Thursday, June 2, 2011

Bob Lucas – believe the vision, belie the evidence

Noahpinion has a nice “Marshallian” take on the recent talk by Robert “Rational-Expectations” Lucas, the Godfather of modern macro. He shows easily available empirical evidence that strikingly goes against each of the three main assertions Lucas made about the US macroeconomic woes.

In this recent lecture at the University of Washington, Lucas makes the following assertions:

1. The persistent gap in income levels among rich economies is due to the costs of European welfare states.

2. The length of the Great Depression was due in part to the emergence of strong unions.

3. The reason for our current ongoing weakness in employment and business investment is the recent expansion of the U.S. welfare/regulatory state.

All three of these assertions are baldly contradicted by history.

Head over to Noahpinion to read the smack-down (well worth reading). What I`d like to do here is just to add a relevant and telling anecdote from Lucas`s professional memoir that I came across in one of the comments on DeLong:

"'Crossing over' was a term introduced to us to describe a discrepancy between Mendelian theory and certain observations. No doubt there is some underlying biology behind it, but for us it was presented as just a fudge-factor, a label for our ignorance. I was entranced with Mendel’s clean logic, and did not want to see it cluttered up with seemingly arbitrary fudge-factors. “Crossing over is b—s—,” I told Mike.

In fact, though, there was a big discrepancy between the Mendelian prediction without crossing over and the proportions we observed in our classroom data, too big to pass over without comment.

My report included a long section on experimental error.... Mike...replaced my experimental error section with a discussion of crossing over. His report came back with an A. Mine got a C-, with the instructor’s comment: “This is a good report, but you forgot about crossing-over.”

I don’t think there is anyone who knows me or my work as a mature scientist who would not recognize me in this story. The construction of theoretical models is our way to bring order to the way we think about the world, but the process necessarily involves ignoring some evidence or alternative theories—setting them aside. That can be hard to do—facts are facts—and sometimes my unconscious mind carries out the abstraction for me: I simply fail to see some of the data or some alternative theory. This failing can be costly and embarrassing to me, but I don’t think it has any effect on the advance of knowledge. Others will see the blind spot, as Mike did with crossing-over, keep what is good and correct what is not."

From Robert Lucas, Professional Memoir, pp. 4-5

This may also be an appropriate time to call attention to the classic old Solow quote about Lucas that you can find here.