- Most mainstream macroeconomic theoretical innovations since the 1970s
(the New Classical rational expectations revolution associated with such names as Robert E. Lucas Jr., Edward Prescott, Thomas Sargent, Robert Barro etc, and the New Keynesian theorizing of Michael Woodford and many others)
have turned out to be self-referential, inward-looking distractions at best.
Research tended to be motivated by the internal logic, intellectual sunk capital and esthetic puzzles of established research programmes rather than by a powerful desire to understand how the economy works - let alone how the economy works during times of stress and financial instability.
So the economics profession was caught unprepared when the crisis struck.
The writer of those lines March 3, 2009 1:37pm was privileged to be a ‘founder’ external member of The Monetary Policy Committee of the Bank of England during the years 1997-2000.
His name is Willem Buiter, blogging at Maverecon: at Financial Times.
You can his article here.
In my not always humble opinion, the rewarding of the so-called Nobel prize to Lucas was a big mistake.