The Grand Inquisitors of Rational Expectations

In this short snippet (two minutes and 23 seconds) of an interview, John Kay sums up quite succinctly the situation facing Rational Expectations theorists in the light of what has happened in the past several years. Reality just isn't respecting their (allegedly) beautiful mathematical theories.

In Bertold Brecht's play The Life of Galileo, Kay notes, there's a moment when the Grand Inquisitors of the Church refuse to look through Galileo's telescope. Why? Because the Catholic church had essentially deduced the motion of the planets from a set of axioms. They refused to look, as Kay puts it,

......on the grounds that the Church has decreed that we he sees cannot be there. This makes me think of the way some of the economists who believe in Rational Expectations have reacted to events of the past few years. [They're like the inquisitors with Galileo]. ...they refuse to look through the telescope because they know on a priori grounds that what he saw wasn't actually there.