Monday, October 09, 2006

Edmund Phelps: Bank of Sweden Winner for 2006

No honor in economics is more prestigious than the Bank of Sweden Prize, a.k.a. the "Nobel" prize in economics.

Winner for 2006 is Edmund Phelps (one of the rare single winners).

Frankly I just dimly recall Phelps from the "Friedman-Phelps" expectations-augmented Phillips curve. Then after reading the press release, I remember his name associated with the "golden rule" of growth theory. To summarize: he won for examining long-run trade-offs, between inflation and unemployment, and between consumption and investment.

For the inflation-unemployment trade-off he said: no such thing in the long run. Rather unemployment is held at the "natural rate" (later defined by Friedman as the unemployment rate "ground out by Walrasian equilibrium"P.

For the consumption-investment trade-off he said: if you don't believe in intergenerational discounting, you can adopt the "golden rule" in which equalized per capita consumption is maximized forever. Neat. This was a direct inspiration of the "sustainable development" idea of current consumption that does not sacrifice future consumption.

Just one problem: Phelps' prize is way overdue, and therefore dated. He could have won with Friedman, or Lucas, or some other monetarist-RBC type; or like Hayek and Myrdal, share it with Taylor or Modigliani (except he shared it with Miller already) or some other Keynesian-type.

The Committee should have been more forward-looking and rewarded recent work. Bhagwati, Krugman (trade), Fama (finance), Roemer (growth), Williamson, Baumol (industrial orgn.) I guess they tired of that already with the past 3 or 4 years of Bank of Sweden prizes.

Nevertheless my warmest congratulations.


Guy Barry said...

Very interesting indeed,will pop in again

Peter Hampton said...

Crazy! Not trying to rank no chance lol. Anyway Edmund Phelps deserved to win!!!