Home > Uncategorized > Robert Lucas: weasel writer

Robert Lucas: weasel writer

How Robert Lucas ridiculed the unemployed and defined the concept of unemployment out of existence.

I’m investigating differences between statistical and model definitions of economic variables. While doing this I hit on the article ‘Understanding business cycles‘ by Nobel prize winner Robert Lucas. This article aims to demolish chapter II of Keynes’ General Theory and especially the concept of involuntary unemployment. What a mess. Some points:

A) Lucas starts by embracing the investigations of the business cycle by Mitchell – but conveniently  ‘forgets’ to mention that unemployment, a prime interest of Mitchell, was a core element of such investigations.

B) He states about chapter II of the general theory: 

These models are not, however, “equilibrium theories” in Hayek’s sense. Indeed, Keynes chose to begin the General Theory with the declaration (for Chapter II is no more than this) that an equilibrium theory was unattainable: that unemployment was not explainable as a consequence of individual choices and that the failure of wages to move as predicted by the classical theory was to be treated as due to forces beyond the power of economic theory to illuminate. Keynes wrote as though the “involuntary” nature of unemployment were verifiable by direct observation, as though one could somehow look at a market and verify directly whether it is in equilibrium or not.

Where to begin? Every remark of Lucas is wrong. When you read chapter II it turns out that (i) Keynes does explain unemployment as a consequence of the aggregate of individual decisions while (ii) he also states that the movement of wages is not beyond the power of economic theory to illuminate. Also, Keynes gives a pretty precise definition of what he consideres to be involuntary unemployment (this in stark contrast to people like Lucas and comparable economists, approvingly mentioned in the text,like Becker and Sargent, who never bother to discuss the definitionsof their variables) : “Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods relatively to the money-wage, both the aggregate supply of labour willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment. (Here, paragraph IV). This is a definition which as I see it enables operationalisation and, after this, measurement. Implicit in the definition are stable nominal wages, the price increase is exogenous. An example is Spain – the definition does enable verification of the situation which means that Lucas is very wrong about this. Another ‘mistake’ of Lucas is the idea that Keynes needed sticky wages to show the possibility of involuntary unemployment. He didn’t and I probably have to state why this is not the case. In General Equilibrium theory as perceived by Lucas and Hayek there is no circular flow of money which means that the decline of spending and the circular flow of money induced by lowering nominal wages is not incorporated in the model. Once you do this flexible wages aggravate the situation.

C. Lucas states that, in the thirties, the Tinbergen models were based upon the ideas of Harberler and not on those of Keynes. Tinbergen himself was indebted to Harberler but also (could not track the quote but I’m sure about this) stated that he was surprised that Keynes was so negative about his models, as Tinbergen had the idea that he was quantifying the ideas of Keynes.

D. Lucas is clearly very unhappy with the idea of involuntary unemployment and explicitly compares ‘unemployment’ with ‘vacations’ and ‘weekends’. Quote, mind that Lucas suddenly and without stating this shifts from the aggregate price level to micro economic prices while first denouncing the existence of wage labor while he’s in the following part of this paragrap talking about wage labor:

What if, at the opposite extreme, the price change is transitory…? The answer in this case amounts to knowing the rate at which the producer is willing to substitute labor today for labor tomorrow. If “leisure” [Lucas means unemployment, M.K.] is highly substitutable over time, he will work longer on high price days and close early on low price days. … but what we do know indicates that leisure in one period is an excellent substitute for leisure in other, nearby periods [This is about genuine leisure, M.K.]. Systematic evidence at the aggregate level was obtained by Rapping and myself (1970); Ghrz and Becker (1975) reached the same conclusion at a disaggregative level. The small premiums required to induce workers to shift holidays and vacations (take Monday off instead of Saturday, two weeks in March rather than in August) point to the same conclusion…: holidays [this is suddenly about what we call unemployment! M.K.] are known to be transitory .”

A point not debated by Lucas is that though the level of unemployment is often quite sticky the composition of the population of the unemployed is quite variable. Despite large inflows and outflows of unemployed, the level does not change too much. Which means that there is something ‘beyond’ individual choices which pins this level down – like in some cases the level of aggregate spending. As Keynes indicated in his definition (assuming that in his days a higher price level of goods and services could only be attained by an increase in aggregate spending). But in Lucas his weasel world, such flows are irrelevant.

  1. March 28, 2016 at 3:05 pm

    Equating Lucas with a weasel is very demeaning. Weasels are cool, and they wouldn’t want to be associated with Lucas. (I have rarely seen them, though i saw a related species called a mongoose when i visited my mom in hawaii—they were introduced and now are common, and seen as a problem since they eat all the indigenous animals. ‘riki tikki tim’ i think is a story about mongooses by Rudyard Kipling–mongooses will kill and eat cobras).

    I have read very little of Lucas (last one i read was his ‘Noble Prize’ lecture and i associate him with the whole RBC RE crew (e phelps, and many others). I bet he knows more econometrics than me, though to be honest after reading alot of articles in Econometrica i felt they were re-inventing the wheel and with a cumbersome formalism—math and physics already has most of those results but in a different setting.

    I actually like his idea that there is no unemployment. I personally dont have a ‘job’ now, though i’ve applied for a few recently, and didn’t get them. So, I redefine myself as totally employed, a contributor to social productivity. I work 24/7/365. When i am sleeping, hiking, playing music, going to meetings or events, hanging out with other ‘impoverished’ people (who have drug habits too and work all these cash-under-the-table day jobs, and to an extent serve as my security guards since it can be rough out here in exchange for me letting them sleep on my floor while i have one ) i am working. I guess people like Donald Trump are Lucas’ s/heroes. ‘More casinos’ which help redistribute the wealth (from the poor to the rich). Or how about ‘more guns, less crime’ —John Lott, PhD economics UCLA—where D Friedman, son of Milton (not the writer) teaches—an ‘anarcho-capitalist’ like a bunch of people at GMU (george mason U–bryan caplan, tyler cowan, mercatus center, buchanan, etc.), taught at U chicago, and great friend of NRA (national rifle association).

    Lucas’ idea of work is like a slave plantation, which he owns. (Interestingly both of my parents went to U Chicago and one studied econ (GI bill and scholarship type stuff) , my dad even took a class with M Friedman—he was not impressed with that MF). Lucas can do his ‘art’ (which is what i consider most of mathematical economics to be—-i like art, even do a bit, and music, but its not really applicable science any more than pure math or even field biology).

    The little of Tinbergen i read (very old papers) I thought was very good.
    Tinbergen got his PhD under Paul Ehrenfest–very famous physicist—the ehrenfest urn models are used to prove the second law of thermodynamics in a very simple setting.. There are thousands of ‘urn models’ around now (eg ‘balls and bins’ used to study income distribution, and i used one variant in mathematical biology of immune system). According to wikipedia, Tinbergen became an economist because he was distressed by the holocaust and poverty. I dought Lucas would give these half a thought.

  2. March 28, 2016 at 7:33 pm

    Excellent post. I particularly like the parenthetical “(assuming that in his days a higher price level of goods and services could only be attained by an increase in aggregate spending)”.

    If one does not make that assumption, then what we face are the decisions of producers of wage/consumer goods concerning how much they can sell and at what price/s. In other words, what a producer may believe is a suitable market clearing price (or prices) may have more bearing on the market prices of consumer goods than aggregate demand per se.

    Which is to say that what Keynes imagines :: a rise in the price of wage/consumer goods relative to money wages (and necessitating an increase in the supply of workers if consumption is to remain unchanged) :: is a function of producer expectations about sales and prices, among many other things.

    And the solution? Increased government spending to create the jobs that workers need to continue to purchase consumer goods (and with the multiplier effect that leads to the expansion of economic activity.

  3. March 29, 2016 at 7:11 am

    Nothing new here. Robert Emerson Lucas, Jr., U. of Chicago economist has been and remains an asshole. But more disturbing than that is the conclusion I reached after I saw him speak. He demonstrates several psychopathology tendencies. That is not so unusual in itself. We all demonstrate some of these tendencies. But the particular tendencies I see in Lucas are a lack of empathy for others and a decided inability to feel respect for anyone considered inferior in intellect or social status. Troubling for someone who has the access to policy makers that Lucas does.

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