《宏观经济学 Macroeconomics》课外读物：Keynes, Lucas, and Scientific Progress.pdf

Keynes, Lucas, and Scientific Progress By ALan S BLInDer In one of those marvelous coincidences of I. Are Expectations Rational intellectual history, Robert Lucas was born the year after the publication of Keynes Keynes, though no stranger to probability General Theory. For the first thirty-five years ocal in his of their mutual lives, the two apparently denial that expectations are what we now coexisted in harmony. But their relationship call rational since. Lucas has frequently criticized Keynesian economics as large prop our poor science, and it is precisely in that spirit that i want to address the debate today mism rather than on a mathematical We all know the old joke about the profes- expectation..Only a little than sor who uses the same exam questions year an expedition to the South Pole. is it after year, but changes the answers. That based on an exact calculation of ben- efits to come. Thus if anima joke encapsulates all too well what has hap- pened to macroeconomics these last fifteen dimmed and the spontaneous opti mism falters, leaving us to depend on years and seems to reflect poorly on econom nothing but a mathematical expect ics as a science. Or does it? On second tion, enterprise will fade and d thought, the best answers to scientific ques [1936,pp.161-62 tions do change as new observat ns are made, as new experiments are run, and as That attitude left a big loose end in The better theories are developed. The issue is General Theory. Business investment is sup whether the answers to important questions posedly driven by"the state of long-term in macroeconomics have changed for good expectations, but expectations are not scientific reasons or for other reasons pinned down by the theory, leaving substan The joke provides the framework for my tial room for gyrations in macroeconomic Ik. I will pose eight exam questions; and activity driven by autonomous changes in for each one I will summarize the answers animal spirits. That hardly constitutes a tight iven by Keynes, by Lucas and his followers, scientific theory; but Keynes was probably and by modern Keynesians. I pick only happy to leave the loose end loose. Modern questions that are answered differently by y“ sunspot theorists” have tightened the Keynesians and Lucasians and that are argument considerably, in ways that Keynes central to contemporary macroeconomic de- might have found congenial bates. The focus is on whether the Keynes- Lucas, of course, changes the answer to ian or new classical answers have greater yes. Was this change motivated by empirical claim to being"scientific "Each student evidence that subjective expectations match must answer every question the conditional expectations generated models-or even that actual expectations are unbiased and efficient? No. Indeed, Edward Prescott has boldly asserted that"surveys Princeton University, Princeton, NJ 08544. I cannot be used to test the rational expecta or correspondence tions hypothesis"(1977, p. 3). Rather, econo- th Ben Bernanke, Andrew Caplin, Mark Gertler, mists are supposed to convert to rational Reperi solow and Lawrence summers. a version of expectations(re) because of the unlove- avain paper with footnotes and complete references request to nisms that preceded it and because RE is

VOL. 77 NO. 2 THE CONTRIBUTION OF KEYNES A FTER 5O YEARS 13/ more consistent with their (unverified) the unemployed are engaged in intel- worldview that people always optimize at all ligent search or purposeful intertemporal mas Sargent put it:“Re ubstitution. He scoffs at the Keynes search in rational expectations . has a mo- mentum of its own . that, stems from the that unemployment be classified as in- logical structure of rational expectations as a voluntary.simply cut itself off from seri modeling strategy"(1982, P. 382). The ous thinking about the actual options unem- momentum, you will note, does not stem ployed people are faced with"(1986, p. 47) from empirics. I leave it to you to decide This is a tough question to adjudicate on hether these criteria are more like those scientific grounds since the issue is largely that led physicists to dump Newton in favor definitional and, as Lewis Carroll pointed of Einstein, or those that led artists to out, everyone is entitled to his own defini a bandon manet to follow Picasso tions. In Lucass view, a person laid off from Modern Keynesians are split on this ques- a job can, presumably, shine shoes in a tion. To some, the theoretical appeal of re railroad station or sell apples on a streer and the general idea that expectations should corner. If he is not doing any of these things respond to policy changes are sufficient rea- he must be choosing not to do so. Both son to conclude that"rational expectations statements like this and reactions them is the right initial hypothesis. Others harbor tend to be polemical. I guess dogmatism is in doubts. I think the weight of the evidence- the ear of the beholder both from directly observed expectations and However, a few pertinent facts should from indirect statistical tests of rationality leaven the ideological debate. First, when the (usually in conjunction with some other hy- unemployment rate rises, it is layoffs, not pothesis)is overwhelmingly against the re quits, that are rising while consumption falls hypothesis. Furthermore, RE is not without rather than rises -all of which are bad news theoretical difficulties. We all know that re for search theory. Second, real wage move models often have multiple equilibria. More ments are close to a random walk-which is fundamentally, RE is theoretically coherent bad news for the intertemporal substitution only in the context of a single agreed-upon approach. Third, unemployment is heavily model. In an economy in which different concentrated among the long-term unem- people hold different views of the world, the ployed; in 1985, for example, people whe very notion lacks clarity. For example, if ere jobless for 27 weeks or more con Paul Volcker announces today that on New stituted 54 percent of all unemployment and Year's Day he will raise Ml by 20 percent, I the expected duration of a complete spell of magine Lucas and I will make different unemployment was 31 weeks. Can that be revisions in our expectations for, say, real intertemporal substitution? Fourth, unem GNP in 1987. Whose expectations are"ra- ployed workers normally accept their first tional? "Heterogeneous beliefs pose serious job offer, and those who are looking for heoretical problems for RE. As scientists, work spend an average of only 4 hours per then, I think we should be hesitant to em- week on search activity That hardly suggests ace r predominant role for search in explaining unemployment Il. Is there Involuntary Unemployment? Ill. Do Wage Movements Quickly Clear Keynes said, nay screamed, yes. Lucas not he labor market only says no, but questions whether the phrase has meaning. In his words, "To ex- Keynes certainly thought not, for such plain why people allocate time to . unem- reasons as trade union siVeness, custom ployment we need to known why refer and inertia, and outright stubbornness. lucas it to all other activities"(1986, p 38). Notice answers yes-though perhaps only in a broad the words allocate and prefer. In his view, sense. He has, for example, cited approv-

32 AEA PA PERS AND PROCEEDINGS MAY 1987 ingly the competitive contract equilibrium to clear the labor market in a world of approach in which workers have 100 percent imperfect information--not even in the long unemployment insurance and, because of in run. Of course, that efficiency wage models divisibilities, are chosen randomly to work can be built does not imply that they de ing, of course, that unemployed workers have clearing models have no particular claim to higher utility than employed ones. In Lucas's the theoretical high ground opinion, there is“ no reason to believe”that In sum, the scientific basis for modeling competitive models of labor markets that labor markets-or goods markets for that treat unemployment like leisure commit matter-as continuously clearing escapes me. serious strategic error. To reason? I think the preponderance of IV. Is the Natural Rate of Unemploymer the evidence says otherwise. Unemployment a Strong Attractor for the insurance replaces only about 40 percent of Actual Rate of Unemployment? lost earnings. Lately, only about one-third of the unemployed collect it. Where is the Keynes thought not. Indeed, in his revolu evidence that the unem ployed are happier tionary zeal, Keynes spoke loosely (loose than the employed? Most economists think talk was a problem for Keynes) of an Lucass distinguished predecessor at the unemployment equilibrium"which would University of Chicago had it right when he seem to deny the natural rate any attractive wrote,"Under any conceivable institutional force at all. Lucas answers in the affirmativ arrangements, and certainly those that now Modern Keynesians have long had trouble prevail in the United States, there is only a with the master's notion that the econom limited amount of flexibility in prices and ould equilibrate below full employment; wages. And it is hard, for me at least, to they prefer to think of unemployment as a look at what has gone on in this country long-lasting disequilibrium. In the United not to mention in Europe-since 1974 and States at least, the validity of the natural rate see clearing labor markets. That the market- hypothesis has not been at issue for a long clearing approach caught on in this environ- time. The argument, instead, is over whether ment is testimony to Lucas's keen intellect the speed of convergence to the natural rate and profound influence, not to economists' is rapid or glacial espect for facts. On this. the American evidence is un- More than just casual empiricism supports equivocal and the European evidence is this view: numerous formal econometric overwhelming. The U.S. civilian unemploy studies reject the market-clearing hypothesis ment rate peaked at 8.9 percent in May I against some sort of disequilibrium alterna- and then took almost three years to get back tive. Unfortunately, it is usually spot-market down to 6 percent. It then peaked again at clearing that is rejected. Equilibrium con- 10.7 percent in November-December 1982 tracting models in which the wage plays little now, four years later, it has yet to fall below or no short-run allocative role are difficult to 6.7 percent for even a single month. Some formulate econometrically, much less to re- will argue that 7 percent is now the natural ject. Indeed, it is hard to know what ob- rate, without worrying much about how it servations could contradict such models; grew so high. My view is that a theory that theory just leaves too many open possibil- allows the natural rate to trundle along after the actual rate is not a natural rate theory Nonetheless, certain observations are at all worth making. For one, several authors have In Europe, the evidence is far more com- pointed to interindustry wage differentials pelling. Unemployment rates rose more or that are persistent across both time and less steadily from 1974 to 1985-from 3 to space-differentials which are not easily over 13 percent in Britain, from 2.8 to 10.5 quared with market clearing. Theoretically, percent in France, and from 1.6 to 8 percent we know that the wage rate may not be able in Germany. Some young men in these coun

VOL. 77 NO. 2 THE CONTRIBUTION OF KEYNES AFTER 50 yEARS 13 tries have never held a job and may never be bater's tactic, and a poor one at that, to productive workers. Facts like these have claim that supply shocks are outside the prompted several authors to seek models purview of Keynesian economics which explicitly reject the natural rate hy pothesis in favor of hysteresis. And recent VI. Does a Change in the Money Supply econometric work suggests hysteresis in have Real effects? postwar U.S. real GNP as well. It may well be that Keynesians caved in too readily to Keynes and the Keynesians answered yes, the natural rate hypothesis. without bothering to distinguish between an ticipated and unanticipated changes. Lu v. Is there a Reliable Short-Run Philips Curve? and the Lucasians answer that money has real effects only if it is misperceived. In their Keynes, of course, did not answer this view, a properly perceived injection of mon- question; the Phillips curve came later. I ey is like a currency reform include it on the exam because Lucas and Here, again, the weight of the econometric Sargent made it central to their attack on evidence(though certainly not all of it)sug- Keynesian economics. The alleged failure of gests that Keynes had the right answer after the Phillips curve was their main piece of all. Robert Barro's alleged empirical demon- evidenc at empirical Keynesian models stration that only unanticipated money has were wildly incorrect, and that the doctrine real effects did not hold up.Perceived on which they were based is fundamentally changes in money are not neutral flawed. "(Please notice the adverbs. This charge was repeated so often VIl. Does Social Welfare Rise when with such certitude that it became part of Business Cycles are Limited? conventional wisdom. Unfortunately, it is, to coin a phrase, wildly incorrect. The fact is Keynes tacitly, but that, the Lucas critique notwithstanding, the swered yes. If asked for proof, he probably Phillips curve, once modified to allow for would have chuckled with the condescension supply shocks(any one of several variables of the British upper crust-which is hardly a will do), has been one of the best-behaved scientific attitude empirical regularities in macroeconomics- fully agnostic, but clearly much better behaved, in fact, than we had leans toward the answer no. He has long any right to expect. A long list of studies been sympathetic to the idea that successful pports this conclusion. Nonetheless, Lucas stabilization policies that smooth business ontinues to speak of the Phillips curve as an cycles may actually decrease welfare. Pres- econometric basket case cott is less circumspect. Without bothering Let me anticipate the obvious objection to draw any distinction between modeling a that saving the Phillips curve after the fact conclusion and proving it, he asserts that by adding a supply variable does not absolve "costly efforts at stabilization are likely to be it of its ex ante forecasting errors. It is true counterproductive"because"economic fluc- that, while Robert Gordon,s latest Phillips tuations are optimal responses to uncertaint curves fit the data well, his pre-1972 equa- in the rate of technological change. "Clearly ions do less well. And they did not predict Harberger triangles look bigger and Okun e rise and fall of OPEC. But there is no gaps smaller near lakes than near oceans. Is sense in which new classical models either Prescotts attitude more scientific than tion: pated the error or pointed to the solu- Keynes ke Keynesian models, they were de- I think it is worth taking a moment to signed to analyze demand shocks. Events in explain why Lucas believes that the potential the 1970,s and 1980s demonstrated to gains from stabilization policy are so small Keynesian and new Classical economists The postwar standard deviation of log alike that Marshall's celebrated scissors also quarterly consumption around trend is about comes in a giant economy size. It is a de-.013. Lucas asks an infinitely lived consumer