Robert Lucas Jr. Biography

Robert Lucas Jr. is an American economist who received the Nobel Prize for developing the ‘Theory of Rational Expectations’. With this theory he explained how individual people take their own economic decisions based upon their past experiences disregarding the results forecast by national agencies depending on their monetary and fiscal policies. He even questioned the macroeconomic policies of distinguished economists like John Maynard Keynes and the intervention of governments in domestic affairs trying to produce the desired results. According to the ‘Philips curve’ a government could lower unemployment rates by increasing the level of inflation. It caused wages to rise sending out a signal to the unemployed that they would get generous wages if they get employed somehow. This causes the unemployment rate to go down which was challenged by Lucas as self defeating as the unemployed could not be fooled repeatedly. He also declared that inflation would ultimately lead to more and more unemployment leading to rise in the rate of unemployed people in the country. He argued that instead of improving the situation, fiscal policies that try to manipulate the economy by creating false expectations may introduce more problems. He revolutionized the macroeconomic theory with his research work from 1970 to 2000 which helped other economists like Edward Prescott and Finn Kydland to win the Nobel in 2004.