Robert Lucas
Keynesianism had taken some lumps by the early 1970s, but it was still the dominant school in macroeconomics. Then Robert E. Lucas Jr. came along. The longtime University of Chicago economist died Monday at 85.
In a famous 1972 article, Lucas made a crucial observation. He noted that virtually every macroeconomic model erroneously assumed, implicitly or explicitly, that government officials who made economic policy could essentially fool people into making irrational decisions. Microeconomics assumed people were rational. Why shouldn’t macroeconomics make the same assumption? For this and other insights he was awarded the 1995 Nobel Prize in Economics.
This is from David R. Henderson, “Robert E. Lucas Brought Rationality to Macroeconomics,” Wall Street Journal, May 15, 2023. (May 16 print edition.)
I learned yesterday morning from John Cochrane that Bob Lucas died yesterday. I approached my editor at the WSJ and he gave me the green light. This is the quickest article I’ve ever written: just under one hour.
I liked the way the editor changed my opening paragraph and my closing paragraph. I still like my title though: “The Accomplishments of a Towering Yet Humble Economist.”
My favorite parts are near the end about his insight that development economics is growth economics and his famous quote, which I can quote because it’s out there in the literature:
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.
I’ll post the whole thing when 30 days are up.
