In an agenda with conservative implications for economic policy, Professor Lucas maintained that government spending that supplants private investment is counterproductive; that the money supply is what matters most; and that policies to reduce inequality by redistributing income, though “seductive,” are “in my opinion the most poisonous” to sound economics.
He also favored eliminating taxes on capital gains, or on any income derived from capital. And he embraced supply-side economics, which calls for increasing the supply of goods and services while cutting taxes to promote job creation, business expansion and entrepreneurial activity.
“The supply-side economists,” he said in a 1993 interview, “have delivered the largest genuinely free lunch that I have seen in 25 years of this business, and I believe we would be a better society if we followed their advice.”
In 1995, not long after eight years under President Ronald Reagan, a champion of supply-side, and four under another Republican, George H.W. Bush, Professor Lucas concluded that “the U.S. economy is in excellent shape,” in part because “the government is not trying to do things with economic policy that it isn’t capable of doing.”
And, he said, the same principles that encouraged economic growth in rich countries could be applied to economic development in poorer ones.