Robert Lucas, Jr.
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Robert Emerson Lucas, Jr. (born 15 September, 1937) is an American economist at the University of Chicago. He received the Nobel Prize in Economics in 1995.
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- For policy, the central fact is that Keynesian policy recommendations have no sounder basis, in a scientific sense, than recommendations of non-Keynesian economists or, for that matter, non-economists.
- Robert E. Lucas and Thomas J. Sargent, "After Keynesian macroeconomics", After the Phillips Curve: Persistence of High Inflation and High Unemployment (1978)
- The main development I want to discuss has already occurred: Keynesian economics is dead [maybe ‘disappeared’ is a better term]. I don’t know exactly when this happened but it is true today and it wasn’t true two years ago. This is a sociological not an economic observation, so the evidence for it is sociological. For example, you cannot find a good, under 40 economist who identifies himself and his work as ‘Keynesian’. Indeed, people even take offense if referred to in this way. At research seminars, people don’t take Keynesian theorizing seriously any more—the audience starts to whisper and giggle to one another. Leading journals aren’t getting Keynesian papers submitted any more.
- "The Death of Keynesian Economics", in Issues and Ideas (Winter 1980).
- I do not see how one can look at figures like these without seeing them representing possibilities. Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? If so, what exactly? If not, what is it about the "nature of India" that makes it so? The consequences for human welfare involved in questions like these are simply staggering: once one starts to think about them, it is hard to think about anything else.
- "On the Mechanics of Economic Development." Journal of Monetary Economics. 22 July, 1988, pp. 5: On economic growth
- So I am skeptical about the argument that the subprime mortgage problem will contaminate the whole mortgage market, that housing construction will come to a halt, and that the economy will slip into a recession. Every step in this chain is questionable and none has been quantified. If we have learned anything from the past 20 years it is that there is a lot of stability built into the real economy.
- "Mortgages and Monetary Policy", The Wall Street Journal WEDNESDAY, September 19, 2007
Quotes about Lucas
- Using the popular macroeconomic models of the time, Lucas and Sargent showed how replacing traditional assumptions about expectations formation by the assumption of rational expectations could fundamentally alter the results. … Most macroeconomists today use rational expectations as a working assumption in their models and analyses of policy. This is not because they believe that people always have rational expectations. Surely there are times when people, firms, or financial market participants lose sight of reality and become too optimistic or too pessimistic. … But these are more the exception than the rule, and it is not clear that economists can say much about those times anyway. When thinking about the likely effects of a particular economic policy, the best assumption to make seems to be that financial markets, people, and firms will do the best they can to work out the implications of that policy. Designing a policy on the assumption that people will make systematic mistakes in responding to it is unwise.
- Olivier Blanchard and David R. Johnson, Macroeconomics (6th Edition, 2013), Ch. 17 Expectations, Output, and Policy
- Lucas and Sargent’s main argument was that Keynesian economics had ignored the full implications of the effect of expectations on behavior. The way to proceed, they argued, was to assume that people formed expectations as rationally as they could, based on the information they had. Thinking of people as having rational expectations had three major implications, all highly damaging to Keynesian macroeconomics. ...
The first implication was that existing macroeconomic models could not be used to help design policy. … The second implication was that when rational expectations were introduced in Keynesian models, these models actually delivered very un-Keynesian conclusions. … The third implication was that if people and firms had rational expectations, it was wrong to think of policy as the control of a complicated but passive system. Rather, the right way was to think of policy as a game between policy makers and the economy. …
To summarize: When rational expectations were introduced, Keynesian models could not be used to determine policy; Keynesian models could not explain long-lasting deviations of output from the natural level of output; the theory of policy had to be redesigned, using the tools of game theory.
- Olivier Blanchard and David R. Johnson, Macroeconomics (6th Edition, 2013), Ch. 25 Epilogue: The Story of Macroeconomics
- The Keynesian econometric methodology developed by Klein and associates was criticized by Lucas in his 1976 “Critique of Econometric Policy Evaluation” on the grounds that microfounded structural equations should contain expectations of future variables. Since the parameters of these expectations should depend on the parameters of the rules followed by the policy authorities, Lucas argued that the rational expectations assumption would invalidate the practice of using fixed parameter models as policy guides.
The profession responded to the Lucas critique in two different ways. The first, introduced to economists in the book Rational Expectations and Econometric Practice, was to develop appropriate econometric methods to estimate parameters in rational expectations environments. The second, explained most clearly in Kydland and Prescott’s (1996) article, “The Computational Experiment,” was to develop a new methodology,calibration, that lowered the standards of what it means for a model to be successful by requiring that a good model should explain only a limited set of empirical moments.
- Roger Farmer, Expectations, Employment and Prices, Ch. 5 A New Way to Understand Business Cycle Facts
- In the 1970s, Lucas and disciples take it up a notch, arguing that we should assume rational expectations: people make the best predictions possible given the available information. But in that case, how can we explain the observed stickiness of wages and prices? Lucas argued for a “signal processing” approach, in which individuals can’t immediately distinguish between changes in their wage or price relative to others — changes to which they should respond by altering supply — and overall changes in the price level. [...] In the 1980s, the Lucas project failed — pure and simple. It became obvious that recessions last too long, and there are too many sources of information, for rational confusion to explain business cycles. Nice try, with a lot of clever modeling, but it just didn’t work.
- Am I exaggerating if I say that widespread adoption of Lucas' macroeconomic paradigm was the 20th century's largest negative technology shock?
- Noah Smith, Comment on "Macro Wars..." by J. Bradford DeLong (2010)
- Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the Battle of Austerlitz. If I do that, I'm getting tacitly drawn into the game that he is Napoleon Bonaparte. Now, Bob Lucas and Tom Sargent like nothing better than to get drawn into technical discussions, because then you have tacitly gone along with their fundamental assumptions; your attention is attracted away from the basic weakness of the whole story. Since I find that fundamental framework ludicrous, I respond by treating it as ludicrous – that is, by laughing at it – so as not to fall into the trap of taking it seriously and passing on to matters of technique.
- Robert Solow, in Conversations with Economists (1983) by Arjo Klamer, p. 146