Edmund Phelps | |
|---|---|
 Phelps in 2017 | |
| Born | (1933-07-26)July 26, 1933 (age 91) Evanston, Illinois, U.S. |
| Nationality | American |
| Education | Amherst College (BA) Yale University (PhD) |
| Academic career | |
| Field | Macroeconomics |
| Institution | RAND Corporation Cowles Foundation University of Pennsylvania Columbia University |
| Doctoral advisor | James Tobin Arthur Okun |
| Doctoral students | Gylfi Zoega Hian Teck Hoon |
| Influences | Paul Samuelson William Fellner Thomas Schelling John Rawls |
| Contributions | Microfoundations of macroeconomics Expectations in wage and price-setting Natural rate of unemployment Statistical discrimination Structural slumps Imagination ininnovating Golden Rule rate of saving |
| Awards | Nobel Memorial Prize in Economic Sciences, 2006 Chevalier de la Legion d'Honneur, 2008 Pico Mirandola Prize, 2008 Global Economy Prize, 2008 ChinaFriendship Award, 2014 |
| Academic background | |
| Thesis | A test for the presence of cost inflation in the united states economy, 1955-1957 (1959) |
Edmund Strother Phelps (born July 26, 1933) is an Americaneconomist and the recipient of the 2006Nobel Memorial Prize in Economic Sciences.
Early in his career, he became known for his research atYale's Cowles Foundation in the first half of the 1960s on the sources of economic growth. His demonstration of thegolden rule savings rate, a concept related to work byJohn von Neumann, started a wave of research on how much a nation should spend on present consumption rather than save and invest forfuture generations.
Phelps was at theUniversity of Pennsylvania from 1966 to 1971 and moved toColumbia University in 1971. His most seminal work inserted amicrofoundation, one featuring imperfect information, incomplete knowledge and expectations about wages and prices, to support a macroeconomic theory of employment determination and price-wage dynamics. That led to his development of thenatural rate of unemployment: its existence and the mechanism governing its size. In the early 2000s, he turned to the study of business innovation.
He is the founding director, since 2001, of Columbia'sCenter on Capitalism and Society. He was McVickar Professor of Political Economy at Columbia from 1982 to 2021. On January 1, 2022, his title changed to McVickar Professor Emeritus of Political Economy.
Phelps was born on July 26, 1933, inEvanston, Illinois, and he moved with his family toHastings-on-Hudson, New York when he was six, where he spent his school years.[1] In 1951, he went toAmherst College for his undergraduate education. At his father's advice, Phelps enrolled in his firsteconomics course in his second year at Amherst. Economist James Nelson gave the course, which was based on the famous textbookEconomics byPaul Samuelson. Phelps was strongly impressed with the possibility of applying formal analysis to business.[citation needed] He quickly became aware of an important unsolved problem with the existing economic theory and the existing gap between microeconomics and macroeconomics.
After receiving hisB.A. at Amherst in 1955, Phelps went toYale University for graduate studies. At Yale, he studied under future Nobel laureatesJames Tobin andThomas Schelling, among others. Phelps was also strongly influenced byWilliam Fellner whose course emphasized the expectations of agents. Phelps received hisPh.D. in Economics from Yale in 1959.
After receiving his Ph.D., Phelps went to work as an economist for theRAND Corporation. However, feeling he could not pursuemacroeconomics at RAND (which focused on defense work), Phelps decided to return to the academic world. In 1960, he took a research position at theCowles Foundation while he was also teaching at Yale. At the Cowles Foundation, his research focused mainly onneoclassical growth theory, following the seminal work ofRobert Solow.[citation needed] As part of his research, in 1961 Phelps published a famous paper[2][3] on theGolden Rule savings rate, one of his major contributions to economic science. He also wrote papers dealing with other areas of economic theory, such asmonetary economics orRicardian equivalence and its relation to optimal growth.
His position at Cowles gave Phelps the chance to interact withArthur Okun and other notables in the field. He was able to collaborate with other top economists working on growth theory, includingDavid Cass and fellow NobelistTjalling Koopmans. During the 1962–63 academic year, Phelps visitedMIT, where he was in contact with future Nobel Prize winnersPaul Samuelson,Robert Solow andFranco Modigliani.[1]
In 1966, Phelps left Yale and moved to theUniversity of Pennsylvaniato take up a tenured position as a professor of economics. At Penn, Phelps's research focused mainly on the link betweenemployment,wage setting andinflation, leading to his influential 1968 paper "Money-Wage Dynamics and Labor Market Equilibrium"[4] and others.[5] The research contributed important insights in the microeconomics of thePhillips curve, including the role of expectations (in the form ofadaptive expectations) andimperfect information in the setting of wages and prices.[6] It also introduced the concept of the natural rate of unemployment and argued that labor market equilibrium is independent of the rate of inflation and so there is no long-run tradeoff between unemployment and inflation. That, if accurate, would have the crucial implication that theKeynesian policy of demand management has onlytransitory effects and so cannot be used to control the long-term rate of unemployment in the economy. In January 1969, Phelps organized a conference at Penn in support of the research on the microfoundations of inflation and employment determination. The conference papers were published the next year in a book[7] that had a strong and lasting influence; it became known as the "Phelps volume".[1][8] Along with his research on the Phillips curve, Phelps also collaborated with other economists on research regarding economic growth, the effects of monetary and fiscal policy, and optimalpopulation growth.
In the following years, an element in Phelps's foundations came under heavy criticism with the introduction ofJohn Muth'srational expectations, which was popularized by future Nobel prize winnerRobert Lucas, Jr. Phelps, with Calvo and John Taylor, started a program to rebuild Keynesian economics with rational expectations by employingsticky wages and prices. They did so by explicitly incorporating in models the fact that wage contracts are set in advance for multiple periods, an idea originating from Phelps's 1968 paper. This research lead to a paper published with Taylor in 1977,[9] proving that staggered wage setting gives monetary policy a role in stabilizing economic fluctuations. The use of staggered wage and price setting, further developed by Calvo in a 1983 paper,[10] became a cornerstone ofNew Keynesian economics. During the 1970s, Phelps and Calvo also collaborated on research on optimal contracts underasymmetric information.[11]
Phelps spent 1969–70 at the Center for Advanced Study in Behavioral Science atStanford University. Discussions with fellow Nobel prize winnersAmartya Sen andKenneth Arrow and especially the influence of thephilosophy ofJohn Rawls, whom he met during the year at the center, led Phelps to undertake some research outside macroeconomics. As a result, in 1972, he published seminal research in the new field that he namedstatistical discrimination.[12] He also published research oneconomic justice, applying ideas from Rawls'sA Theory of Justice.
In 1971, Phelps moved to the Economics Department atColumbia University, which also included future Nobel prize winnersWilliam Vickrey andJames J. Heckman (future laureateRobert Mundell joined three years later), as well asPhoebus Dhrymes,Guillermo Calvo andJohn B. Taylor.[citation needed] There, he published research on theinflation tax and the impact offiscal policy on optimal inflation. In 1972, Phelps published a new book[13] which focused on the derivation of policy implications of his new theory. The book further popularized his "expectations-augmented Phillips curve"and introduced the concept ofhysteresis with regard to unemployment (prolonged unemployment is partially irreversible as workers lose skill and become demoralized).
In the late 1970s, Phelps and one of his former students,Roman Frydman, conducted some research on the implications of assuming rational expectations, at first independently and then in collaboration. Their results suggested that rational expectations are not the correct way to model agents' expectations.[citation needed] They organized a conference on the issue in 1981 and published the proceedings in a 1983 book.[14] However, as rational expectations were becoming the standard in macroeconomics, the book was initially received with hostility and was largely ignored. Thefinancial crisis of 2007–2008, along with the failure of rational expectations models to predict it, led to a renewed interest in the work.[1]
In 1982, he was appointed the McVickar Professor of Political Economy at Columbia. During the early 1980s, he wrote an introductory textbook synthesizing contemporary economics knowledge. The book,Political Economy, was published in 1985 but had limited classroom adoption.[15]
In the 1980s, Phelps increased collaboration with European universities and institutions, includingBanca d'Italia, where he spent most of his 1985–86 sabbatical, andObservatoire Français des Conjonctures Économiques (OFCE) in Paris. He became interested in the puzzle of the persistent high unemployment in Europe despite no pause in inflation and published on the subject withJean-Paul Fitoussi (the director of OFCE).[16] Further study led Phelps to believe that it is not a transitory phenomenon but the effect of changes in equilibrium unemployment.[citation needed] During the following years, Phelps tried to build a theory to determineendogenously the natural rate of unemployment. He published partial research results in a 1994 book,Structural Slumps: The Modern Equilibrium Theory of Employment, Interest and Assets. Phelps also collaborated closely with Luigi Paganetto at theUniversity of Rome Tor Vergata and, between 1988 and 1998, as co-organizers of theVilla Mondragone International Seminar.
In 1990 Phelps took part in a mission from the newEBRD toMoscow, where he andKenneth Arrow designed a proposal for the reform of theSoviet Union.[17] After the EBRD was established, he became a member of its Economic Advisory Board, where he stayed until 1993. From his work at EBRD and collaboration with his former student, Roman Frydman, Phelps developed a strong interest inEastern Europe'stransition economies.
Over the late 1980s and the early 1990s, Phelps created a new non-monetary theory of employment in which business asset values drive the natural rate. The theory, first fully set out in his bookStructural Slumps (1994), explains Europe's slump without disinflation in the 1980s: the elevation of the world real rate of interest, declining opportunities for continuing technological catching up and the mushrooming social wealth granted by Europe's emerging welfare state play the main causal roles. Two sequel papers in 2000 and 2001 on the theory of 'structural booms' explained US inflationless expansion in the late 1990s and claimed its transience.[citation needed] His papers develop the thesis that the great economic swings experienced by the West in the past century not only originate in non-monetary shocks but also operate fundamentally by non-monetary mechanisms. This book, as well as subsequent papers, argued that the fluctuation of unemployment rates in the United States, the United Kingdom, and France stemmed from the accumulation of wealth with minimal investment.[18]
In the mid-1990s, his research turned to what he calledeconomic inclusion. He published in 1997 a book for the general public,Rewarding Work about the causes and cures of the joblessness and low wages among disadvantaged workers.
Phelps's current work is about the benefits and sources of a country's structural dynamism: the enterprise and creativity of entrepreneurs, the skill of financiers in selecting and supporting the best projects, and the knowledge managers draw upon in evaluating and making use of new methods and products.[19] Every dynamic economy has its doldrums and eventorpid economies may rise, perhaps with delay, to an extraordinary opportunity. However, great dynamism, he argues, brings advantages in virtually every dimension of economic performance, not just in productivity. For Phelps, the challenges presented in a creative and evolving business sector provide most people with their main vehicle for the exploration, exercise, and development of their talents.[20]
In the already-advanced economies, that is perhaps the best reason that policy must aim to build a business sector of high dynamism and broad inclusion. The research task is to identify the institutions that are pathways to dynamism and the institutions that are obstructions.
Phelps's own research on dynamism began at the European Bank for Reconstruction and Development in 1990 and 1992–93, where he worked on the theory of capitalism and issues of mass privatization in Eastern Europe. Later in the decade, he turned to studying a range of economic institutions in Western Europe and the United States. He conducted research with a focus on the Italian economy as Senior Advisor to Italy in Europe of the Consiglio Nazionale delle Ricerche from 1997 to 2000.
In 2001, he and Roman Frydman founded the Center on Capitalism & Society at Columbia (now a unit of Arts and Sciences) to promote and conduct research on capitalism.
In 2008, writing in the wake of theGreat Recession, Phelps criticized the "false" models of neoclassical economics, but he also wrote with skepticism regardingKeynesian resurgence:[21]
What theory can we use to get us out of the impending slump quickly and reliably? To use the "new classical" theory of fluctuations begun at Chicago in the 1970s – the theory in which the "risk management" models are embedded – is unthinkable, since it is precisely the theory falsified by the asset price collapse. The thoughts of some have turned toJohn Maynard Keynes. His insights into uncertainty and speculation were deep. Yet his employment theory was problematic and the "Keynesian" policy solutions are questionable at best... At the end of his life, Keynes wrote of "modernist stuff, gone wrong and turned sour and silly". He told his friend Friedrich Hayek he intended to re-examine his theory in his next book. He would have moved on. The admiration we all have for Keynes's fabulous contributions should not sway us from moving on.
Since around 2006, his main research focus has been innovation and economic growth as fueled by the creativity of ordinary people within a nation. His bookMass Flourishing (2013) remarks that cavemen had the ability to imagine new things and the zeal to create them, but a culture liberating and inspiring dynamism is necessary to ignite what Lincoln called a "passion for the new."[22] These theses on the central role of values for indigenous innovation and the good life are tested in the bookDynamism, coauthored with Raicho Bojilov, Hian Teck Hoon andGylfi Zoega, which was published byHarvard University Press in 2020.
Phelps has severely criticized the economic policy of U.S. presidentDonald Trump. It feels "like economic policy at a time of fascism [...] The leader controls the economy and tells the companies how things are going to be done."[23] In June 2024, 16Nobel Prize in Economics laureates, including Phelps, signed an open letter arguing thatDonald Trump’s fiscal and trade policies coupled with efforts to limit theFederal Reserve's independence would reignite inflation in the United States.[24][25][26]
In June 2020, he and otherNobel laureates in Economics, as well as architects, chefs and leaders of international organizations, signed the International Appeal of 7 June 2020 in favor of the purple economy ("Towards a cultural renaissance of the economy"), published inCorriere della Sera,[27]El País[28] andLe Monde.[29]
In 1974 Phelps married Viviana Montdor.[30] Publications have noted that despite his many accomplishments, Phelps does not own a car.[31]
In 1981 Phelps was elected to become a member of the National Academy of Science in the USA. In 2006, he was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, referred to, colloquially, as the Nobel Prize in Economics for "his analysis of inter-temporal tradeoffs in macroeconomic policy." In announcing the prize, theRoyal Swedish Academy of Sciences said Phelps's work had "deepened our understanding of the relation between short-run and long-run effects of economic policy."[32]
In the year 2000, Phelps was made a Distinguished Fellow of theAmerican Economic Association. In February 2008, he was named Chevalier of France'sLegion of Honor. Four months later he was given the Global Economy Prize ofKiel Institute for the World Economy. In 2014, he received the Chinese Government's Friendship Award and the Wilbur Lucius Cross Medal from Yale University.
Furthermore, Phelps received honorary degrees from several renowned institutions acknowledging his academic work. In 1985, he was awarded an honorary degree from his alma mater,Amherst College. In June 2001, he received an honorary doctorate from theUniversity of Mannheim and, in October 2003, fromUniversidade Nova de Lisboa; in July 2004, fromParis Dauphine University and in October 2004, from theUniversity of Iceland. He also holds honorary doctorates from theInstitut d'Etudes Politiques de Paris (2006), theUniversity of Buenos Aires (2007),Tsinghua University (2007), and theUniversité libre de Bruxelles (2010).[33] From 2010 to 2016, he served as Dean of New Huadu Business School atMinjiang University inFuzhou.[34]
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{{cite book}}: CS1 maint: multiple names: authors list (link)Trump's policies could prove to be inflationary, other economists also warned, such as his proposal to create a 10% across-the-board tariff on all imports to deporting immigrants. The tariff plan would add $1,700 in annual costs for the typical U.S. household, essentially acting as an inflationary tax, according to experts at the Peterson Institute for International Economics.
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| Preceded by | Laureate of the Nobel Memorial Prize in Economics 2006 | Succeeded by |
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