ideas about how to fix incentives in the financial sector. And then maybe somone will give a little theory a chance as much as data analysis!