Edmund Phelps 101: Unveiling the Genius of a Nobel Laureate
Edmund Phelps, born in Evanston, Illinois in 1933, is a renowned economist known for his work on “inter-temporal trade analysis of macroeconomic policies” related to inflation, wages, and unemployment. He was awarded the Nobel Prize in Economics in 2006 for his contributions to this field. Phelps currently serves as an economics professor at Columbia University and continues his research. To learn more about him, you can read the subheadings in this Zatrun.com article.
Who is Edmund Phelps?
Edmund Phelps was born on July 26, 1933 in Evanston, Illinois and moved to New York with his family when he was six years old. Phelps spent his school years there and received his undergraduate education at Amherst College. In his second year, he enrolled in an economics course on the recommendation of his father.
The course was taught by James Nelson, who explained economics according to Paul Samuelson’s famous economics textbook. Phelps was strongly impressed by the possibility of applying formal analysis to businesses and quickly realized that there was an important unsolved problem in current economic theory.
After earning his bachelor’s degree from Amherst in 1955, Phelps went to Yale University for graduate studies. At Yale, he was influenced by future Nobel laureates James Tobin, Thomas Schelling, and took classes William Fellner. In 1959, Phelps completed his PhD in economics at Yale University. He then taught at several universities, including Yale and the University of Pennsylvania, before becoming a full-time faculty member at Columbia University in 1971.
His Contributions to Economics
In the late 1960s, Edmund Phelps challenged a long-held assumption. The widely accepted assumption was that high levels of unemployment corresponded with low levels of inflation, and vice versa. Policymakers assumed that expansionary fiscal and monetary policies (policies that expanded demand) could control unemployment levels. This policy approach influenced short-term fluctuations in employment but did not affect the long-term employment rate. Phelps began his work to challenge this assumption.
In his studies, Edmund Phelps observed that price and wage-setting behaviour is based on expectations of future conditions. He demonstrated that workers would demand higher wages when the costs of living (and therefore inflation) exceed their expectations.
Phelps proved that inflation can only be controlled once employment levels reach an equilibrium point. Moreover, he showed that unemployment is a natural part of a balanced economy, and equilibrium is achieved when the economy reaches its natural rate of unemployment. It was for his contributions to this field that Phelps was awarded the Nobel Prize in Economics.
