Lucas on the Shortcomings of Modern Macro
And so the debate about the state of modern macroeconomics continues. As the rhetoric escalates, perhaps it’s worth digging through the archives for real insight, instead. Here’s Robert Lucas in his 2003 keynote address to the History of Political Economy conference:
The problem that the new theories, the theories embedded in general equilibrium dynamics of the sort that we know how to use pretty well now — there’s a residue of things they don’t let us think about. They don’t let us think about the U.S. experience in the 1930’s or about financial crises and their real consequences in Asian and Latin America; they don’t let us think very well about Japan in the 1990’s.
Honestly, it sounds like Lucas agrees with Krugman. Enough said.
(Hat tip: This quote is highlighted in David Laidler‘s recent paper, “Lucas, Keynes, and the Crisis.”)