Robert Lucas and his Keynesian credentials

7 Aug, 2021 at 08:38 | Posted in Economics | 8 Comments

In his Keynote Address to the 2003 History of Political Economy Conference, 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 anoher 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 …

8 Comments

  1. On Sargent

    https://www.ft.com/content/5ec11d0a-f973-11e0-bf8f-00144feab49a

    Long, but last half def worth watching:

    • Sorry the youtube video was “The Death of Economics 101 ft. Mexie”

  2. Lucas as much as he deludes himself that he was a Keynesian, in a sense, was a Keynesian. His speech referenced above does reveal he has a, probably grudging, respect for Keynes.
    .
    In the last paragraphs of his speech he effectively lauds Keynes for attempting to save capitalism from itself. However, it is also clear that he thought Keynes’ approach was wanting.
    .
    His penultimate sentence ( the one before the “Thank you.”), is almost ambiguous but its intent, given his previous diatribe, is to say that what we consider mainstream now is what saved capitalism. Lucas in end reveals his true inclinations.

  3. Weather or not Keynes got it right can only be temporary, because the dynamics of industry and technoloty is such that whatever worked in economics yesterday may not work today or tomorrow. I believe that Keynes did get it right in 1936 and all thorugh the 1960’s because he was a demand economist and back then that is where the problem was. But that was only true until the end of Bretton Woods in 1971. After that too many things started to happen not least the 1973 OPEC crisis that produced stagflation;, an imposibility in the Keynsian framework. Robert Lucas critique is a seminal paper on economics, and one that disproved the Phillips Curve (the proof of Keynsianism) when policy is applied to it because of the old Goodhart’s Law in Statistics. Milton Friedman was also right when he said that the Great Depression degenerated into a demand problem but originated as a supply problem that should have been handled better by the Federal Reserve, which froze and applied defflacionary policy that transformed what should have been a small recession into a Great Depression leading to WW2. But neither Keynes, Lucas or Friedman is right or apt for 21st Century Economics.
    I teach my students that whereas Keynesians saw Phillip Curve as a tool to conduct economic policy Lucas saw a snake in the grass-leave it alone and nothing will happen, start poking it and it will bite you. But Lucas too was only right for a time, because the rational expectations revolution his paper created did not brought out the fruits one expected-expectations are not the same everywhere and they sometimes cancel each other out.. But Lucas was right to note that macroeconometric projections cannot be right because using aggregate data from the past to proyect the future in a dynamic environment is impossible.
    If however either of this two great economist, and the ones that came before or after, had noticed the overwhelming influece of energy as a factor of production, and how that shapes labor productivity and monetary creation, their writtings would have had a deeper long lasting influence.

    • Carlos
      .
      One wonders if Robert Lucas would have made an impression if there had been no 1970s stagflation.
      .
      When Lucas set out to annihilate Keynesianism by claiming Keynesianism could not explain the stagflation of the 1970s, he, along with the Keynesians, could not see past the price (supply) shock of the oil price rises – the inflation part of the stagflation. What generally goes unremarked is the fact that, accompanying the supply shock, was a demand shock. The oil price rise brought with it a huge transfer of income from the West to the oil producing countries – the cause of the stagnation part of the stagflation. The stagflation overwhelmed the Phillips Curve relationship. There was no economic policy that could deal with the twin supply and demand shocks. All that was possible was to grimly survive the adjustment process that the stagflation engendered.
      .
      Lucas lucked it in. He explained nothing.

      • Why did the 1930s (swing music) and 1970s (TV shows whose reruns I prefer to modern productions) produce so much art that still gives me more pleasure today than most art produced during economically good times? Is this an example of Easterlin’s paradox? Why is growth a goal? What if Carter had picked a Fed chair who wasn’t so ideologically opposed to Cost Of Living Adjustments as Volcker was?

        • Why were so many enamored with Gaussian delusions but traded away.

      • Henry
        I agree completely with your comments. And the proof is that as soon as oil prices receded in mid 1980’s the Phillips Curve went back to normal. He was right though in warning us of putting too much faith in macro econometric projections in advanced economies because the past isn’t always a prelude to the future, given the technology advances in production


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