The Washington PostDemocracy Dies in Darkness

Robert E. Lucas Jr., Nobel Prize-winning economist, dies at 85

His theories challenged long-standing assumptions about the power of government intervention to influence the economy

Robert E. Lucas Jr. receives the Nobel Prize in economic sciences in Stockholm in 1995. (Jack Mikrut/Scanpix Sweden/AFP/Getty Images)
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Robert E. Lucas Jr., a Nobel laureate who helped set in motion a seismic shift in economic thought by challenging assumptions about the power of government intervention to change the course of the economy, died May 15 at a hospital in Chicago. He was 85.

The University of Chicago, where he served on the faculty for four decades, announced his death but did not cite a cause.

Dr. Lucas, the recipient of the 1995 Nobel Prize in economic sciences, was best known for his role in developing a concept called the theory of rational expectations.

Dr. Lucas did not coin the term “rational expectations”; that distinction, he was quick to say, belonged to John Muth, an economist at Indiana University who first proposed the idea in the early 1960s.

But through his work in the following decade and beyond, Dr. Lucas advanced the idea until it had eroded, at least according to its adherents, the very foundation of the monument that was Keynesian economics.

The Keynesian economic model, named for the British economist John Maynard Keynes, holds that the government can and should adjust its expenditures and tax rates to boost employment, reduce inflation or otherwise influence the economy.

For much of the mid-20th century, Keynesian theory was a dominant school of economic thought. Dr. Lucas helped interrupt that dominance by exposing what he regarded as the central flaw of Keynesian ideas.

“Those models presumed a lot of stupidity on the part of the ordinary citizen,” Dr. Lucas said.

“Models that we thought were guiding the fine-tuning of the economy through monetary and fiscal policy are more or less useless,” he declared.

They were useless, he argued, because they failed to take into account the actions of consumers, business owners and investors who observe a government intervention — a change in the interest rate, for example — and alter their decision-making according to their “rational expectations” of the policy’s results.

“When the Federal Reserve tries to stimulate economic growth by lowering interest rates and increasing the money supply, for example, workers who have seen the process before would know to increase their wage demands, while businesses would move to protect themselves against the effect of rising costs,” Steven Pearlstein, a business and economics columnist for The Washington Post, once wrote in an explanation of Dr. Lucas’s theory. “The result is lots of price inflation, but no real growth.”

Dr. Lucas’s ideas, if taken to their conclusion, support a conservative view of economic policy, one that opposes government intervention in the market. He wrote that “at research seminars, people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another.”

But his ideas were hotly contested by economists who saw free-market, laissez-faire policy as dangerous to the economy.

“You all know the old story about the professor who gives the same final exam every year, he just changes the answers,” the New York Times quoted economist Alan Blinder as saying at a 1987 convention of the American Economic Association. “Well, when Lucas changed Keynes’s answers, he made them worse.”

Whatever controversy they generated, Dr. Lucas’s models became “part of the standard toolbox” of economists, as the Royal Swedish Academy of Sciences put it in awarding him the Nobel.

By developing the theory of rational expectations, he “transformed macroeconomic analysis and deepened our understanding of economic policy,” the academy said, declaring him “the economist who has had the greatest influence on macroeconomic research since 1970.”

Robert Emerson Lucas Jr. was born on Sept. 15, 1937, in Yakima, Wash., where his parents ran an ice creamery.

After the business failed during the Depression, the family moved to Seattle. His mother was a fashion artist, and his father found work as a shipyard steamfitter during World War II, later becoming a welder at a commercial refrigeration company.

From his mother and father, Dr. Lucas reflected in his Nobel biography, he learned to be an independent thinker. In a family and social circle of Republicans, they were the few Democrats, having come to admire President Franklin D. Roosevelt during the New Deal.

Dr. Lucas’s father, who had no college degree, taught himself engineering during his years at the refrigeration company, where he eventually became president. When Dr. Lucas studied calculus in high school, his father requested his assistance on a design problem. He “actually used my calculations!” Dr. Lucas wrote in the Nobel sketch. “It was my first taste of real applied mathematics, and an exciting one.”

Dr. Lucas received a scholarship to attend the University of Chicago, traveling 44 hours by train to report for his first semester. He became a history major and was fascinated by his readings about the economy in the waning days of the Roman empire.

After receiving a bachelor’s degree in 1959, Dr. Lucas studied economic history and theory at the University of California at Berkeley, then returned to the University of Chicago, where he received a doctorate in economics in 1964.

His professors included Milton Friedman, the free-market theorist who received the Nobel Prize in economics in 1976 and helped establish the University of Chicago as a locus of conservative economic thought. For Dr. Lucas and his fellow students, Dr. Lucas wrote, Friedman’s “libertarian-conservative ideas forced a rethinking of our whole social philosophy.”

Dr. Lucas taught at what is now Carnegie Mellon University in Pittsburgh before returning to the University of Chicago in 1974. When he received the Nobel Prize in economics, he was the fifth professor at the university in six years to receive the award.

Dr. Lucas was married to Rita Cohen, an undergraduate classmate at the University of Chicago. When they divorced, she had what might be called rational expectations of his future success.

According to the New York Times, she asked her lawyer to structure the divorce agreement so that if Dr. Lucas won the Nobel Prize before Oct. 31, 1995, she would be entitled to half the winnings. The announcement of Dr. Lucas’s award, worth roughly $600,000 after taxes, came weeks before the stipulation expired.

Dr. Lucas was sanguine about the matter. “A deal is a deal,” he said.

Survivors include Nancy Stokey of Chicago, his partner of decades and a professor at the University of Chicago with whom he collaborated on research; two sons from his marriage, Stephen Lucas of Montclair, N.J., and Joseph Lucas of Sturbridge, Mass.; a sister; a brother; and five grandchildren.

Dr. Lucas retired from teaching in 2015 but continued his research and remained an active participant in economic policy debates. For all his influence, he resisted a description frequently applied to him.

“For myself, I do not have any romantic associations with the term ‘revolution,’” the publication National Review quoted him as saying. “To me, it connotes lying, theft and murder, so I would prefer not to be known as a revolutionary.”