Robert Lucas coming out as a closet Keynesian

31 Oct, 2019 at 11:24 | Posted in Economics | 11 Comments

In his Keynote Address to the 2003 History of Political Economy Conference, Nobel laureate Robert Lucas said:

Well, I’m not here to tell people in this group about the history of
monetary thought. I guess I’m here as a kind of witness from a vanished
culture, the heyday of Keynesian economics. It’s like historians rushing
to interview the last former slaves before they died, or the last of the
people who remembered growing up in a Polish shtetl. I am going to tell
you what it was like growing up in a day when Keynesian economics
was taught as a solid basis on which macroeconomics could proceed.

keynesdanceMy credentials? Was I a Keynesian myself? Absolutely. And does my Chicago training disqualify me for that? No, not at all. David Laidler
[who was present at the conference] will agree with me on this, and I will explain in some detail when I talk about my education. Our Keynesian
credentials, if we wanted to claim them, were as good as could be obtained in any graduate school in the country in 1963.

I thought when I was trying to prepare some notes for this talk that people attending the conference might be arguing about Axel Leijonhufvud’s thesis that IS-LM was a distortion of Keynes, but I didn’t
really hear any of this in the discussions this afternoon. So I’m going to think about IS-LM and Keynesian economics as being synonyms. I remember when Leijonhufvud’s book2 came out and I asked my colleague Gary Becker if he thought Hicks had got the General Theory right with
his IS-LM diagram. Gary said, “Well, I don’t know, but I hope he did, because if it wasn’t for Hicks I never would have made any sense out of that damn book.” That’s kind of the way I feel, too, so I’m hoping Hicks got it right.

Mirabile dictu! I’m a Keynesian — although I haven’t understood anything of what Keynes wrote, but I’ve read another guy who said he had read his book, so I hope for the best and assume he got it right (which Hicks actually didn’t, and was intellectually honest to admit in at least three scientific publications published about twenty years before Lucas statement). In truth a very scientific attitude. No wonder the guy after having deluded himself into believing (?) being a Keynesian — although actually only elaborating upon a model developed and then disowned by John Hicks — got the ‘Nobel prize’ in economics …

11 Comments

  1. Skippy,
    .
    “Seems doing the hard work to understand Keynes with a intrinsic sense is offset by taking a shortcut to some model….”
    .
    What about starting with a simple model then (progressively?) plugging in all the nuances?
    .
    What’s wrong with that?
    .
    How does one start to understand the GT without some form of abstraction and simplification?

    Comment by Henry Rech— 1 Nov, 2019 #

    • Sorry for the late reply Henry.

      .

      I would offer that by the time a student would arrive at that level of study they should not need it, nor that it should be presented before that time, if they succeed in achieving that level at all. I also have concerns about such devices becoming a totem which can be abused or that as new information is gleaned that path dependency dictates intellectual rigidity for a variety of well know psychological factors.

      .

      Having a more than few decades of seeking knowledge whilst debating the topic, concurrent to my life experiences, during the said time, I can only report its is an arduous journey – per se debating David Friedman et al.

      .

      To be earnest my greatest concern is the way economics is approached in tertiary education, at onset, due to a set of factors which is juxtaposed to its purported intent.

      Comment by skippy— 2 Nov, 2019 #

      • Skippy,
        .
        I was taught IS/LM in first year macro. No prior exposure.
        .
        In Keynesian macro you learn the Keynesian Cross and liquidity preference – you do that you have IS/LM.
        .
        How else do you learn basic Keynesian macro?

        Comment by Henry Rech— 2 Nov, 2019 #

        • After all the evidence supplied about Hicks and others concerns, over a considerable period of reflection, you don’t consider the methodology of its teaching to be of concern.

          .

          I find this similar to the attitude some held about Says law not long ago E.g. we still need it.

          Comment by skippy— 3 Nov, 2019 #

      • Skippy,
        .
        “you don’t consider the methodology of its teaching to be of concern. ”
        .
        No. If the Keynesian Cross and Liquidity preference is being taught, the IS/LM is being taught. No difference.
        .
        If you don’t like the Keynesian Cross and liquidity preference how are you going to teach Keynesian macro to a freshman?
        .
        “After all the evidence supplied about Hicks ….”
        .
        Read my comments on Lars’ Paul Krugman post. Keynes himself toyed with Hick’s equations but let it go because he couldn’t feed in expected income.

        Comment by Henry Rech— 3 Nov, 2019 #

        • Well, speaking for myself, I think I would tell ’em there is nothing constraining the economy as a whole to any particular level of activity: money enables people to spend more than they earn or spend less, as they please. There is no real use in wasting a lot of chalk denying it. The circular flow can spin up or spin down, like a toy top, set off by policy or random events, the system of money and credit imparting a momentum to an economy structured by sunk-cost investments made in hope of returns in the form of expected rents or quasi-rents.
          .
          If ever I drew an aggregate supply curve intersecting an aggregate demand curve at an aggregate price level, I would hope Almighty Zeus in his mercy might strike me down.
          .
          If you understand that the problem of a money economy with significant sunk-cost investment is that it is not “naturally” a system tending toward a stable equilibrium of any sort, then you understand how inappropriate the forced use of equilibrium methods of analysis are, given those circumstances.

          Comment by Bruce Wilder— 4 Nov, 2019 #

  2. Had a conversation recently with someone that would fit Lucas outlook. After a bit of wrangling it came down to whether the IS-LM was a true representation of what Keynes was saying and reflected all the nuances. Was surprised when they begrudgingly agreed that no model could, but, still maintained it was the best we had on offer and that was sufficient reason to use it. Seems doing the hard work to understand Keynes with a intrinsic sense is offset by taking a shortcut to some model – sigh …

    Comment by skippy— 31 Oct, 2019 #

    • That seems to be a thing in economics — looking for our lost keys under the streetlight, because if we look anywhere else we’ll never see them in the dark..

      Comment by Mel— 31 Oct, 2019 #

      • If your talking about orthodox I agree, albeit economics not a monolith and like the prior – reformations are always on offer. What constitutes the agenda for that seems the salient point.

        Comment by skippy— 1 Nov, 2019 #

  3. Reading Lucas’ biographical note referenced by Lars its clear Lucas almost credits Keynes for saving liberal democracy from socialism. He suggests Keynes found a way for capitalism to survive the pressures of the Depression. The penultimate sentence in the note is:
    .
    “Maybe we could have done it without him, but I’m glad we didn’t have to try.”
    .
    He says Keynes was a political activist and has said elsewhere that Keynes was “an extremely important figure in twentieth century history, but I think his major influence was ideological.”
    .
    It’s all very strange. He is saying Keynes saved capitalism (which Lucas applauds loudly) by calling for governments to engage in spending to stimulate a depressed economy yet he rails against the very same notion.
    .
    The other interesting comment he made in the paper is about the Vietnam War being “that awful war”. In other biographical material Lucas has talked about his close association with Leonard Rapping. However, it seems they fell out because Rapping was radicalized by the War and moved to another university.
    .
    There are other interesting contradictions such as his interest in Marx.

    Comment by Henry Rech— 31 Oct, 2019 #

    • Lucas does seem to have noticed Leijonhufvud’s book from the 1960s and, of course, he knows there was a Great Depression, so that puts him ahead of much of the field.
      .
      Part of the problem is that the Keynes of the General Theory just was not all that clear in his arguments: his was an emergent perspective, like an unfinished sculpture that has not fully escaped its original block of stone.
      .
      Keynes did not save capitalism from the consequences of its gold buggery and greed. FDR (and Stalin) did that. FDR favored structural reforms to an extent the Liberal Keynes seemed to think unnecessary and the coming of the War, not any intellectual breakthru, enabled not only the spending, but the high marginal tax rates, forced saving and structural reforms necessary to reset capitalism in the U.S. and after the war in much of Western Europe. It is inconceivable to me that a Keynesian policy of such a scale or scope could be undertaken on its own merit, without the war. The “Keynesianism” of the neoclassical synthesis is the one that was tried in the 1960s. That it was intellectually faulty is true enough though the faults were not what Lucas said they were. Some but not all of those faults were present as sins of omission or muddlement in Keynes’s work. But the big fault is trying to finesse the struggle over the distribution of income, wealth and power that is necessarily at the center of political disputes over economic policy and this is a sin many economists commit with much less innocence than Keynes. I am pretty sure I know where Lucas is on that last one.

      Comment by Bruce Wilder— 31 Oct, 2019 #


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