Sticky Wages - Unemployment & Recessions

Sticky wages = downward nominal wage rigidity. This creates the market failure of unemployment. Classical economists (and RBC-theorists) thought that if wages fell during a recession, then there would not be any unemployment because this is what a simple labor supply and demand graph shows.  It would cure unemployment, but it would do nothing to cure the recession; it would just spread the wealth around.  A better solution would cure the recession AND reduce unemployment.  Lowering wages would cure unemployment, but it would make the recession worse by lowering the incomes of most people which would create even more bankruptcies and money hoarding.  It is extremely hard to lower nominal wages, but you can solve the unemployment problem by lowering real wages which is much easier. If you want to lower real wages, the best way to accomplish that is through monetary policy.  There are two good options:
1.  Currency devaluation effectively lowers wages compared with the rest of the world.  This is a targeted inflation which raises the prices of all foreign goods (lowers the prices of domestic goods for export) and thereby increases demand for exports. 
2. General inflation also works to lower real wages (IF there is a recession) and it also lowers real interest rates which solves the problem of hoarding money, underinvestment, and excessive debt. 
Krugman comments:

I keep running into comments along the lines of “Well, if you think sticky wages are the problem, why aren’t you calling for wage cuts?”
This is a category error. It confuses the question “What do we need to make sense of what we see?” with the question “What is the problem?” So let me talk about that.
When Keynes argued against the “classical economists”, he was to a large degree arguing against the view that there is no such thing as involuntary unemployment — a view often defended, then and now, by an appeal to the usual logic of supply and demand. If we’re looking at the market for, say, wheat, and there’s an excess supply — sellers want to sell more than buyers want to buy — we expect to see the price fall rapidly to clear the market. So if there were really a large excess supply of labor, shouldn’t we be seeing wages plummeting?
And the answer is no — wages (and many prices) don’t behave like that. It’s an interesting question why, one that has to be answered in terms of psychology and sociology, but it’s simply a fact that actual cuts in nominal wages happen only rarely and under great pressure. So wage stickiness is an essential part of a demand-side story about what’s going on with the economy; it’s how you answer the question of why wages aren’t falling.
But that’s not at all the same thing as saying that excessive wages are the problem. ...[W]e are in a liquidity trap, and balance sheet effects [bankruptcy and household debt] are very important. So there is no reason to believe that cutting wages would be helpful; on the contrary, falling wages would worsen the balance-sheet problem, a point some of us have been making for quite a while.
So when I emphasize nominal wage rigidity, I am defending an analysis of how the economy works, which is not at all the same thing as saying that this rigidity is the problem. On the contrary, for the US (though not for countries like Spain), wage stickiness is if anything good for us right now, helping stave off destructive deflation.