[Note: For various reasons, I will not be holding live Zoom sessions the next few Mondays. I do plan one for Wednesday, May 31. Monday the 21st, I

Expectations of a Macroeconomist - by Arnold Kling

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2023-05-21 21:00:04

[Note: For various reasons, I will not be holding live Zoom sessions the next few Mondays. I do plan one for Wednesday, May 31. Monday the 21st, I will be a discussant at AEI at an event starting at 5:30 PM New York time. The topic is a book on monetary theory and practice, written by Paul Sheard. I do not share the book’s certainty about macroeconomics and money and banking. If you tune it, there is perhaps a 5 percent chance you will see me lose my temper.]

A number of economists have offered their reflections on Robert E. Lucas, Jr., the Nobel Laureate who recently passed away. I can refer you to Tyler Cowen, David Henderson, John Cochrane (and here), Timothy Taylor, Scott Sumner, or Noah Smith. I appreciated the illustration Smith put on his post, which I assume is an allusion to the Lucas “islands model.”

When the worker is surprised by low prices, he sets his wage rate too high. The firm cannot afford that high wage. For a moment, let us think of workers as plural, and some of them are laid off and become unemployed. Conversely, when the worker is surprised by high prices, he keeps his wage rate too low. The firm hires more workers.