Robert Lucas

May 18, 2023

Chicago University economist and Nobel laureate Robert E Lucas, 85, passed away recently.
He won the Nobel Prize in 1995 for his work on rational expectations and efficacy of government intervention in economy.
He argued that if people are rational, which is assumed in microeconomics, then government intervention will only have an impact on prices and inflation if it is unexpected or unpredictable.
Otherwise, people adjust their expectations for future inflation as soon as policy is announced and it then has no impact on prices as well as the inflation.
His research was seen as a direct confrontation with Keynesian economics, which said that with other factors constant, government spending can lead to a rise in output.