This paper is divided into three parts. The first section summarizes Lucas' main work, which is divided into "early stage", "middle stage" and "late stage", because I know from the news that the Nobel Committee rewarded him for "developing and applying the rational expectation hypothesis, changing macroeconomic analysis and deepening our understanding of economic policy". According to my understanding, this is Lucas' "Chinese" work. Also known as the "lucas critique" to Keynesianism, the second section evaluates the position of Lucas and the school of "reasonable expectation" in the whole economics, and the third section discusses the basic problems existing in economics and the future trend of economics in order to solve these problems, which constitutes what I call "critical criticism".
Lucas critique of Keynes's Macroeconomic Analysis
Lucas, 1937 was born in Washington state, USA. 1959 received a bachelor's degree in history from the University of Chicago, and 1964 received a doctorate in economics from the University of Chicago. 1970 was awarded a professorship at Carnegie Mellon University, and 1974 has been teaching at the University of Chicago ever since.
In my opinion, Simon of Carnegie Mellon School, with his unorthodox analytical method, influenced at least two famous economists who worked or studied beside him-Lucas and Williamson Carnegie Mellon. Style is "school of governance", and all theories should conform to the reality of economy, society and human psychology. Therefore, Carnegie Mellon School pays attention to the research of behavior and organization theory. Simon first introduced the hypothesis of "bounded rationality" into economics, and at the same time felt it necessary to deeply study the changes brought by "uncertainty" to economic analysis. Simon's two papers have a great influence on Lucas' early research. One discusses dynamic programming under uncertainty, and the other summarizes decision theory in economics: 74-8 1 page; And "Decision Theory in Economics" American Economic Review 49: 253-283. )
Lucas's early research focused on the optimal investment of a single enterprise and a single industry, which was an important research direction of the Department of Economics and the School of Governance at that time, and was promoted by the work of great economists such as Simon, Arrow, Jockinson, modigliani, Fama and grilli. This field is an active place to apply optimal control theory. I believe that the dynamic programming analysis method used by Lucas at that time has been accompanied by his theoretical expression. Therefore, the "reasonable expectation" school and its "new macroeconomics" must publish a big book devoted to the "recursive method" of dynamic economics at the end of 1980s to eliminate the strangeness of economists who grew up under Samuelson's economic analysis tradition. Personally, I still don't think that's a necessary way to express dynamic economics.
The optimal investment of a single enterprise became the focus of macroeconomic research at that time, because Keynes's macroeconomic theory believed that the economic crisis in the 1930s was caused by the lack of "effective demand", and investment was the most important and active factor in demand. But Keynes did not delve into investors' motives. He intuitively divided the investment motives into two parts. The first is "spontaneous investment". Driven by the "beast impulse" of capital, followed by rational investment decisions made by investors based on the observation of market signals. We might as well call it "rational investment". With the success of post-war Keynesianism, it is a natural choice for post-war economics to conduct in-depth research on investment motives and understand the reasons for sustained economic growth. However, when economists deeply study various factors of investment and growth, there are serious differences in academic traditions between Britain and the United States, which is the so-called "two Cambridge" dispute. The focus of the debate is capital theory, but because of the profundity of capital theory, the debate involves almost all fields of society and economics, which lasted from 1950s to 1960s. Readers can refer to the summary article "On Economic Growth" by Hong and Matthews. The above discussion has created the first big background of Lucas education. The relationship between investment and market signals, especially the so-called "acceleration principle" inherited from classical economics, is traditionally regarded as the main cause of the "overcapacity" economic cycle in pre-war economic research. The reason is simple: when the total income increases, no matter the price signal, marginal profit, interest rate signal, or the funds available for investment after deducting habitual consumption according to the income, all increase accordingly, so investors increase their investment in pursuit of profit. However, according to Keynes's explanation, the increased investment has a "multiplier effect" into the total demand, which further increases the total income. This accelerated sports meeting continued until the whole economic expansion encountered some resource constraints. Once the expansion stops and the profit rate drops, the investment will decrease, forming a reverse acceleration movement until the whole economic downturn is blocked by some kind of "bottom line". Then a new cycle begins. Under the guidance of this traditional concept, investment has become the core issue in the study of economic fluctuations. On the other hand, the fluctuation and the uncertainty of economic signals pose new problems to investment theory. In fact, the research on the acceleration principle invested and popularized by enterprises headed by Eznier had a great influence on Lucas' early research. The time characteristics of investment require the use of a dynamic method, which is far more complicated than alfred marshall's static analysis method. Samuelson perfected this method in the late 1940s. Imagine a simple story: you used the lunch money saved in the first month to buy a bank deposit certificate that will expire next month. Your best decision should be. Compare the following two things. First, you give up some lunch, that is, some "happiness", which is called "price". If you hadn't invested, you could have enjoyed those pleasures. Second, the happy lunch you gave up brought you some interest income in the next month, which is called "income". Your decision is to subtract the cost from the income under a certain investment strategy. Your task is to find the best investment strategy. In static analysis, this optimal strategy is to ensure that the "marginal utility" you get from future interest is equal to the "marginal utility" you take away from the abandoned lunch. In practice, you can first draw a set of "indifference curves" experimentally through your own value judgment, and then ask yourself the happiness you enjoy now and in the future in exchange for the benefits. Overlap this answer with the slope of the indifference curve equal to it, and you will find a static optimal strategy. Now let's change the story a little: suppose you deposit your lunch fee in the bank every day, and calculate it according to compound interest until next month. Now your problem is much more complicated, because the lunch fee deposited in the bank earlier generated more interest, and on the other hand, you gave up enjoying lunch earlier. So for comparison, you should discount the happiness at different times from today to today at a certain discount rate, and then find an investment strategy to maximize the total present value calculated by subtracting the cost. In principle, the static method mentioned above can still be used in this case, but it is very troublesome. So we usually use the dynamic method, which only needs to combine each cost and benefit with a discount value calculation formula. Form the so-called "net cash flow". Investment decision is to maximize the present value of this cash flow. This is a method that Hong Kong people are very familiar with. The time characteristics of this method are the same as the optimal control theory used in capital theory. This is the third background of Lucas' early works.
In order to talk about Lucas and the method of reasonable expectation analysis, we have to explain the basic problems to be solved by optimal control theory. As the above story shows, the so-called decision-making means that at every moment, the decision-maker must take an "action". When time flows from the beginning of the period under consideration to the critical moment, it requires a series of actions by decision makers. We call this series of actions "plan" or "strategy". Decision makers usually have many choices at every moment. Therefore, the choices made from these many moments can be combined into many schemes. Optimal control theory is to study how to find the optimal scheme among so many possible schemes. Readers may disagree: the power of modern computers is enough to calculate the best scheme one by one from any number of schemes. Actually, it is not. In the Eighth Five-Year Plan of China government, there is a key research project led by China Academy of Sciences and Tsinghua University. One of the goals of mathematicians' efforts is to find an optimization algorithm. When the National Family Planning Commission of China tried to calculate the optimal fertility rate in the next 50 years in the 1980s, they found that the most advanced computers were still far from enough to calculate as many possible schemes as the astronomical figures produced by the age distribution population control process with "year" as the time point. This fact is very important. Because one of the reasons why Heyek opposed the planned economy in his early days was the utopianism of this social plan. As we will see in the third section, a difficulty that rationalism always faces is that, as Simon said a long time ago, no one can complete such a complicated rational calculation.
Now we can introduce the famous lucas critique, which is his "mid-term" work. This name comes from Lucas' own article "Econometric Policy Evaluation: A Criticism". In this paper, he criticized the Keynesian macroeconomic policy that tried to adjust the market economy as a machine. From the perspective of modern game theory, Lucas' views and his thoughts in other articles can be explained in two parts. First, any policy is a game between the government and the private sector. Both sides try to guess each other's best strategy. Therefore, if the government controls the private sector as a passive "machine", then the basic assumptions of its policy have been wrong. When the policy-making process is regarded as a game between the government and the private sector, if every strategy of the government is accurately predicted by the private sector, the "monetary effects" of policy will disappear. At most, policies contain substantial changes. In other words, the "material" action will produce the same economic effect as the "material" action of the private sector. Therefore, the government's monetary policy will be "neutral" and will not produce any material force. The government's financial expenditure will compete with the private sector for resources with its material strength, resulting in the so-called "crowding out effect". In other words, every time the government spends 1 dollar, it squeezes out 1 dollar of private expenditure from the market. Therefore, government expenditure is only used for private consumption. Taxpayers all know that it is more economical to let others spend their own money than to spend their own money. Therefore, any government policy, whether monetary policy or material policy, will not have a beneficial impact on society. If this argument is confirmed by empirical data, it will certainly be a major blow to Keynesian economics, so it is called "lucas critique". Secondly, it is called "". If so, how to explain it theoretically? So lucas critique needs to introduce strong "uncertainty" to produce so-called government policies? Quot surprise "effect. I don't need to use any stochastic process analysis. I just need the reader to imagine a story about answering the phone: If you instruct your stockbroker in Hong Kong to buy and sell stocks in English, you know you can't hear clearly on the phone. Suppose you plan to buy and sell two kinds of stocks. Their computer numbers in the stock market are 15 and 50 respectively. At this time, when you hear the broker say that the stock with the code 15 suddenly falls, you will make the following two assumptions. First, what the broker actually said was that the stock with code 50 fell. Second, what he said is that the number 15 has dropped. What you should do is, first of all, estimate how likely you are to make a mistake. Secondly, if there is little possibility of doing something wrong, you should calculate the number of stocks you bought at 15, and try to make the money you may earn more than the money you may lose because of doing something wrong. Finally, if you think that there is a high possibility of a phone error, you can choose "no action". Wait for your agent to call again. After many calls, you can always identify the correct information. Lucas thinks that if Keynesian policies are effective in the short term, it is because there is a lot of "answering the phone" noise in the market, which makes private people unable to hear the signal clearly. When most private people give up action because they can't hear the signal clearly, the government is playing a completely passive machine. Therefore, it is easy to implement "optimal control" to achieve the expected results. However, when people listen to the signal repeatedly and finally understand the government's intention, the game will return to the game between positive and rational people, which is the situation explained in the first part above. The price of post-war prosperity is that the government must constantly upgrade its policies in order to continuously create a "surprise" effect. Therefore, we have observed that the fiscal deficits of all countries are accelerating and ultimately unsustainable. This is a Keynesian economy.
Lucas' work made him the main figure of rational expectation school, but it was Friedman, the master of economics, who integrated the work of this school into mainstream economics. Although scholars of rational expectation school have always claimed that the econometrician Mousse (196 1) is their pioneer. Friedman's article The Role of Monetary Policy 1968, 1968 has explained why Keynesian monetary policy can only produce "surprise" effect. "Rational expectation" is called Fisher effect in Friedman's article. Fisher is the founder of American investment theory, and his expectation theory inherits the interest theory of Nordic school at the beginning of this century. The so-called "real interest rate" proposed by the latter is the nominal interest rate MINUS the expected inflation rate.
When Lucas published the article Rational Expectation, he started his "later" work almost immediately. This is because the theory is closely linked. As mentioned above, the investment problem has directly become the main topic in the research field of economic growth and fluctuation. Therefore, Lucas put forward his idea of "rational expectation" in "Theory of Economic Growth and Fluctuation" to counter Keynesian monetary policy. Subsequently, Becker's thought about the important role of human capital in economic growth was integrated into his dynamic theory. This is his famous article "The Mechanism of Economic Development". These works make Lucas an important figure in the theory of new economic development. I personally think that his later works are the best. I have relayed these works in the serial articles of 1995 1, February, March and April.
Second, the "rationalism" movement in economics
With the development of Lucas' work, in the last section, we see that what I call "rationalism" has always existed in economics. I think Lucas' contribution can only be seen more deeply and clearly from this perspective, and it can also bring some foresight to our future development. This section will proceed along this line of thought.
When alfred marshall laid the foundation for modern economic analysis, he thought there were two basic ideas to explain the real world. One is evolutionary, relying on the law of "natural selection, survival of the fittest", and can explain the existing social phenomena without assuming "rational people". The other is instrumental rationality, relying on the hypothesis of "rational man", we can logically explain the causes of existing social phenomena. Marshall's economic analysis began its rationalism movement. This movement can be roughly divided into three stages in economics. The first stage is from Marshall's economic principles to the 1950s of this century. The second stage lasted more than 30 years from the early 1960s to the late 1980s. The fourth stage began in the 1990s and is still in the ascendant.
Marshall's method is the so-called partial equilibrium analysis, which is our common supply and demand analysis. His theory focuses on the equilibrium of the market and various factors affecting the equilibrium. Why does Marshall have to deduce the framework of equilibrium analysis from the hypothesis of rational man? This is because "rationality" must be rationality under choice. How can you show your rationality when you have no choice? When you have no choice, you are a thing, not a person. I agree with the rational hypothesis, because its premise is human freedom and freedom of choice.
When a rational person shows his rationality in his choice, any empirical science requires him to observe this rational behavior. So you might as well ask yourself the second question. If a person's behavior is always chaotic, inconsistent or completely random, how do you observe his "rational choice"? From an empirical point of view, something that can never be observed cannot be said to exist. However, when a person's behavior begins to be consistent, orderly and purposeful, he begins to show "rationality" in the philosophical sense. Remember, Keynes's excellent biography of alfred marshall tells us that Marshall is not only gifted in mathematics, but also keen on "advanced philosophy".
Observability, or positivism, requires that economics must and can only study "equilibrium". Only when people are in equilibrium can they show "rationality". Don't forget, when Klein was worried about how to estimate the post-war demand curve, the problem he encountered was caused by the movement of the supply curve over time. "Stability" is the minimum requirement for us to know the world, and our minds are really dull.
However, the equilibrium analysis method established by Marshall has been challenged by the theory of evolution. For those who directly observe the real economy, change is the most striking feature of things. Income growth, product diversification, social welfare improvement, population reproduction, market expansion, and reverse changes brought about by war. For example, from Schumpeter, Heyek, Knight, Simon, Chandler and Caldo. Marshall's theory was not comprehensively sorted out by Samuelson until the end of 1940s and systematically transformed into a convenient mathematical method. "Easy to use" is very important here, and the analysis method is equivalent to "tool". A convenient tool is easier to become the main tool than other tools. In today's textbooks, Samuelson's method has been written as a "menu" or computer program. People can get all the analysis results without thinking. The main points of this method are as follows: firstly, the selectable things of a person who is making rational choices are called "variables", and the things he faces that cannot be selected or changed at the moment are called "parameters". Then, using the method mentioned above, we can find his utility function or other objective functions through experiments. Under the given parameters, find the optimal value of the variable. These optimal values are called solutions. The next step is to verify whether these solutions really maximize the objective function, and those test conditions are called "second-order conditions". The last step is called "comparative static analysis", which is to change the values of parameters slightly and see how the solution changes. This is also the most important step. Only in this result can we get a proposition that can be verified by empirical observation. So, Samuelson,
In the second stage of rationalism, Jian Luo established the theory of "general equilibrium" and made it a recognized economic analysis context. For example, when we talk about "efficiency", "Pareto optimality" or "gross national product", we often assume the concept of general equilibrium. "Rational hypothesis" has been linked with game theory at this stage. De Bois confirmed the existence of general equilibrium. Kakutani's fixed point theorem is used, and so is the existence of Nash equilibrium in game theory. The core problem of the two is the same: if the conditions for the supply and demand of each market to reach equilibrium depend on the state when the supply and demand of other markets reach equilibrium, how to ensure that all markets reach their respective equilibrium at the same time? In game theory, the question becomes: If everyone's optimal decision depends on his guess of other people's behavior, how can everyone's guess reach a certain "collective" equilibrium at the same time? This kind of problem is solved by the fixed point theorem of topology. The general equilibrium theory is the mainstream of rationalism movement at this stage, although we know that it is also promoted by the school of "rational expectation".
At the same time, the rationalism movement has also risen in the following fields: dynamic economics, as mentioned above, is mainly promoted by capital theory, studying the optimal savings theory and Hou Tailing's optimal consumption theory of resources; Family economics, time allocation and the choice theory of fertility decline, in this regard, Becker's research has been well known; Labor economics, the optimal search theory expressed by information search model headed by stigler; The theory of public choice combines Wicksell's theory of "unanimous adoption" and the thought of "ballot market", with Buchanan as the leader; The theory of public finance, firstly Tybalt theorem, establishes the general equilibrium theory of domestic free immigrants, and then discusses Ricardo's equivalence theorem, which is related to Lucas' work mentioned above. He believes that government taxes reduce private expenditure equivalently, and Barrow is an important figure; School of New Economic History, re-familiar with the rationality of "slavery", headed by vogel and Basel; For example, the theory of technological progress put forward by Hayami and Rodin holds that the scarcity of factors in the market and the market price can induce technological and institutional progress.
In the meantime, rationalism still has to struggle with the views from evolution. For example, Becker wrote Irrational Behavior and Economic Theory. Many people's criticism of the "rational hypothesis" of mainstream economics focuses on the two main objects of micro-analysis-family and enterprise. They and Venter think that enterprise decision-making is actually not so rational. Due to the limitation of judgment ability and information collection ability, decision-making rules are often simple rules based on habits or long-term effectiveness. Becker's counterattack is that the hypothesis of economic rationality is only instrumental. It only assumes that "if a group of equilibrium behaviors have been observed, then these observed behaviors must be seemingly rational compared with those that cannot be observed halfway for various reasons." Take family choice as an example, if there are two types of families at first, one is to spend money at will and consume at will; The other follows microeconomic analysis and carefully calculates the maximum utility of every penny. So when we look at this society thousands of years later, can we still see those families who spend at will? There is no doubt that they have disappeared from the earth. They disappear because they can't adapt to the living environment, and the power of evolution really works here. But for the convenience of analysis, we assume that they have disappeared because they are irrational. This understanding of "rationality" was established from the works of Hume, an empirical philosopher of the Scottish Enlightenment. Readers can find from Hume's works that he has gone further. Accordingly, animals, like dogs, are rational. Almost at the same time as Becker, Ai Zhiren also published his famous article Uncertainty, Evolution and Economics. Taking a group of cars from Los Angeles to Chicago as an example, he demonstrated the same truth as Becker-the behavior of survival must look rational.
What I call "authentic economic tradition" refers to the economic tradition based on empirical philosophy that originated from Hume and Adam Smith. This tradition, because of its inherent familiarity, must be a friend of classical liberalism. Therefore, it developed through the Austrian School and the Chicago School and became today's liberal economics.
The third stage began with the rewriting of economics by game theory in the late 1980s. I remember Heyek wrote in his last book before his death that he had certain expectations for the research methods of game theory. As for the game theory, Hong Kong readers will not feel strange, because since the game theorist 1994 won the Nobel Prize, local news chapters have been publicized for about half a year, right? Hong Kong is a big market centered on short-term speculation, where the consciousness of "famous brand" always dominates our pursuit. In any case, game theory is the best tool for social science research at present.
When the rationalism movement brought economists into the 1990s of the information society, they found that almost all the economic problems they dealt with should be understood as the interaction between rational people in making decisions. As early as 1978, daniel bell, a famous thought leader of Harvard University, wrote an article on the cultural contradiction of capitalism. He told us that in the post-industrial society, we played a "game between people". Economists have
Clapper, the young leader of the Gang of Four, should be the first scholar familiar with the basic problems of game theory, alongside Binmer. There are too many works and articles, so I won't list them here. Readers can refer to their recent works: Clapper, Game Theory and Economic Modeling, Binmer, Game Theory and Social Contract. In the study of game theory, the Nobel Committee did ignore too many outstanding contributors. In fact, only Nash's pioneering work as a real genius made him a pioneer in this field. But I want to emphasize that Xia's concern for politics and moral philosophy makes him a pioneer in applying game theory to the study of basic social problems.
We can see that the Nobel Committee awarded Lucas the prize of 1995 for his "mid-term" work. In the broad sense of the rationalist movement, this is just the echo of 1994' s game theory winning the Nobel Prize.
Three. Re-criticism of Criticism —— The Limit of Reason
As the end of this rather long comment, I want to make a brief comment on the movement of economic rationalism. As mentioned above, mainstream authentic economists continue the tradition of empiricism initiated by Hume and push the "rationality" hypothesis as a convenient "tool" to the extreme. Take Becker's later new economic growth model as an example. In Becker's model, the first generation of parents used the so-called "dynasty utility function" in their decision-making. We can understand that Becker's refutation of evolution is based on the same reason cited above-those families or "dynasties" that can survive and be observed by us must be those families that look rational and have maximized the utility function of dynasties from generation to generation. But when we try to accept Becker's view in game theory, we will run into trouble.
Clapper and Binmer discussed the significance of Nash equilibrium in detail, and their conclusion is the same as Oman's: the so-called "equilibrium" is just a game that everyone thinks is obvious. So what makes everyone feel that this same gameplay is "obvious"? Clapper listed five explanations on page 4 10-4 17 of Microeconomics Course. In a word, these explanations ultimately depend on the characteristics of people's knowledge tradition. This is called "knowledge structure" in my own research.