Robert Waldmann has a couple of excellent comments on Brad DeLong's post that would be a great post unto itself [I've concatenated them]:
[Lucas, et al] don't just ignore Sonnenschein-Mantel-Debreu, they also assume away all the ways in which general equilibrium models differ from reality. Pretending Sonnenschein-Mantel-Debreu theorem was never proven is a bit different. I think it is the main reason why general equilibrium theorists have total contempt for new classical macro.
To me the open question is why they had such immense influence. I didn't understand that at all in 1980 and I still don't.
... it isn't just new classical macroeconomics. The same criticisms apply to new Keynesian DSGE models. Adding totally unexplained Calvo alarm clocks doesn't liberate the model from the implausible assumption that there is a representative agent. In fact, the current standard NK model (Eichenbaum, Christiano, Evans, Smets, Wouters) has to add implausible Calvo alarm clock conditional markets to reconcile the assumptions that there is a representative consumer and that there are different types of labor with variable relative wages.The effort to reconcile DSGE with reality is based on doing whatever it takes to make a DSGE model behave like an old Keynesian model (that is fit the data as old Keynesian models do). Academic macroeconomists ignore the proposal to cut out the middle man who transforms assumptions we don't believe to implications which we know are valid from empirical research, because we are the middle men and the sensible short cut from what we know to what we know would achieve greater efficiency by eliminating our jobs.
Emphasis mine .... which also makes me think of Upton Sinclair:
It is difficult to get a man to understand something, when his salary depends upon his not understanding it!The basic information equilibrium model explains the effect Calvo pricing has at the macro scale as an emergent entropic effect, and basically reproduces the IS-LM model when inflation is low ... both of these are in the draft paper.