In his concluding paragraph, Friedman objects to our "rhetorical profile," an objection which several others also expressed at the Conference. To illustrate his point, he cites our reference to "wildly incorrect" predictions of Keynesian macroeconometric models, to "the spectacular failure of the Keynesian models in the 1970s," or their "econometric failure on a grand scale." These phrases were intended to refer to a specific and well-documented historical event. In 1970, the leading econometric models predicted that an inflation of 4 percent on a sustained basis would be associated with unemployment rates less than 4 percent. This prediction was not one which was teased from the models by unsympathetic critics; on the contrary, it was placed by the authors of these models and by many other economists at the center of a policy recommendation to the effect that such an expansionary policy be deliberately pursued.
Source: After the Phillips Curve (pp. 81-82, emphasis added)Unfortunately, Lucas and Sargent didn't feel the need to spell out exactly what "historical event" they were talking about, and perhaps it was too "well-documented" to require citations to any actual documents. But what may have been common knowledge among academic economists in 1978 is lost to the rest of us.
So: does anybody know what 1970 "historical event" Lucas and Sargent were alluding to? And if it is "well-documented," can someone point me in the direction of this documentation?