Home > Uncategorized > Robert Lucas — an example of macroeconomic quackery

Robert Lucas — an example of macroeconomic quackery

from Lars Syll

In an interview a couple of years ago, Robert Lucas said he now believes that “the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.”

So, according to Lucas, changes in tastes and technologies should be able to explain, e.g., the main fluctuations in unemployment that we have seen during the last seven decades.

Let’s look at the facts and see if there is any strong evidence for this allegation. Just to take an example, let’s look at the unemployment rate in a couple of European countries:


What shocks to tastes and technologies drove the unemployment rate up and down like this in these countries? I guess most would recognise a ‘structural brake’ around 2008–2009 and start to think about financial crises and subprime loans … It’s simply not possible to come up with a warranted and justified explanation solely based on changes in tastes and technologies. Lucas is just making himself ridiculous.  

How do we protect ourselves from this kind of scientific quackery? I think Larry Summers has a suggestion well worth considering:

Modern scientific macroeconomics sees a (the?) crucial role of theory as the development of pseudo world’s or in Lucas’s (1980b) phrase the “provision of fully articulated, artificial economic systems that can serve as laboratories in which policies that would be prohibitively expensive to experiment with in actual economies can be tested out at much lower cost” and explicitly rejects the view that “theory is a collection of assertions about the actual economy” …

[A] great deal of the theoretical macroeconomics done by those professing to strive for rigor and generality, neither starts from empirical observation nor concludes with empirically verifiable prediction …

LARRYThe typical approach is to write down a set of assumptions that seem in some sense reasonable, but are not subject to empirical test … and then derive their implications and report them as a conclusion. Since it is usually admitted that many considerations are omitted, the conclusion is rarely treated as a prediction …

However, an infinity of models can be created to justify any particular set of empirical predictions … What then do these exercises teach us about the world? … If empirical testing is ruled out, and persuasion is not attempted, in the end I am not sure these theoretical exercises teach us anything at all about the world we live in …

Reliance on deductive reasoning rather than theory based on empirical evidence is particularly pernicious when economists insist that the only meaningful questions are the ones their most recent models are designed to address. Serious economists who respond to questions about how today’s policies will affect tomorrow’s economy by taking refuge in technobabble about how the question is meaningless in a dynamic games context abdicate the field to those who are less timid. No small part of our current economic difficulties can be traced to ignorant zealots who gained influence by providing answers to questions that others labeled as meaningless or difficult. Sound theory based on evidence is surely our best protection against such quackery.

  1. March 2, 2017 at 11:38 am

    Strange feeling that the solely reference to oppose to G. Lucas could be from L. Summers ! L. Summers, the guy who has orchestrated the end of the Glass Steagal act and radical shock therapy supporter! Economists and Economics require more coherence.

  2. J David Auner
    March 2, 2017 at 12:07 pm

    The world is a difficult place when the two main options are stupid Republican/right wing austerity and war versus Summers/Clinton/Blair corruption and war.

    • March 7, 2017 at 1:39 am

      The hammer and the anvil.

    • March 7, 2017 at 5:38 am

      But this is an improvement over the US past. Then no one gave a shit about helping the “less fortunate” and needed no fancy word like austerity (and associated economic theories) to explain this. And corruption was just greasing the wheels of industry. With war the change in US happened around 1840. About that time war became an acceptable foreign policy tool. Sixty years later (1898) the US decided to become a full-blown empire and to build an armed forces up to the task.

      • J David Auner
        March 7, 2017 at 2:42 pm

        Pardon the mixed metaphor but the standing army was really our country’s sea change. Roosevelt’s failure which is only rivaled by Reagan’s oval office decisions in 1985 to switch the industrial cooking oil and sell the diabetogenic stuff as a health effort, and to promote bisphenolA plastics which will finish off the oceans(“clear plastic can’t possibly hurt you”)

      • March 8, 2017 at 11:23 am

        J David Auner, yes the entire nature of the nation was changed when war became an acceptable foreign policy that required a professional armed forces.

  3. March 3, 2017 at 5:30 am

    In October 1987 nothing in the real, productive economy changed, but stock prices dropped 30-40% in a day. 30% of the factories had not been bombed overnight. The change was entirely in the minds of market players. Duh!

  4. March 3, 2017 at 10:08 pm

    “Serious economists who respond to questions about how today’s policies will affect tomorrow’s economy by taking refuge in technobabble about how the question is meaningless in a dynamic games context abdicate the field to those who are less timid.”

    It is always nice when economic figures are willing to examine motivations in their field.

  5. March 6, 2017 at 11:40 am

    In his book “Sack the Economists and Disband their Departments,” as well as in a similar book by Steve Keen, “Debunking Economics” the point is made again and again that current economics is impractical, useless, and disturbingly misguided. Numerous examples of these faults are given in each book. For a science this is, or should be a damning flaw. Science is above all pragmatic, empirical, and useful. If some group of actions or set of assumptions is not these things, it is not a science. Economics is thus not a science. So what is it? It is a rather bizarre combination of mathematical axioms and fairy tales so weak and nonsensical as to embarrass the Brothers Grimm. It continues to exist in much the same way as monarchy continues, though most people no longer accept the assumptions on which it is based (e.g., Divine right of Kings, noblesse oblige, royal lands). The monarch is a comfortable part of their world that many will not give up, even if it cost $50 million per year to maintain that monarch (in the UK). In other words, economics stays around became it’s become part of US and UK cultures. But cultures do change. It’s time I think to remove economics from culture.

    • March 7, 2017 at 1:43 am

      If I were a climate scientist trying to defend global warming, I would be *pissed* at the economics profession.

      • March 7, 2017 at 8:19 am

        They are. In 2014 “The Economist” published an expose’ of the 4th IPCC Report. Just to let everyone know what the “facts” are per the magazine the story begins with this false statement, “But consensus remains elusive.” And then quotes University of Sussex economist Richard S. J. Tol who describes the report’s conclusions as “the four horsemen of the apocalypse.” Now mind you “The Economist” provides no data or evidence to back up anything in its expose’. “The Economist” has made such claims before. And climate scientists have attempted to respond. But that’s difficult when no one at the magazine or the hundreds of commentators for the articles showed any interest in listening. I’ve given up on these debates. It’s like scientists debating magicians. They live in wholly separate worlds. Economists don’t have the expertise or experience to understand or refute climate change science. But, their basic assumptions demand that climate science be wrong, or ideally absurd wrong.

  6. robert locke
    March 6, 2017 at 3:06 pm

    Economics is an historical phenomenon, which like God is the creation of man, but once created like God is hard to get rid of, because it is so useful in sustaining the established order.

    • March 7, 2017 at 8:22 am

      Careful Robert. Trump’s evangelicals will get you. God is there “trump” card.

    • March 8, 2017 at 10:00 am

      Yes, Robert: be careful! Ideas of God are the creation of man, but while the idea that God is just (so rewards the good) may be useful in sustaining the established order, the idea that God is a father, who has no favourites and is merciful both to children and others lacking the resources to be good, tends to be treated as subversive by those anxious to justify themselves. Which is anyway quite beside the point of whether any idea of God is true: whether God exists. We cannot know that he doesn’t any more than most of us can know that he does; we have to make up our own minds as to whether the universe had a cause or whether it has always existed. What in scientific terms might be described as “the critical experiment” was whether Christ rose from the dead. Mary, an observer at the time, is famously reported as saying “I know that my redeemer liveth”.

  7. March 8, 2017 at 10:24 am

    More to the constructive point of Lars’ blog, the Larry Summers quote, I’ve come to the similar conclusion that economic models are more like a map (but in historical space-time), suggesting types of things worth looking at but not predicting what you will see happening. Most economists don’t look, so they don’t see even that their maps are misleading.

    • March 8, 2017 at 11:33 am

      If there’s one thing cartography is above all, it is empirical. Cartographers use existing ideas and assumptions about shapes and their changing forms in an effort to accurately depict places on the Earth the cartography has experienced and wants to depict for others to see and use. Maps are sometimes difficult to follow or use. But they are only deliberately misleading when the cartographer has done her/his job poorly. Are you listening economists?

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