unpleasantly unsurprised

Links to the WSJ interview with Robert Lucas are all over my google reader. I finally clicked. Not surprised.

First, this would have been better with more Lucas and less Jenkins (the interviewer). This isn’t an incredibly nice thing to say about Jenkins, but if we click this link it is because we (meaning economists I guess) are interested in Lucas! A cut and dry question and answer format would have made it much easier to understand his actual positions. Instead we get some bizarre contextualization from Jenkins (emphasis my own):

The Chicago school ought to be roaring back today on another of its great contributions, “rational expectations,” which does so much to illuminate why government policy is failing to stimulate the economy back to life…
Rational expectations is the idea that people look ahead and use their smarts to try to anticipate conditions in the future…

Duh, you say? When Mr. Lucas finally won the Nobel Prize in 1995, it was the economics profession that said duh. By then, nobody figured more prominently on the short list for the profession’s ultimate honor. As Harvard economist Greg Mankiw later put it in the New York Times, “In academic circles, the most influential macroeconomist of the last quarter of the 20th century was Robert Lucas, of the University of Chicago.”

The other issue on his mind is our own stumbling recovery from the 2008 recession.

Turning to the U.S., he says, “A healthy economy that falls into recession has higher than average growth for a while and gets back to the old trend line. We haven’t done that. I have plenty of suspicions but little evidence. I think people are concerned about high tax rates, about trying to stick business corporations with the failure of ObamaCare, which is going to emerge, the fact that it’s not going to add up. But none of this has happened yet. You can’t look at evidence. The taxes haven’t really been raised yet.”

By now, the Krugmanites are having aneurysms. Our stunted recovery, they insist, is due to government’s failure to borrow and spend enough to soak up idle capacity as households and businesses “deleverage.” In a Keynesian world, when government gooses demand with a burst of deficit spending, the stick figures are supposed to get busy. Businesses are supposed to hire more and invest more. Consumers are supposed to consume more….

But what if the stick figures don’t respond as the model prescribes? What if businesses react to what they see as a temporary and artificial burst in demand by working their existing workers and equipment harder—or by raising prices? What if businesses and consumers respond to a public-sector borrowing binge by becoming fearful about the financial stability of government itself? What if they run out and join the tea party—the tea party being a real-world manifestation of consumers and employers not behaving in the presence of stimulus the way the Keynesian model says they should?

Mr. Lucas and colleagues in the early 1960s were not trying to undermine the conventional prescriptions when they began to think about how the public might respond—possibly in inconvenient ways—to signals about government intentions…

I’ve cut a number of sentences, and a paragraph on Europe and Japan, out. But those missing parts would do nothing to make the paragraph about the tea party any less bizarre. If you are reading this as someone new to Lucas and rational expectations, this is a really odd introduction. I’m not sure what impression one would come away with. Keynesians think people are stick figures, but the rational expectations movement in macroeconomics showed that when stimulus is pushed on them consumers and employers react by joining the tea party, despite what the evil Keynesians think they “should” do? Ok, so we could extract the rational kernel from this. There is an element of truth in this representation of the Lucas critique, but it is completely obfuscated with this bizarre tea party story.

I read this, and I think, “I wonder what Lucas would think of that?” I assume he’d think it was a weird story. Maybe I’m wrong, but then again, this is an interview with Lucas, why should I have to wonder and make assumptions? Ask Lucas. Use his words. Just for the my own amusement I wish Jenkins asked the following question:

In my view the tea party is an excellent example of the arguments you made in the 1970s. Indeed, I like to think of you as a great prophet of the tea party. Don’t you think that a movement, with political leaders that think (1) the president of the united states could cut gas prices in half with more domestic drilling and (2) real wages are not determined by real factors (the inflation tax helps the government and hits everyone else in the economy by 100%) proves your point about people making rational expectations, using all available information, using the true model of the economy? Right?

Unfortunately, the WSJ does not exist for my entertainment!

There are weak points for Lucas.

A complementary consideration was John McCain’s inability to say anything cogent about the financial crisis then engulfing the nation. “He didn’t have a clue about the economy. I just assumed the guy [Obama] could do it. I thought he was going to be more Clinton-like in his economics and politics. I was caught by surprise by how far left the guy is and how much he’s hung onto it and, I would say, at considerable cost to his own standing.”

I understand how many people think Obama is super left wing. I think they are wrong. I think some of the reasons they have the wrong idea are problematic and sometimes vile. But, whatever. Most people can get through life without thinking very much about the mixed economy. We were told this is the land of free market capitalism – the exact opposite of the evil Soviet Union. With respect to this naive fantasy of a bunch of independent craftsmen (sic) or farmers roughing it out as individuals, just about any modern president could be framed as a dangerous Leninist.

I don’t think Lucas gets that out. He knows why “RomneyCare” looks like “ObamaCare.” (Hint: if you think it is because Romney is also a left-wing atheist islamic fundamentalist communist possessed by anti-colonialist asiatic-african spirits, you might just be barking up the wrong tree, in the wrong forest, on the wrong continent.) But whatever, it is useful rhetoric. Obama is left of Lucas, fine. Given the political context why not attack the centrist to your left as a dangerous left-winger! It is a type of rhetoric used by all sorts of people all the time.

There is also the odd explanation about voting for Obama.

“Yeah, I did. My parents are dead for a long time, but my sister says, ‘You have to vote for Obama, for what it would have meant for Mom and Dad.’ I felt that too. It’s a huge thing. This [history of racism] has been the worst blot on this country. All of a sudden this charming, intelligent guy just blows it away. It was great.”

A complementary consideration was John McCain’s inability to say anything cogent about the financial crisis then engulfing the nation. “He didn’t have a clue about the economy. I just assumed the guy [Obama] could do it. I thought he was going to be more Clinton-like in his economics and politics. I was caught by surprise by how far left the guy is and how much he’s hung onto it and, I would say, at considerable cost to his own standing.”

Let’s see what Obama’s perceived positives were. He was black, charming, and intelligent. He also, unlike the other candidate who didn’t have a clue about the economy, was someone Lucas thought might be able to help fix the financial crisis. Now you might think that during a super huge financial crisis, seeming to know what was going on (as opposed to having no clue), would be a big big plus – particularly to voters who are economists. But you’d be wrong. That was a “complementary consideration.” Basically, his Mom and Dad liked black people and hated racism! Gotta do it for them.

I don’t even want to get into the racial dimensions of this. It is really just odd. But then again, “complementary consideration” didn’t come from Lucas. It was how Jenkins frames these quotes. Maybe Lucas spent 15 minutes going on and on about how clueless McCain seemed. Who knows? We do know the story about how charming black men get all the breaks in today’s anti-white America though, so why not just lead in with that?

Who really cares what Lucas thinks about anything? I’m sure he might have something really interesting to say about leveraging/deleveraging. We are given a little something:

Refreshing, even bracing, is Mr. Lucas’s skepticism about the “deleveraging” story as the sum of all our economic woes. “If people start building a lot of high-rises in Chicago or any place and nobody is buying the units, obviously you’re going to shut down the construction industry for a while. If you’ve overbuilt something, that’s not the problem, that’s the solution in a way. It’s too bad but it’s not a make-or-break issue, the housing bubble.”

Could you do some follow up questions? How long do we need to shut construction down? Forever? 10 years? Why do we need to shut down all of our industries if the problem is just housing? Or, maybe ask Lucas what exactly is wrong about the deleveraging argument. But, as I asked, who really cares what Lucas has to say about it? Why waste time on that when we can have Jenkins completely blow the whole deleveraging argument out of the water but putting it in quotation marks everytime he uses? So much more “enlightening.”

I doubt I would have agreed with Lucas in his own words more than in Jenkins. But the disagreement would have been more fun.

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