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2.0 out of 5 stars
A Lucas Critique, January 5, 2008
More than anyone, Robert Lucas has set the agenda in modern Macroeconomics over the past 30 years. As an overwhelming majority of Macroeconomists regard him as both a genius and one of the most influential economists of all time, I was very excited to read his book on growth. While I generally liked this short little book (despite having a few critiques, which I place more emphasis below than I do on the book's positives), the editorial reviews above made me sick to my stomach. The book starts out well enough, making a strong argument that Growth is far and away the most important field within economics, and Lucas makes a strong argument why. (I'm fully on board, as I believe that, compared with Growth, a field like Money is a mere side issue, and only important insofar as it informs the field of Growth.) After that, it proceeds with a decent enough, although not special, overview of a few models.
One small critique: since he cut and paste most of the book from earlier work, many of the citations were extremely dated. Some of his points are backed up with data sets ending in 1985. They very easily could have been extended.
A slightly larger critique: in his 'Making a Miracle' chapter (cut and paste from his Econometrica article), he argues against the theory that human capital production causes economic growth by saying that, in 1960, South Korea and the Philippines were essentially the same, and revealing the literacy rates as evidence. It struck me as a rather strong conclusion to draw from such slender evidence, especially since Korea and the Philippines also had and have many obvious differences. (I.e., Korea was colonized by Japan during which time the Korean language was banned; Korea in 1960 was only a few years removed from war; by the 1970s, Korean students dominated their Philippino counterparts on math exams...) One wonders what on earth the Econometrica editors were thinking: "Well, the logic is faulty, but this is 'brilliant' Robert Lucas, so he must be correct."
That brings us to his chapter on the IR (Industrial Revolution). Suffice to say that Robert Lucas is/was not ever on the frontier of IR research. He baldly states that the IR has made the world better off (demonstrably true), and that it has cut down on extreme poverty (more problematic). To back up this claim, he shows that mean world income has gone up drastically. Unfortunately for Lucas, there is a near consensus that Africa today is actually not only poorer than England in 1800, but more poor than Africa was in 1800. To use mean income to show a reduction in extreme poverty is like saying that I'm a billionaire since the mean wealth of Bill Gates and I is measured in the billions... To smooth this inconvenient truth about Africa over, in his graph of economic growth of the different continents, he lumps impoverished Africa together with fast-growing Asia, so it looks like every continent got richer and extreme poverty is reduced even though this just isn't so. The logic would be laughable if it were not made by a Nobel Prize winner in Economics.
The next problem is that his story of the IR is a bit off. Actually, the demographic revolution and the IR are two separate events. His story is that rising incomes led parents to prefer quality over quantity, and it is thus that we exited the Malthusian era. Others have already knocked this down, even before his book was published. The IR started circa 1760, whereas the fertility decline started around 1890 in the upper classes in Europe & the US, and by about 1905 in the lower classes (and was a cultural phenomenon -- when it started in the lower classes in 1905, they did not have the same income as the upper classes did in 1890). In addition to that, there was an uptick in fertility in Britain around 1750, which goes against his theory that increases in the skill premium led parents to prefer quality of children to quantity. Putting the two events in the same model doesn't really tell us much at all about how we exited the Malthusian era; his story doesn't quite wash. His mistake is that women don't make their fertility decisions based on income alone. Thinking people may find this chapter (40% of the book) off-putting.
My last critique is that, after reading the book, I'm not quite sure what insights about economic growth I've really walked away with. If human capital is important, it's due to learning by doing -- so don't put emphasis on education like the Asian Tigers. The IR was caused by... random shocks. Growth is caused by... random shocks. Thanks, Bob, for the insights, but one wonders if you would not have been better served by spending less time arming yourself with mathematical models and more time arming yourself with the facts. Does the field of Economic Growth really have so little to say? Would it have killed you to put in a brief comment about, say, Jared Diamond's theory (who, I dare say, knows nothing about Hamiltonians) about why Eurasia developed first? Do you have anything to say about all those random shocks? Certainly, given as little as you wrote in this book after half a career doing research in the field, your editors weren't pressuring you to cut more material...
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