Another Laureate for Chicago

Robert E. Lucas Jr. joins a long line of University of Chicago economics professors to win the Nobel Memorial Prize. Lucas won for his theory on how ordinary people’s expectations can influence economic policies.

Lucas’ Insights

* Rational expectations: Consumers and businesses rely on experience and information about the future to make their own economic decisions.

* “Lucas critique”: Shifts in economic policy, affecting taxes, currency and other areas, often produce an unintended outcome because the public adapts its expectations to the policy shifts. Successful policies must take anticipated changes into account. * Inflation and unemployment: Higher inflation does not appear to bring about a permanent increase in employment, a Lucas teaching that has become accepted doctrine in many countries.

* The inadequacy of computer models: Lucas showed how such models, relied upon by business and government, failed to incorporate public shifts in behavior in response to new policies.

The Chicago Connection

Economists who won the Alfred Nobel Memorial Prize in Economic Science while professors at the University of Chicago and what the Swedish Academy said about them:

* 1976: Milton Friedman, for “achievements in the fields of consumption, analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy.”

* 1979: Theodore W. Schultz (one of two winners), for “pioneering research into economic development research, with particular consideration of the problems of developing countries.”

* 1982: George J. Stigler, for “seminal studies of industrial structures, functioning of markets and causes and effects of public regulation.”

* 1990: Merton M. Miller (one of three winners), for “pioneering work in the theory of financial economics.”

* 1991: Ronald H. Coase, for “discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy.”

* 1992: Gary S. Becker, for “having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including non-market behavior.”

* 1993: Robert W. Fogel (one of two winners), for “having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.”

* 1995: Robert E. Lucas Jr., for “having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy.”