 "Robert Lucas, winner of the 1995 Nobel Prize in Economics, dies at 85")
Robert Lucas, who won the Nobel Prize in 1995 for his work on rational expectations and the efficacy of government intervention in the economy, has died at the age of 85 years. His death was confirmed on Monday by the University of Chicago. He had been a professor there since 1975.
Born in 1937 in Yakima, Washington, Lucas received a Bachelor of Arts in History from the University of Chicago in 1959. He went to the University of California, Berkeley but returned to Chicago for financial reasons. In 1964, he earned his PhD in economics.
He taught at Carnegie Mellon University. Then in 1975, he returned to the University of Chicago as a professor.
Lucas won the Nobel Prize for research on how expectations impact the decisions of consumers as well as businesses. In 1976, he came up with the 'Lucas critique' where he argued that policymakers cannot presume that their actions will yield the expected results. On the other hand, they must keep in mind how their actions will impact the expectations of people.
Lucas 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 the 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.
In a statement published on the University of Chicago's website, Robert Shimer, chair of the Kenneth C Griffin Department of Economics said Lucas "leaves behind a legacy of revolutionary research, teaching, and leadership that transformed the field of economics."