Lucas begins by discussing the enormous amount of change that has taken place in macroeconomics over the past fifteen years. He talks about the contesting schools of thought that seem to be a reaction to one another that then build upon the results and improvements. He goes on to say that these main ideas are not nearly as interesting as the most recent developments in theory. He moves on to talk about dynamic economic theory and how modern days economists are able to isolate a particular problem and study it much more specificly and intensely than in previous times. By being able to incorporate probabiliy and dynamic elements into theory, economists can study problems with the same rigor that they would a single decision-maker making a one-time choice at given prices. He does say that this process of dynamicization is far from completed and it still has not given a satisfactory theoretical account of the events known as the “business cycle.” He lays out his plan for the rest of the book which is a collection of lectures that he compiled into 7 sections.
He makes a point that if discussions of economics are to yield anything worthwhile, there must be some sort of quantitative assessment of policy impacts and how they affect individual welfare and resource allocation. This means that these discussions must be based upon models. He clarifies that models do not automate the policy and decision-making process, but they give everyone a uniform way of looking at things and understanding how to get from one point to another. Models illustrate how certain policies will impact individuals and the consequences that they will have. He says that the goal ist o make a model that fits historical data and that can be simulated to give reliable estimates of the effects of various policies on future behavior. He then shows that this data set, the fit, and the reliability are all very relative terms.
To be continued……