Edmund S. Phelps

Who Is Edmund S. Phelps?

Edmund S. Phelps is a New Keynesian economist, economics teacher, Director of the Center on Capitalism and Society at Columbia University, and champ of the 2006 Nobel Prize in Economic Sciences for his macroeconomic research.

Life and Career

Brought into the world in 1933 in Evanston, Illinois, Phelps earned a PhD from Yale and BA from Amherst College. After his graduate studies, in 1959 Phelps worked momentarily at the RAND Corporation, a policy think-tank. During the 1960s, he educated at Yale, MIT, and the University of Pennsylvania, before accepting his position at Columbia in 1971.

The Nobel Laureate did the bulk of his notable work in the late 1960s through the late 1970s, with his research showing up in "Cash Wage Dynamics and Labor-Market Equilibrium" (Journal of Political Economy, 1968), Microeconomic Foundations of Employment and Inflation Theory (1970), Inflation Policy and Unemployment Theory (1972), and "Settling Powers of Monetary Policy under Rational Expectations" (Journal of Political Economy, 1977). Not one to sit still, Dr. Phelps is as yet active in making contributions to the group of macroeconomic research. As of late as 2020, he distributed Dynamism, a book about how certain values drive innovation and economic imperativeness.

Phelps was granted the Nobel Prize in his field for his "examination of intertemporal tradeoffs in macroeconomic policy," in the expressions of the Nobel Committee, explicitly the tradeoffs between capital accumulation and economic growth and among unemployment and inflation. Similarly as with all Nobel Prize victors in Economics, Dr. Phelps was mentally formed by many guides and associates over his long career. A portion of the greats that he specifies in the true to life section of the official Nobel Prize website are Paul Samuelson, James Tobin, Thomas Schelling, and Edward Prescott, every one of whom are likewise Nobel Prize victors in Economics.

Contributions

Phelps' initial macroeconomic research zeroed in on macroeconomic growth theory and employment theory. Later, after around 1990, his research center moved to general economic systems and economic dynamism.

Expectations-Augmented Phillips Curve

One of Phelps' major contributions to economics was the knowledge he gave on the collaboration among inflation and unemployment. Specifically, Phelps portrayed how current inflation is dependent on expectations about future inflation as well as unemployment.

While previous economists, including Ludwig von Mises and Milton Friedman, had contended that individuals adjust their inflation expectations to represent the effects of expansionary monetary policy, Phelps is recognized as the first to model this phenomenon officially. Phelps' model demonstrates the way that monetary policy can make a short-run tradeoff among inflation and unemployment (a descending slanting Phillips curve), however over the long haul, the Phillips curve is basically vertical at the natural rate of unemployment. This means that since workers adjust their wage requests based on the noticed effect of monetary policy on inflation, over the long haul, expansionary monetary policy is definitely not an effective apparatus to reduce the unemployment rate; it just makes more inflation.

Capital Formation and Growth

Utilizing the structure of the Solow growth model, Phelps developed what might become known as the golden rule of the intertemporal tradeoff among present and future consumption as it relates to capital investment and growth. Phelps' model officially characterizes the rate of savings and investment that is important to make the maximum level of supported consumption across successive generations. This is alluded to as the golden rule on the grounds that by saving going on like this — as Phelps summarized the Biblical rule — every generation does unto successive generations as they would have previous generations do unto them.

Economic Dynamism

Following the collapse of the Soviet Union, Phelps became engaged with applied research into economic systems and the transformation from a stale to a dynamic economy. Phelps contended that economic freedom and independence — which he characterizes as entrepreneurialism and independence instead of narrow-mindedness — are key to achieving a dynamic economy. Phelps accepts that this applies to former socialist economies, yet to progressively inflexible Western economies. The key, as per Phelps, is recharged accentuation on a culture that values competition, rewards inventiveness, and embraces uncertainty.

Features

• Phelps has done important research in the macroeconomics of employment, inflation, and economic growth and dynamism.
• Edmund Phelps is an American New Keynesian economist and teacher at Columbia University.
• He was granted the 2006 Nobel Prize for his contributions to the macroeconomics of intertemporal tradeoffs.