University of Chicago and Nobel Econ Prize Winner Robert Lucas on Economic Policy

Conclusion:  He has None

In their weekly interview with a Conservative the Wall Street Journal this week picked University of Chicago Nobel Prize Winner Robert Lucas.  The interview is informative in that it demonstrates why winning a Nobel Prize is not by itself any indication of the quality of the economic thinking by the winner.

Actually, The Dismal Political Economist was looking forward to the interview, hoping that at long last there would be an intelligent, coherent and logical recommendation for economic policy to cure the current status of the economy, which The Dismal Political Economist has dubbed “The Great Stall”.  Alas it was not to be.  The disappointment should have been expected, after all



Mr. Lucas, he doesn't look
incoherent does he?



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

If by “influential” one means having the most impact on economic policy, then given that Mr. Lucas was most influential in a period in which economic policy has been an unmitigated disaster, one should not expect much from an interview with the gentleman.

On Europe Mr. Lucas is of course critical, noting

In Europe, governments typically commandeer 50% of GDP. The burden to pay for all this largess falls on workers in the form of high marginal tax rates, and in particular on married women who might otherwise think of going to work as second earners in their households. "The welfare state is so expensive, it just breaks the link between work effort and what you get out of it, your living standard," says Mr. Lucas. "And it's really hurting them."

conveniently omitting the experience of Germany, Europe’s largest and most successful economy which of course has a much higher tax collections and much greater state involvement in the economy than the U. S., but seems to be doing quite nicely, thank you.  It is a lot easier to make an argument when you omit those examples which are counter to your position.

In this quote Mr. Lucas gives his own explanation for the problems in the U. S. economy, then readily admits his own explanation is not supported by any evidence.

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."

Most of the comments by Mr. Lucas sadly degenerate into sheer gibberish.  Here is one example.

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."

Although what is either refreshing or bracing about those above comments is unclear to everyone, probably even to the interviewer if he bothers to go back and think about it.  But it is nice to know that the oversupply of residential and commercial real estate is the solution to our problems, because we have plenty of it.

Finally we have the policy prescription, at the end of a long and largely incomprehensible dialogue,

A lesson for Mr. Obama might be: If you want to stimulate growth in investment, productivity and income, cut taxes on capital.

That’s right, cut the capital gains tax rate and cut taxes on dividend income and all will be well.  Oh, wait a minute, Conservatives already did that.  How did that turn out?