Lucas is a great economist, but also, like Samuelson, let macroeconomics to degenerate
Lucas's theoretical contributions I think are mainly focused on the following aspects:
1. the expected growth of money does not affect output
2. intertemporal general equilibrium based on rational expectations, the representative agent assumption, and the perfectly competitive market assumption
3. Lucas critique: Keynesian econometric models ignore policy
4. Endogenous growth theory
The second point is the one that has the greatest impact on later generations, and his influence is as great as the theoretical revolution in physics from Newton to Einstein
Macroeconomics before Lucas was a mishmash of Keynesian economics and neoclassical economics. (Keynesian economics)
His analytical framework was still the Keynesian way: i.e., he constructed a model of partial equilibrium from several concepts of an a priori nature
His theory is analyzed from a few macro concepts of investment and savings, considering purely the macro interface.
Lucas' theory revolutionized the way macroeconomics is analyzed from the point of view of maximizing the utility of microscopic subjects and constructing a general equilibrium model
People may think that Lucas and other economists have advanced macroeconomics, but this may not be the case in reality
Because general equilibrium and partial equilibrium are two different paths. General equilibrium is more focused on the intrinsic integrity of economic theory, while partial equilibrium is closer to the care of theory and reality.
Thus, the partial equilibrium theory of Keynesian economics is actually quite powerful in explaining economic crises, as his economic theory is designed to explain unemployment, and it is indeed a general theory of short-term fluctuations in terms of its analytical approach
However, the most important feature of the models of the general equilibrium economists after Lucas is that they can make a good fit with the real data through complex parameterization.
However, the explanatory power of Lucas and other economists' models for economic crises is quite weak, and for the reality of mass unemployment is also very weak, they even think that they have tamed the economic crisis, but they are the joke!
This also led to the transition from the explanation of macro phenomena to the fitting of macro data in macroeconomics due to Lucas's theory, but the former is more important for the theory
Thus, I think this is the beginning of the degradation of macroeconomics, the emergence of d sge, which allows us to construct a whole set of macro models based on micro foundations for fitting to macro data. But it also loses the character of our economic theory, which explains reality with simple theories.
However, it is more important for economics to explain reality through simple theories.
This is why Lechonhoffer and the New Cambridge School really despise Lucas and his macroeconomics, which they think has become really stupid
Compared to constructing macro models based on micro foundations, Keynes' and Kaletsky's economic theories are indeed, simple, beautiful, informative and more realistic
In fact, Keynes had discussed rational expectations at length, but Keynes thought that rational expectations were a ridiculous thing.
Keynes' theory of uncertainty is extremely brilliant, he believes that the long-run expectation state is stable, but the intrinsic factors in it are unstable
In the 1970s, when inflation was extremely severe, people would see expected inflation as an extremely important issue, and rational expectations were in vogue.
However, what happened in 2008
However, the 2008 incident made Hyman Minsky and other economists who emphasize uncertainty fire up, ultimately, because the post-Lucas economists think they can solve the economic crisis, however, their rational expectations framework can not predict such a serious matter, except that human society can really happen such a serious economic crisis
Therefore, Lucas's rational expectations and the intertemporal general equilibrium model constructed based on rational expectations are indeed a major theoretical breakthrough in economics, but his explanatory power for the economic crisis is far weaker than that of almost all macroeconomists' theories before and after.
Thus, Lucas's economic theory is more like the economic theory that fits into a phase of the 1970s and does not have the generality of Keynesian economics.
The main reason for my low opinion of Lucas' macroeconomic theory is that neoclassical macroeconomics is really weak in explaining involuntary unemployment, which is, however, the most critical problem of macroeconomics.
In addition, I really do not like the general equilibrium analysis, their theory has a strong depiction of reality, unlike Keynesian economics, which is based on a few simple theories, through a complex set of causal relationships to explain reality
If you don't share my preference, look at Lucas, who was really innovative and really great.
He made the shift from local equilibrium to general equilibrium in macroeconomic analysis.
He proposed that when money growth is expected, it actually has no effect on output, and this idea was very valuable at that time when inflation was serious.
His criticism of the econometric model of Keynesian economics is extremely good
However, I still think that Lucas, like Samuelson, was really great and contributed a lot to the discipline, but brought macroeconomics to the degradation
Nowadays, many people in macro do not even know the ideas of Keynes, Mrs. Robinson, etc., and are not willing to understand them, and will only do technical work like estimating DSGE parameters
Macroeconomics in the three decades after the 70's, heavy on techniques not ideas.
This is also Lucas's "gift" to the world
Author: Steven Ting
Cofounder of www.cykapu.com, father of two children. As a man over 30, only write the thing i am interesting in.