Is it me, or is Robert Lucas's apologia for modern, mathematical macroeconomics in this week's Economist, effectively saying that their models are pretty good at predicting the economy will carry on in the direction it's currently going, until it doesn't, which point they are incapable of predicting? I think most of us could manage that, without needing a degree in maths and swathes of meaningless formulae. I predict that the current bear rally in the stockmarkets will continue until it doesn't. But I may have to turn to other tools than macroeconomic models if I want to avoid losing money when the market turns. Tools to help me moderate my losses in that situation are not as useful as tools that help me to avoid the losses in the first place, particularly if the tools to moderate my losses are at the expense of those who were more prudent than me.
The most pathetic and disingenuous of his arguments is that, not only were their models incapable of predicting the sharp reversal of the Credit Crunch, but that no one could, and that the sensible policy was therefore to carry on regardless, and deal with the mess if and when it arrived. It takes mathematical genius to be so disconnected from reality. It was perfectly possible to see the mess we were getting ourselves into, and to say what we ought to do to stop it from getting worse. Followers of the Austrian school called it, as usual. But they were laughed out of court before the crisis by people who had swallowed the neo-classical macroeconomic swamp juice. Instead of apologizing and admitting that their paradigm is wrong, Lucas tries to associate everyone with his failures, and claims credit for suggesting the tools that have launched us on the next stage of irrational and distorted economic development.
How does someone like Lucas get the reputation he has in the economics community? Doesn't that tell us something about the wider irrationality of the mainstream economics establishment? Why are the mainstream economics schools not admitting that the Austrians got it more right than they did, and that that tells us something about the validity of the different paradigms? Is it because of their public-choice incentives? Few governments and corporations are going to pay good money for the anti-interventionist, sound-money insights of the Austrian school.