Robert Lucas, economist, 1937-2023

Economists “have an image of practicality and worldliness”, the Nobel laureate Robert Lucas told students graduating from the University of Chicago in 1988, “but we are basically storytellers, creators of make-believe economic systems”.

Lucas, who has died aged 85, embodied this description. One of the most influential economists of the last half century, his work had significant real world impact — underpinning a shift away from the expansionary Keynesian policies of the 1960s, towards the conservative view that fiscal or monetary fine-tuning was a futile endeavour.

But Lucas himself was a theoretician, not a political adviser. He developed models that became the standard tools of modern macroeconomics, used by those who shared his views as well as those who opposed them.

“Bob Lucas was really the master of model building,” said Esteban Rossi-Hansberg, a close colleague at the University of Chicago. Olivier Blanchard, the former IMF chief economist, called him “a perfect example of destructive creation,” who “made our intellectual lives more difficult, but much more exciting.”

Born in 1937 in Yakima, Washington, Lucas grew up in Seattle, where his mother worked as a fashion artist and his father as a welder in a commercial refrigeration company. His parents were New Deal supporters in a Republican neighbourhood keen to instil the idea — as he later wrote — “that one could decide for oneself what kind of person to be”.

Lucas held on to these New Deal politics initially, when a scholarship offer took him to the University of Chicago — where he was to spend most of his career. He majored in history and, after an interlude at Berkeley, California, began studying economics in a department where he, and many others who were to build international reputations, were drawn to the free market advocate Milton Friedman. His first faculty position was at the Carnegie School of Technology but he returned to Chicago in 1974.

By then, Lucas had already published one of the papers for which he is best known — applying the hypothesis of “rational expectations” — in which he took on the prevailing view that governments could cut unemployment by pursuing expansionary policies that would also lead to higher inflation.

Lucas formulated a model showing that such attempts would fail because people adjust their behaviour once they have learned to expect higher inflation. The idea, as his former colleague John Cochrane puts it, was that “you can [only] fool people once or twice”.

A later paper, in 1976, introduced what is now known as the “Lucas critique”, arguing that macroeconomic models would fail if they relied on past behaviour. Economists would not be able to predict the results of changes to exchange rate, monetary or tax policies unless they took account of how behaviour might change as a result.

By 1995, in the words of the committee who awarded Lucas the Nobel Prize in economics for that year, these ideas had been “completely incorporated into current thought”.

Not all of his contributions stood the test of time as well. In 2003, he argued that “the central problem of [economic] depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”

But Lucas brought his modelling toolkit to many other areas — fiscal policy, urban economics and international trade among them. Much of his later work focused on how to raise the growth rate of poorer countries, where he described the consequences for human welfare as “simply staggering”. 

Rossi-Hansberg says that the strength of Lucas’s models lay in his ability to make the right abstractions, and in the clarity of his mathematical language. But he also wrote with surgical precision — and sought to persuade his students to do the same, scrawling detailed drafting comments on their papers in red ink.

Generous to colleagues, he continued mentoring students long after retiring from teaching in 2015. But Lucas could also be intolerant of anything he saw as sloppy or intellectually dishonest, Cochrane said, describing him as “an absolute straight arrow”.

When the economist won the Nobel Prize in economics, he had to share the financial reward with his then ex-wife, Rita Cohen Lucas, who had secured a clause in their divorce settlement six years earlier, entitling her to “50 per cent of any Nobel Prize”. But he said cheerfully at the time: “A deal is a deal.”

He is survived by his partner Nancy Stokey, a fellow economics professor at Chicago and a frequent co-author; by his two sons with his first wife, and by five grandchildren.