Must-Read: David Glasner: Romer vs. Lucas
Must-Read: : Romer v. Lucas: “In… 1959… Arrow noted that the theory of competitive equilibrium has no explanation of how equilibrium prices are actually set…
…All agents in a general equilibrium being… price takers, how is it that a new equilibrium price is ever arrived at following any disturbance?… Arrow… offered the suggestion that… agents are not price takers, but price searchers, possessing some measure of market power…. But the upshot of Arrow’s discussion was that the problem and the paradox awaited solution. Almost sixty years on, some of us are still waiting, but for Lucas and the Lucasians, there is neither problem nor paradox…. If the social functions of science were being efficiently discharged, this rather obvious replacement of problem solving by question begging would not have escaped effective challenge and opposition. But Lucas was able to provide cover for this substitution…. While Romer considers the conquest of MIT by the rational-expectations revolution, despite the opposition of Robert Solow, shows the advance of economic science, I regard it as a sign of the social failure of science to discipline a regressive development driven by the elevation of technique over substance.