Oh dear, oh dear, Robert Lucas is talking nonsense – again

30 November, 2012 at 13:17 | Posted in Economics | 7 Comments

In a recent interview Robert Lucas says he “now believe that the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.”

So, according to Lucas, changes in tastes and technologies should be able to explain the main fluctuations in e.g. unemployment that we have seen during the  last six or seven decades.

Let’s look at the facts and see if there is any strong evidence for this allegation. Just to take a couple of examples, let’s look at Sweden and Portugal:

SwedenPortugal-Unemployment

and at the situation in the eurozone:

unemployment

What shocks to tastes and technologies drove the unemployment rate up and down like this in these countries? Not even a Nobel laureate could in his wildest imagination come up with any warranted and justified explanation solely based on changes in tastes and technologies. Lucas is just making himself ridiculous.

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7 Comments »

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  1. The funny things is that the evidence they refer to is related to TFP, and other measures coming from the production function. Jesus Felipe has debunked these results, particularly for the case of Asia, showing that TFP is actually not productivity, but the weighted average of the rate of growth of wages and profits (by definition coming from National Accounts). The degree of ignorance among ‘top’ economists, including the one that have won the Sveriges Riksbank Prize, is amazing.

  2. To take some of a waste number of efforts made and are, to some extent, still going strong

    Behavioral theories, Bounded rationality, General Possibility Theorem, Principal-Agent theories, Information asymmetry, Game Theory, Optimization theories, Economic Growth Models, Transaction Costs, Cliometrics, Heckscher-Ohlin theorem, Demand and Supply Elasticities, Portfolio Theory, Solow paradox…

    Great!

    And yes, I like this quote from Keynes:

    “The difficulty lies not so much in developing new ideas as in escaping from old ones”.

  3. Lucas is strange. He is a mix of brilliant maverick status quo thinker blended with total nonsense. Go figure!

  4. You forgot the next! “I now believe that the evidence on post-war recessions (…) overwhelmingly supports the dominant importance of real shocks. But I remain convinced of the importance of financial shocks in the 1930s and the years after 2008. Of course, this means I have to renounce the view that business cycles are all alike!”

    • No, I forgot nothing of the kind, and I still fail to see what the added part would contribute to Lucas’ main argument.

  5. Can’t there be real shocks beyond tastes & technology? Like policy changes or natural disasters, to pick some obvious examples? I should note that as a layman, I don’t see RBC as that relevant for cyclical downturns.

  6. I didn’t click the link before and now, when i did, I can’t stop laughing at the same time as this comes as no surprise:

    “Real science is hard work and you take what you can get.”

    Real science is, at least for me, to (realistically) critically and holistically challenge basic assumptions – over and over again and never ever present findings as a dogma. Further, in real science you don’t use words as “believe” or, for commonsense reasons, “convinced”.


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