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Robert E. Lucas, Jr.

Robert E. Lucas, Jr. is probably best known for his paper,"Econometric policy evaluation: a critique", in which he made claims against the Keynesian stategy for policy analysis. His argument is now known as the Lucas Critique, and what h e argued is that Keynesian methodology was innapproriate for the analysis of alternative policy scenerios. Basically, the root of the problem is that the Keynesian model assumes their parameters to be exogenous when in fact they are endogenous. In his an d Sargent's paper,"After Keynesian macroeconomics", the following was written:
"For the applied economist, the confident and apparently successful application of Keynesian principles to economic policy which occurred in teh United States in the 1960's was an event of incomparable significance and satisfaction. These pri nciples led to a set simple, quantitative relationships between fiscal policy and economic activity generally, the basic logic of which could be (and was) explained to the general public and which could be applied to yield improvements in economic perform ance benefiting everyone...In the present decade, the US economy has undergone its first major depression since the 1930's to teh accompaniment of inflation rates in excess of 10 per cent per annum. These events have been transmitted (by consent of the g overnments involved) to other advanced countries and in many cases have been amplified. ...they were accompanied by massive government budget deficits and high rates of monetary expansion, policies which, although bearing an admitted risk of inflation, p romised, according to Keynesian doctrine rapid real growth and low rates of unemployment.

That these predictions were widely incorrect and that the doctrine on which they were based is fundamentally flawed are now simple matters of fact, involving no n ovelties in economic theory. The task now facing contemporary students of the business cycle is to sort through the wreakage, determining which feature of that remarkable intellectual event called the Keynesian Revolution can be salvaged and put to good use and which others must be discarded...Our intention is to establish that the difficulties are fatal, that modern macroeconomic models are of no value in guiding policy, and that this condition will not be remedied by modification along any lin e which is currently being pursued."
Thomas J. Sargent, Robert barro, and Robert E. Lucas, Jr were responsible for the rise of New Classical Economics during the 1970's..

Works by Robert E. Lucas, Jr.:

  • Econometric Policy Evaluation: A Critique, The Carnegie-Rochester Conference Series on Public Policy
  • Expectations and the Neutrality of Money, Journal of Economic Theory
  • Models of Business Cycles
  • After Keynesian Macroeconomics

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