Edmund S Phelps

Dr. Edmund S. Phelps: What Is in the Water? With a list of achievements spanning several years, Dr. Edmund S. Phelps has had a remarkable career as an economist, analyst, and academic. Phelps is a Nobel laureate recognized for his "analysis of intertemporal tradeoffs in macroeconomic policy," professor at three Ivy League universities, Distinguished Fellow of the American Economic Association, and recipient of honorary degrees and doctorates from nine institutions. Having greatly contributed to the understanding of macroeconomics for policy and business decisions, Phelps has certainly earned his spot as one of the most respected macroeconomists in the world. Phelps was born in Evanston, Illinois, a small city on the outskirts of Chicago,

was with the RAND Corporation. He only worked at the policy think tank for a little over a year before returning to the world of academia, where he has remained since. His first position in academia was at Yale, where he influenced many now-successful individuals. During his time at Yale, he wrote several important papers, but none matched his paper in which he applied the Golden Rule to economics. In this particular paper, he suggested that the law of reciprocity could be translated as the idea that economically, we should do unto future generations as we hope previous generations did unto us. Phelps left Yale after being offered tenure as a professor of economics at the University of Pennsylvania. There, he decided to address what he considered to be the biggest challenge in economics: to combine microeconomics and macroeconomics. In his paper titled "Money-Wage Dynamics and Labor Market Equilibrium," Phelps introduced the natural rate of unemployment. While at Penn, he was a founder in the fields of statistical discrimination and economic justice. In 1982, Phelps transferred to Columbia, where he currently teaches, and became the McVickar Professor of Political Economy. In this role, he further researched the natural rate of unemployment and in 1994, wrote a book titled "Structural Slumps: The Modern Equilibrium Theory of Employment, Interest and Assets," that attempted to calculate the natural rate. In

This curve became widely used by policymakers to control unemployment and inflation by manipulating the opposite variable. Acknowledging the inverse relationship between inflation and unemployment shown in the Phillips Curve, Phelps agreed that inflation depends on unemployment and vice-versa, but he challenged the curve's theoretical foundation and argued that the government should not use the curve as a basis for policy. He noted that when the government attempts to lower unemployment below its natural rate through expansionary monetary or fiscal policy, demand increases and firms respond by raising prices faster than anticipated by workers. With higher prices, firms receive a higher revenue and are able to hire more workers. When workers see that their wages have risen, they supply more labor, leading to a lower unemployment rate. Workers may not realize immediately that their purchasing power has fallen due to quickly rising prices, but over time, their expectations and understanding changes and they begin to supply less labor, thus resulting in the natural rate of unemployment and high inflation. Phelps illustrates this phenomenon in his expectations-augmented Phillips Curve. His contributions have better explained the relationship between unemployment