Saturday, May 17, 2014

One Thing Keynes Would Have Said to Lucas and Sargent

In 1979, Robert Lucas and Thomas Sargent published a brief manifesto entitled "After Keynesian Macroeconomics."  In the article, they mock the General Theory's` mere "'talk' about economic activity," and look forward to a scientific economics built around mathematical models that are clear, logically consistent, and testable by means of econometric techniques. 

KEYNES: (strolls in) The kind of lucidity you’re looking for can be found in physics . . .

LUCAS: Yes, precisely.

KEYNES: It can also be found in ancient myth.

SARGENT: Whatever do you mean?

KEYNES: Do you know the legendary story of Septuagint?

SARGENT: Never heard of it.

KEYNES: Let me tell you the story then. 

SARGENT: Yes, please.

KEYNES: Very good. King Ptolemy gathered seventy scholars together and gave each one an ancient Hebrew text. He placed them in separate rooms and told them, one-at-a-time, to translate the Hebrew text into Greek. And, lo and behold, they emerged with seventy identical translations. 

LUCAS: I don’t get it.

KEYNES: Well, let me put it this way. Let's suppose we put seventy econometricians into separate rooms, each one with the same model and the same data, and each one of these econometricians having “a different economist perched on his a priori.”  Would we expect the same miracle of consistency? 

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