Robert Lucas’s forecasting disaster16 April, 2016 at 20:20 | Posted in Economics | 5 Comments
In Milton Friedman’s infamous essay The Methodology of Positive Economics (1953) it was argued that the realism or ‘truth of a theory’s assumptions isn’t important. The only thing that really matters is how good are the predictions made by the theory.
Please feel free to apply that science norm to the following statement by Robert Lucas in Wall Street Journal, September 19, 2007:
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.
Robert Lucas — a lousy pseudo-scientist and an even worse forecaster!