One of my favourite economics bloggers/writers is Arnold Kling. In a recent piece about rational expectations and macroeconomics, he writes,
I have never believed in modeling the business cycle as determined by expectation errors in forecasting overall inflation. Hence, I never thought that it mattered so much whether inflation forecasts were rational or not. Hence, I never thought that rational expectations macro modeling was an avenue worth pursuing.
The academic market made a different decision. In fact, I would argue that the market emerged from in-breeding of fewer than a dozen economists in the late 1970's. Folks like Dornbusch and Fischer at MIT, Lucas at Chicago, Sargent and Wallace at Minnesota. The in-breeding created a line of deformed, intellectually stunted macroeconomists. They could think in terms of Euler equations, but they could not begin to understand an actual economy. [emphasis added]
Recall my .sig line from the early 1990s.
The new macroeconomics: Rationalized expectorations and overlapping generalizations.
Interestingly, Stanley Fischer as head of Israel's central bank, has seemed to understand an actual economy pretty well. It wasn't so much the leaders of this wave in macro but their disciples who had the problems. Not all that unlike 1950s Keynesian macro.