Paul Krugman on Robert Lucas Jr.

“How could such a difficult, technical intellectual structure acquire the force first of a crusade, then of a dogma? [...] First, Lucas's approach to macroeconomics seemed to offer a way to heal a deep wound in the heart of economic theory. [...] When Lucas seemed to be able to do was derive business cycles from microeconomic model. [...] Second, the technicality and difficulty of Lucas's theory [...] was, in the world of academic economic, an asset rather than a liability. [...] Finally, we cannot ignore the role of political bias in making rational expectations macroeconomics attractive.”

“In the 1970s, Lucas and disciples take it up a notch, arguing that we should assume rational expectations: people make the best predictions possible given the available information. But in that case, how can we explain the observed stickiness of wages and prices? Lucas argued for a “signal processing” approach, in which individuals can’t immediately distinguish between changes in their wage or price relative to others — changes to which they should respond by altering supply — and overall changes in the price level. [...] In the 1980s, the Lucas project failed — pure and simple. It became obvious that recessions last too long, and there are too many sources of information, for rational confusion to explain business cycles. Nice try, with a lot of clever modeling, but it just didn’t work.”

“Lucas's name, unlike Friedman's, is hardly a household word. He is neither a prolific writer nor easy to read; although he can write clear, forceful English when he chooses, he prefers to express himself through dense mathematics, leaving it to others to popularize his ideas. Where Friedman used his academic notoriety as a stepping stone to a wider public role, Lucas has in recent years seemed to retreat to safe, increasingly technical issues of theoretical economics. And yet for most of the 1970s there was little question that Robert Lucas was having more impact on economic thought, both through his own writings and through the extraordinary devotion of his intellectual disciples, than any other working economist. Above all, he became identified with a much stronger form of Friedman's argument against active monetary policy. Where Friedman argued that such policy would in practice do more harm than good, Lucas argued that in principle it could do nothing but harm.”