DeLong Smackdown Watch: What Does Robert Lucas Believe Edition?
I had written that Robert Lucas's expressed views are:
consistent with (a) Ricardian equivalence, plus (b) either that (i) all government spending is transfers, or that (ii) the government purchases exactly the same things the private sector had purchased, or that (iii) the economy is (α) a rigid cash-in-advance economy with interest-inelastic money demand, plus (β) the government needs to maintain the same ratio of money balances to spending as the average economic agent.
Robert Waldmann points out that the (iii) part of this is simply wrong. Lucas's statements are not consistent with (a) plus (b)(iii).
Hoisted from comments: Robert Waldmann:
Brad DeLong: What Does It Mean to Say That an Economist "Believes" in a Model?: I think the key passage is "the same multiplier with a minus sign." This is not a reference to Say's law or an assumption that the velocity of money is constant. It is clearly an attempt to appeal to the IS-LM model and argue that Hicks would agree that fiscal policy would not work if there were Ricardian equivalence. It is a statement bout multipliers which makes no sense in a rigid cash in advance economy…
