He was one of my favorite economists, and I recommend his book to the readers of this article “Progress for All” (Epikentro Publications, 2017), from which there is much to learn and understand about how an economy works.
The late Nobel laureate Dr. Edmund Phillips wrote, edited, or contributed to more than two dozen books, including his well-known works “Political Economy: An Introductory Text” (1985) and “Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change” (2013). He also wrote extensively on a variety of economic ideas, which were not confined to any particular ideological perspective.
In this sense, Edmund Phelps, based on his work and his modes of thought and analysis, is difficult to classify within traditional political or scientific categories. Perhaps this was also the reason why the Royal Swedish Academy of Sciences took so long to award him the Nobel Prize in Economics (2006), even though its citation for the award cites exclusively his scientific publications.
And from this perspective, it must be particularly emphasized that the late economist was among the first after Joseph Schumpeter to introduce microeconomic considerations into macroeconomic modeling with unique mastery .
In the mid-20th century, the prevailing view among economists was that slightly high inflation was a price worth paying to keep unemployment low. However, in a seminal 1968 paper titled “Money-WageDynamics and Labor Market Equilibrium, ” Dr. Phelps argued for a more nuanced view.
He agreed that stimulating the economy to keep inflation high could help reduce unemployment in the short term. But for this to happen in the long run, he wrote, economic incentives would have to keep rising, and inflation would also continue to rise.
Edmund Phelps’s work also introduced the idea that a certain rate of unemployment is necessary in a healthy economy; he called it the equilibrium unemployment rate. Very low unemployment for a very long time, he argued, would lead to rising wages and prices.
Central to these ideas was E. Phelps’s assertion that inflation expectations, particularly among businesses, had a significant impact on inflation itself.
“Whether you have high inflation or not depends largely on whether inflation expectations influence the players, ”Dr. Phelps said in an interview with The New York Times in 2023.“If everyone expects inflation elsewhere, they will raise their own prices as well.”
When the Royal Swedish Academy of Sciences awarded the American economist the Nobel Prize in Economic Sciences, it wrote:“Phelps showed how the possibilities for future stabilization depend on current policy decisions: Low inflation today leads to expectations of low inflation in the future, thereby facilitating future policy-making.”
In this context, Phelps’s theoretical position reached many of the same conclusions as that of fellow Nobel laureate Milton Friedman (1912–2006), without, however, adhering to the latter’s ideological absolutism.
Jason Furman, a professor of economic policy at Harvard who served as chairman of the Council of Economic Advisers during the Obama administration, stated in an interview with the Times that Ed. Phelps was generally more acceptable than that of Friedman, because he was not seen as the kind of partisan conservative figure that Friedman was, a fierce critic of John Maynard Keynes’s theories.
“Milton Friedman seemed to be wielding an ideological axe in an ongoing feud with Paul Samuelson,”said Dr. Ferman, referring to Friedman’s liberal colleague, who was also a Nobel laureate. Clearly, the late Nobel laureate resembled more a scientist trying to explain and understand the world than a missionary of ideology.
Their ideas, however,changed the way central bankers thought about balancing inflation and unemployment.
“Phelps, along with Milton Friedman, explained why a rise in inflation engineered by the central bank could, at best, lead to a temporary reduction in unemployment, while potentially leaving inflation permanently higher, ” Ben S. Bernanke, former chairman of the Federal Reserve, wrote in an email in 2023.
“As a result of the arguments put forward by Friedmanand Phelps, central bankers do not try to use inflation to push unemployment below sustainable levels, but instead aim to keep inflation and inflation expectations low.”
In other news, Edmund Phelps, responding to a reporter’s question about whether he was right-wing or left-wing, liberal or conservative, had replied: “If I felt that a particular proposal was right and I could formulate a good theoretical argument in its favor, then what did it matter to me whether it was left or right?".