Regulatory capture and AI

Last week, my brother-in-law Dr. Ragavendra Baliga, professor of cardiology at Ohio State University College of Medicine, sent me a clipping of an obituary for Robert E Lucas Jr, who passed away about a week ago. Lucas shifted prevailing thinking about macroeconomics by introducing a quirky proof that came to be known as the “Lucas critique”. He ended up being considered a key founder of modern macroeconomics as well as winning the Nobel Prize in economics for his efforts.

Along with the critique, his key contribution was a dynamic model that he introduced that showed that inflation had no effect on the long-run average unemployment rate.

He introduced this in the 1970s, at a time when most macroeconomists thought increased inflation could lower unemployment rates by nudging more people into the workforce. While counterintuitive at the time, the Lucas critique has influenced economic thinking since.