Celebrating Roger Farmer

• DOI: http://doi.org/10.1111/ijet.12202
• Author: Costas Azariadis
• Published date: 01 March 2019
• Date: 01 March 2019

Celebrating Roger Farmer

Costas Azariadis

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1 A Vision for Macroeconomics

Roger has just completed a long editorial involvement with this journal at about the same time he

moved from UCLA to Warwick, and his son Leland joined the profession as an assistant professor in

economics at the University of Virginia. The time seems ripe for a look back at Roger’s unique

contributions to economics his ideas, his career and his intellectual legacy.

If we lived in an ideal world where research tasks were assigned to us by a central planner in

charge of economic research, the most imaginative thinkers would be put to work on the hardest

problems, where success would be a rare event with a high payoff. Some of those assignments would

fail, and the time spent on them would be wasted, but those that succeeded would rapidly grow the

stock of common knowledge.

From the beginning of his career in the early 1980s, Roger has hewn close to this pattern of ideal

behavior, looking at some of the deepest and most fundamental issues in macroeconomics: Where

do business cycles come from? How do they start, spread, and peter out? What, if anything, should

we do about them? Underlying this quest is Roger’s vision of modern capitalism, partly inherited

from Keynes (1936), elaborated by newer ideas about coordination failures from Cooper and John

(1988) and others, shared by many but still Roger’s own.

His viewpoint regards modern economies as volatile systems capable of producing multiple

equilibria, that is, a variety of outcomes in many sets of circumstances. Some of these outcomes, like

solvent financial institutions, are desirable; others, like bank panics, are poor. Good outcomes

require watchful economic policies to bolster the invisible hand and coordinate economic activity.

Successful policy in this context is meant to guide the expectations of forward-looking households

and firms away from bad equilibria. In technical language, this vision often amounts to rejecting the

first fundamental theorem of welfare economics, endorsing the second one, and articulating policies

that help markets deliver the goods.

The following quote from Farmer and Guo (1994) neatly captures the view of economic policy as

a visible maiden to the invisible hand, a device that may rule out bad outcomes when good ones are

available: ‘‘if economic activity can fluctuate from day to day in a way that is independent of

economic fundamentals, then there may be an important role for the economic policy maker in

designing regimes that can reduce fluctuations and increase economic welfare.’’

Sensible as it this quote may appear to the person in the street or to a game theorist, most

economists in the 1990s had serious reservations about the concept of multiple equilibrium in

competitive settings, despite the impact of Diamond and Dybvig’s (1983) work on bank panics. The

prevailing view in the field was, and to a good extent still is, that general economic equilibrium

should be locally unique, as it is in the Arrow–Debreu model, even in macroeconomic settings with

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WashingtonUniversityin St. Louis,and Federal ReserveBank of St. Louis,St. Louis, Missouri,USA. Email:azariadi@wustl.edu

doi: 10.1111/ijet.12202

International Journal of Economic Theory 15 (2019) 9–12 ©IAET 9

International Journal of Economic Theory