BFI NewsNov 08, 2016

Learning from Lucas

Generations of economists pay tribute to the architect of macroeconomics

The chalkboards are empty. Bob Lucas starts at the upper left, writing out an economic model and explaining as he goes. Sometimes he boxes in a result. When all the boards are filled, he stands back. Points to each box. Shows where this is going. “Then, BOOM, BOOM. It’s like watching fireworks. Implications exploding. But you are not feeling empty afterward, like fireworks,” recalls Juan Pablo Nicolini, AM ’87, PhD.’91 (Economics).

That’s what it is like to learn from Robert E. Lucas in the classroom.

The classroom fireworks were just the start. Lucas also made an impact as an adviser, with unbelievably fast and comprehensive feedback. There’s the draft of a PhD candidate’s job market paper, returned covered in a blizzard of red ink, with “minor comments” on every line. After a major rewrite, it scores compliments on how well written it was, recalls Ben Moll, PhD’10.

Mikhail Golosov shares the tale of spending all week producing 20 pages of algebra for Lucas by Friday night, only to have it returned Saturday morning totally reworked, with the note that the error in the derivation occurs between equations 27 and 28, which elicits another week to produce another 20 pages of work, then another.

Such are the tales of the 19 grateful former students, classmates, collaborators and colleagues who gathered to pay tribute to Lucas by presenting macroeconomic research on wide-ranging topics. Whatever the subject, the papers reflected how deeply the authors were influenced by Lucas’s ambitious work and incisive feedback.

The crowd of 100 gathered for the conference spanned generations, from Lucas’s contemporaries and classmates to current students. And it was like watching a grassroots movement. Not grass that springs up overnight, but prairie grass, which is tiny for a few years, sends roots down 18 feet, then grows taller than a horse. These were people who have been working together for many years, commenting on each other’s work, tightening, criticizing, suggesting, improving. Spreading ideas and approaches.

At first glance, it looks like pure theory. What is presented for discussion is usually a static or two-period version of a paper containing a dynamic model, in which eliminating multiple equilibria and proving existence are more than half the battle. Even the simplified version is dauntingly complex.

But the work starts with concrete, real-world questions: if agents cannot retrain for a new job without resigning the old one. If governments cannot make binding commitments. If some assets are illiquid. If it costs to hire new employees. If there are uninsurable risks to income flows.

A large part of what economists do is telling stories; Lucas once gave a commencement address to that effect. All models are untrue; the Chicago Way is to make a model that captures facets of reality. Like a portraitist, the goal is to capture something that is not obvious but essential about the subject. They are good stories: one discussant explained a model this way: you finally get your order, and they’ve shortchanged you on the fries, but you don’t have time to get back in line, so how much will they shortchange you in equilibrium?

But then there is the calibration. Does a model with these features produce a realistic unemployment rate, or growth rate, or response to an interest rate shock? Does it match reality? And can it tell us something new about the behavior of the economy? Is it useful?

Another former student, Marcel Boyer, quoted Lucas: “People who have ideas, we find them on every corner. People who can do something with those ideas are more rare. Come back when you’ve done something with it.”

Colleague VV Chari notes, “I think of Bob as the architect of modern macro. You could see that 40 years ago. His papers are the drawings; up to us as bricklayers to build on it. On behalf of profession apologize that it’s taken us so long to build that structure; we will get it done.”

—  Jennie France