my comment on "Milton Friedman's redefinition of "neutral monetary policy" to mean "whatever monetary policy keeps nominal GDP on its trend growth path" led people prone to motivated reasoning in a laissez-faire direction completely and horribly astray... astonishing failure to mark one's beliefs to market"
Someone should write a book "Economic Theory: What Went Wrong". You had a draft in your mind some years ago. PseudoDeLong wrote that economics had been healthy, although inevitably influenced by ideology. In the good old days, there were fruitful debates between libertarians like Friedman, Stalinists like Sweezy and everyone in between.
Then Lucas and Prescott made a mess of things, abandoning evidence for pure theory. Or rather, they made a non mess of things, focusing on their favored models and ignoring non messy reality.
This is an attractive story, but it does not correspond to the actual history of what was actually written and said. It is, roughly, salt water good, fresh water bad. Fresh water means both back engineering theory from free market policy preferences and favoring rigorous analysis of the implications of absurd assumptions both to common sense and to empirical rigor "progress don't regress" "Theory ahead of business cycle measurement".
The problems are (at least) two. First the fresh/salt division isn't identical to left/right. The terms were introduced by Hall a salty conservative. Sargent and Hansen are distilled water center-lefties.
But second, many salty lefties manage to be almost as receptive to actual evidence as Prescott. You present an example. I think Friedman is another. Actually Lucas himself is a brilliant rhetorician -- he can do it with words as well as with equations.
Notice, I classify Friedman as a salt water economist. I do insist that Friedman and Lucas are methodological opposites (it isn't merely that their statements contradict, so they can't both be right, one is the negation of the other so they can't both be wrong) http://rjwaldmann.blogspot.com/2012/03/modern-macroeconomic-methodology-modern.html
They are on the same team with teammates named Laffer, Kudlow and Moore. They are (or sadly were) geniuses, but they work back from the conclusion and are more loyal to small government ideology than to their stated methodologies. This must be true, because they consider themselves part of the same school even though they have opposite methodologies.