Edmund Phelps, recipient of the 2006 Nobel Prize in Economics, is McVickar Professor Emeritus of Political Economy and Director of the Center on Capitalism and Society at Columbia University. Born in 1933, he spent his childhood in Chicago and, from age six, grew up in Hastings-on Hudson, N.Y. He attended public schools, earned his B.A. from Amherst (1955) and got his Ph.D. at Yale (1959). After a stint at RAND (1959-60), he held positions at Yale and its Cowles Foundation (1960-66), a professorship at Penn (1966-71) and finally Columbia (1971- 2021). He became Director of the newborn Center on Capitalism and Society in 2001. He has written books on public debt, inflation, unemployment theory, slumps, rewarding work, indigenous innovation, the good life and dynamism. He also has written texts on economic justice, political economy and schools of macroeconomic thought.
His work can be seen as a lifelong project to put “people as we know them” into economic theory.
In the mid-‘60s to the early ‘80s, beginning with the “Phelps volume,” Microeconomic Foundations of Employment and Inflation Theory (1970), he pointed out that workers, customers and companies must make many decisions without full or current information; and they improvise by forming expectations to fill in for the missing information. In that framework, he studied wage-setting, mark-up rules, slow recoveries and over-shooting. This served to underpin the Keynesian tenet that, say, a cut in the money supply will not merely cause prices and wages to drop with no prolonged effect on employment.
From the mid-‘80s to the late ‘90s, he put aside the short-termism and monetary models of Chicago, Harvard and MIT to develop a “structuralist” macroeconomics. Contrary to what Keynesian extremists see as unending and unexplained deficiency of “demand,” he sees employment heading to its “natural” level and seeks to explain the effects of structural forces on it. His book Structural Slumps (1994) with Hian Teck Hoon and Gylfi Zoega and later papers of theirs find an economy’s natural employment level is contracted by increases in household wealth, in overseas interest rates, by currency weakness and other structural forces. Thus, the declines of labor force participation -- among males, at any rate -- in the US, UK and France result from the pile-up of wealth and decline of capital per unit of output, both stemming from the secular slowdown in the growth of (total factor) productivity.
Now, from around 2000 to 2020, he has worked to put economics on a new foundation. Powerful innovation over more than a century has altered the nature of the advanced economies: Having high income or wealth matters less than it did. As his book Rewarding Work (1997) begins to argue, what matters more are non-material rewards of work: being engaged in projects, the delight of succeeding at something and the experience of flourishing on an unfolding voyage. His book Mass 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.” These thesis on the central role of values for indigenous innovation and indeed the good life have been put to the test in the new book Dynamism (2020).
Now Available! My Journeys in Economic Theory
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In this book, Phelps tells the story of his role in reshaping economic theory, offering a powerful personal account of a creative and rewarding career. My Journeys in Economic Theory charts two major phases of Phelps’s work, illuminating the breadth of his contributions to the field. First, introducing the expectations of wage setters and cofounding the “equilibrium” rate of unemployment, he built the microeconomic foundations for the employment theory pioneered by Keynes and Hicks. More recently, he conceived a theory of “mass flourishing” superseding Schumpeter and Solow’s conception of the process of innovating—a theory in which individuals’ creativity and society’s dynamism fuel grassroots innovation and generate job satisfaction in the process.
Phelps recounts his vivid experiences in the world of economics—fierce arguments, competition and collaboration, and the good fortune of time spent among some great figures—as well as his relationships with luminaries such as John Rawls, Thomas Nagel, Paul Samuelson, and Paul Volcker. At its core, this book shares the joy of intellectual achievement: the excitement of coming up with a new idea that radically departs from prevailing views and the satisfaction of exercising one’s own ingenuity instead of applying or developing others’ models. Telling the story of a life packed with intellectual adventure, My Journeys in Economic Theory provides a profound vision of a dynamic, modern economy that offers lives rich with creativity and meaning.