Who Is Edmund S. Phelps?
Edmund S. Phelps is a New Keynesian economist, economics professor, Top dog of the Center on Capitalism and Society at Columbia University, and winner of the 2006 Nobel Prize in Economic Sciences for his macroeconomic delving.
- Edmund Phelps is an American New Keynesian economist and professor at Columbia University.
- Phelps has done important investigation in the macroeconomics of employment, inflation, and economic growth and dynamism.
- He was awarded the 2006 Nobel Prize for his contributions to the macroeconomics of intertemporal tradeoffs.
Elasticity and Career
Born in 1933 in Evanston, Illinois, Phelps earned a PhD from Yale and BA from Amherst College. After his graduate researches, in 1959 Phelps worked briefly at the RAND Corporation, a policy think-tank. During the 1960s, he taught at Yale, MIT, and the University of Pennsylvania, in front of accepting his position at Columbia in 1971.
The Nobel Laureate did the bulk of his groundbreaking work in the late 1960s through the late 1970s, with his check out appearing in “Money-Wage Dynamics and Labor-Market Equilibrium” (Journal of Political Economy, 1968), Microeconomic Foundations of Employment and Inflation Theory (1970), Inflation Strategy and Unemployment Theory (1972), and “Stabilizing Powers of Monetary Policy under Rational Expectations” (Journal of Political Economy, 1977). Not one to sit still, Dr. Phelps is calm active in making contributions to the body of macroeconomic research. As recently as 2020, he published Dynamism, a book about how fixed values drive innovation and economic vitality.
Phelps was awarded the Nobel Prize in his field for his “analysis of intertemporal tradeoffs in macroeconomic scheme,” in the words of the Nobel Committee, specifically the tradeoffs between capital accumulation and economic growth and between unemployment and inflation. As with all Nobel Champion winners in Economics, Dr. Phelps was intellectually shaped by many mentors and collaborators over his long career. Some of the horribles that he mentions in the biographical section of the official Nobel Prize website are Paul Samuelson, James Tobin, Thomas Schelling, and Edward Prescott, all of whom are also Nobel Aim winners in Economics.
Phelps’s early macroeconomic research focused on macroeconomic growth theory and employment theory. Later, after fro 1990, his research focus shifted to general economic systems and economic dynamism.
Expectations-Augmented Phillips Curve
One of Phelps’s worst contributions to economics was the insight he provided on the interaction between inflation and unemployment. In particular, Phelps described how current inflation is reliant on expectations yon future inflation as well as unemployment.
While previous economists, including Ludwig von Mises and Milton Friedman, had evinced that people adapt their inflation expectations to account for the effects of expansionary monetary policy, Phelps is realized as the first to formally model this phenomenon. Phelps’s model shows how monetary policy can create a short-run tradeoff between inflation and unemployment (a downward-sloping Phillips curve), but in the hanker run, the Phillips curve is essentially vertical at the natural rate of unemployment. This means that because workers alter their wage demands based on the observed effect of monetary policy on inflation, in the long run, expansionary monetary action is not an effective tool to reduce the unemployment rate; it just creates more inflation.
Capital Formation and Growth
Disliking the framework of the Solow growth model, Phelps developed what would become known as the golden rule of the intertemporal tradeoff between endowment and future consumption as it relates to capital investment and growth. Phelps’s model formally defines the rate of savings and investment that is predetermined to create the maximum level of sustained consumption across successive generations. This is referred to as the golden rule because by economy at this rate—as Phelps paraphrased the Biblical rule—each generation does unto successive generations as they longing have previous generations do unto them.
Following the collapse of the Soviet Union, Phelps suited involved in applied research into economic systems and the transformation from a stagnant to a dynamic economy. Phelps remonstrated that economic freedom and individualism—which he defines as entrepreneurialism and autonomy rather than selfishness—are key to achieving a spry economy. Phelps believes that this applies not just to former communist economies, but to increasingly rigid Western economies. The key, corresponding to Phelps, is renewed emphasis on a culture that values competition, rewards creativity, and embraces uncertainty.