Posted on 10/09/2006 4:46:00 AM PDT by Alex1977
STOCKHOLM, Sweden, Oct. 9 (UPI) -- U.S. economist Edmund Phelps has been chosen to receive the 2006 Nobel Prize in economics for research on the relationship between employment and inflation.
Phelps, 73, will receive the prize, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, and the $1.4 million prize that goes with it Dec. 10 in ceremonies in Sweden.
An announcement Monday from the Royal Swedish Academy of Sciences praised Phelps for his work, which showed in the long-run, the rate of unemployment is not affected by inflation.
"Phelps showed how the possibilities of stabilization policy in the future depend on today's policy decisions: low inflation today leads to expectations of low inflation also in the future, thereby facilitating future policy making," the academy said.
U.S. scientists also won the 2006 Nobel Prizes for medicine, physics and chemistry. The final two prizes for this year are to be announced this week with the Literature Prize announcement set for Thursday and the Nobel Peace Prize recipient to be known Friday.
What didn't -I- think of that?
< slaps head >
Now maybe he'll stop protesting at funerals!
I guess it has no effect "in the long run" because the economy stabilizes in a state of meltdown.
I wonder if Mr. Phelps has ever been to Zimbabwe?
My only guess.
In economics, they give a nobel for each one.
Absolutely, positively the worst selection ever for a Nobel Prize in economics. This guy identified an empirical correlation (negative) between unemployment and inflation over two post-War decades and from this asserted that we faced an incontrovertible tradeoff. It has been the basis of class warfare arguments and stupid, stupid, stupid policy (Humphrey-Hawkins). Supposedly, conservatives were interested only in price stability and didn't give a rat's arse about unemployment; whereas, good libs cared as much or more about unemployment and were willing to abide some inflation.
It would be difficult to exaggerate how influential Phelps' little curve was during the 1960s and 1970s, or how thoroughly refuted it was thereafter. Why? Because there is no long run tradeoff. That's a fact, both empirically (the relationship completely broke down beyond the early 1970s) and in all of the economic models developed in the past two decades.
This is a really, really, really poor choice by the Nobel Committee.
Well I guess that's better than getting the Nobel Peace Prize or Literature Prize. Typically, you have to murder people and/or express hatred for America to get one of those.
A bit more seriously, screw all the Noble Prizes. It's recipients include a rogue's gallery of freaks, including in science; the guy who pioneered lobotomies got a Nobel Prize, too.
Mr. Phelps is well deserving of this award. As well as is Milton Friedman.The Phillips Curve
In 1968 economist Milton Friedman published a paper arguing that one thing monetary policy cannot do is pick a combination of inflation and unemployment on the Phillips Curve. At about the same time Edmund Phelps also published a paper denying the existence of a long-run tradeoff between inflation and unemployment.
Friedman and Phelps also coined the adjective of "natural unemployment" which holds that unemployment eventually returns to its normal, or natural, rate regardless of the rate of inflation.
This "natural rate of unemployment" is what the Socialists use to beat everyone up about -- in their world humans MUST be perfected; and if not perfected, through no fault of the Socialist Idjits, then all people should be punished by overtaxations to PAY for the wellbeing of those "naturally unemployed".
Micro-managing the economy is what Liberals propose. Just like they propose to micro-manage YOUR life. In re Liberal Philosophies concerning micro-management? Micromanagement economic philosophies create long-term UNEMPLOYMENT, as the economy tilters out of balance -- which is when the Democrats usually say "vote for me!".
Bravo and thank you, Sweden, for your clarity in sight in awarding this presentation to Mr. Phelps.
See Wikipedia
It's always a happy day for an economist when the Nobel Memorial winner is announced. We all dream of getting the prize, with it's money and recognition.
Phelps is a figure of the old regime, before we knew monetary theory, before we understood how markets really work, and before we figured out public finance.
His work is simple, and true, but not particularly durable. It will go down as an interesting observation, but not as a major breakthrough in theory, like Samuelson or econometrics, like Friedman.
When a lightweight like this gets the prize, it encourages all of us to work harder, cause you never know when another of us will get that late night phone call.
I think you are confusing Phelps with Phillips (of Phillips curve fame). Though I am still unimpressed by this choice.
Sorry, no cigar. Friedman and Phelps were roundly criticized as lunatics when they presented this theory, and then proved it using the Phillips Curve to do so. Now, nearly 40 years later, their theories have been soundly proven CORRECT.
Phelps' little curve
Nope.
Phillips, not Phelps. Phillips curve.
Friedman and Phelps presented their views in the late 60s, and they were on the very same page regarding this economic theory.
Mr. Phelps' theory is the correct one.
When a doctor addresses healing a part of a patient's body with surgery or meds, most often there are negative side effects. For years, economists had been proposing to micro-manage "inflation/unemployment" and those policies only managed to worsen the situation. It focused so much on the "victims" that those who were not victims were being penalized through overtaxations. Businesses were having to cough up special "plans" to pay for those being laid off. Social Services were coughing up funds to pay for those not yet at work FULL time.
The Friedman/Phelps theory argued that in order to properly treat the "body economy"; one must not focus on negatives to the exclusion of the whole body. That sometimes, gall bladder stones might be treated by diet and exercise rather than surgery or meds which would cause problems elsewhere.
Natural rate of unemployment can be divided into two categories: Frictional (workers searching for the jobs that best suit their tastes and skills) and Structural (number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one).
Structural Unemployment is usually the result of Minimum Wage Laws, Unions and Collective Bargaining.
Democrats dislike the Friedman/Phelps theories of Economics, because these means they can't tittle about making election promises, then enacting economic policies which worsen an economy, by which they can (and do) blame "the other party" for their own (DEM) failures.
Phelps' theory focuses on growing an economy which builds jobs and ultimately serves to resolve unemployment issues.
You are right. By the late 1960s, Keynesians were very arrogantly proclaiming that they had "found the answer" to the problem of unemployment. There were only three economists I can think of who challenged this view: Friedman, Hayek, and Phelps. Plus, Lucas later based much of his Nobel-prize winning work on Phelps. The island model and the idea that macroeconomic parameters have no static equilibria were undoubtedly influenced by Phelps.
The study of economics is no small field of study. Although some in this thread are lambasting the Phillips Curve (pre Friedman/Phelps); they might well consider that it was a theory which broke ground on many levels and laid the groundwork for smaller countries to work with and to begin actually BUILDING an economy. Some smaller countries might yet be needing to use the Phillips Curve as an economy is in process of development. Those who've made much more establishment in this regard can and do well appreciate Mr. Phelps' theories.
I agree. Isn't the Nobel committee a bunch of globalist, Euroweenie libs anyway?
But you really have made my point. It may be useful to sail west in the process of sailing north. Every course recalibration along the way can be considered "earthshaking" or "groundbreaking."
According to Mankiw: Rational expectations is the "theory in which people optimally use all the information they have, including information about government policies, when forecasting the future".
The "rational expectations" folks built this theory upon the Friedman and Phelps model of the "long-run." Mr. Lucas (et al) argued that estimates of the sacrifice ratio were unreliable guides for policy.
I wasn't "lambasting" you, I was in fact, attempting to underscore your point in my post. We might now disagree with the Phillips Curve, as a model; but it did in fact and still does have usefulness in some economies. And this, Mr. Phelps' award, is rightly considered and presented in this age.
> Absolutely, positively the worst selection ever for a Nobel Prize in economics. This guy identified an empirical correlation (negative) between unemployment and inflation over two post-War decades and from this asserted that we faced an incontrovertible tradeoff. <
No, no, no! You're confusing "Phillips" with "Phelps" -- two different guys.
So for all of you in Rio Linda:
Phillips = bad
Phelps = good
So when is the Federal Reserve going to stop micromanaging "inflation/unemployment?"
What did you expect? This is the same bunch that gives "peace" prizes to terrorist thugs and dictators.
So when is the Federal Reserve, in particular the FOMC, going to demonstrate that is knows monetary theory and understands markets?
At the very least, the situation in Zimbabwe demonstrates that inflation isn't caused by low unemployment, economic growth, or wealth creation.
Now Chairman of the Feds, Mr. Bernanke, co-authored a paper in 2000 entitled "What Happens when Greenspan is Gone?". In his article, he speaks about the adoption of inflation targetting. What are you linearly thinking, IMHE, is that he "micro-manages" inflation as a solo, primary, policy. He doesn't. He observes inflation and targets inflation along the lines of Friedman and Phelps.
Friedman and Phelps never argued to "ignore" inflation. Nor to ignore unemployment. What Mr. Bernake and FedReserve propose is to use all available, proven, economic models in the treatment of the economy. That's not micro-managing; that's just good common sense.
From Mr. Bernanke's 2000 article:
Adoption of inflation targeting by the Federal Reserve would bring several major advantages over the current, less structured approach. First it would transform the commitment to price stability -- which has served us so well under Mr. Greenspan and his predecessor, Paul Volcker -- from a personal interference of the chairman into an official poplicy. By depersonalizing and institutionalizing the Greespan policy approach, the Fed would increase the likelihood that future U.S. monetary policy will look like the 1980s and 1990s rather than the 1930s or the 1970s.
In looking through available "links" to Mr. Bernanke's original article, the MSM repeatedly mangles the focus and purpose of the article -- some even go so stupidly far as to assert that "Bernanke hates Greenspan". Such Pelosi-ian rubbish is NOT representative of the article, or Mr. Bernanke's thinking on this matter.
This message has been brought to you by the Association of Saudi Scientists, and the Wahabi Institute of Political Economy.
Wrong economist. That was "Phillps" who came up with the concept of the "Phillps curve" not "Phelps".
> This is the same bunch that gives "peace" prizes to terrorist thugs and dictators. <
Sorry, but you're wrong -- way off base.
The selection committees are entirely different for the Peace Prize and the Economics Prize, and the two Prizes are awarded by entirely different institutions.
The winner of the Nobel Peace Prize is selected via a "peacenik" committee named by the NORWEGIAN parliament. And this same committee awards the Prize. Seems crazy, but true. Look it up!
On the other hand, the award of the Nobel Prize in Economics is performed by the SWEDISH Academy of Sciences, based upon recommendations from a panel of genuinely distinguished economists.
[And by the way, in case anybody wonders, Norway and Sweden are different countries.]
The only thing the Peace Prize and the Economics Prize have in common is the "Nobel" name. Alfred Nobel himself established the Peace Prize and dictated that it be awarded by Norway, but the Economics Prize was established long after Nobel's death by the Central Bank of Sweden.
[And unlike Mr. Nobel, these latter-day Swedes obviously didn't entrust it's awarding to the Norwegians!]
Finally you should be aware that we of the libertarian and conservative persuasions have VERY MUCH to like about the Economics Prize, seeing as how it's been awarded so many times to University of Chicago economists -- Friedman, Stigler, Hayek, Becker, Schultz, Coase, Buchanan, Fogel, Lucas and more than a dozen others.
Methinks you are confusing A.W. Phillips, the Australian economist who supposedly discovered this relationship and Edmund Phelps who, along with Milton Friedman, showed that the relationship was more of a mirage than a menu of options.
I agree with you about Phelps. While correct, his argument was merely a correction of a mistake.
"Methinks you are confusing A.W. Phillips, the Australian economist who supposedly discovered this relationship and Edmund Phelps who, along with Milton Friedman, showed that the relationship was more of a mirage than a menu of options."
Of course I am mistaken. I've been absolutely retarded of late in my posts. I think I'll take a vacation from posting.
My position is that any policy that keeps us on an endless credit cycle, throws us into recession every few years, and leaves us with an inflation rate that doubles prices every 25 years or so is a failed policy, and is in fact micromanaging the economy.
As long as the Federal Reserves buys into the theory that aspects of the private economy cause inflation, rather than burdensome and flawed government policies, the situation will not get any better.
As long as the Federal Reserves buys into the theory that aspects of the private economy cause inflation
What parts of the private economy do you refer to?
You appear to be getting Phelps and Phillips confused. The "Phillips" curve is the model relating unemployment and inflation.
Nice rant though.
Most winners of the Nobel in Economics have been conservative.
Unless I am mistaken Phillips was an engineer rather than an economist. Didn't Phelps have a book/study about Growth in the American economy which showed that the long term growth rate has been about 3%?
In order to avoid embarassment one should not speak of issues one knows little about.
Those lunatics tried to KILL the Nobel laurete in literature, the Eygptian guy, Mafouz (?).
Personally I am upset that it is going to a non-UofC economist. Of course, I might be biased.
Naa, we all jump the gun sometimes. Besides look at the outpouring of brilliant it produced. :^)
Of course, most of it came because those posting corrections mistakenly believed no one else would recognize the easily made mistake.
Nonetheless, it was two years later with Samuelson and Solow publishing their article which they dubbed the "Phillips Curve", supporting A.W. Phillips' theorem, Solow and Samuelson extended Mr. Phillips' theories to extend to other countries outside the U.S.A.
> Personally I am upset that it is going to a non-UofC economist. Of course, I might be biased. <
Well, at least he was born in the Chicago area (Evanston)!
And don't forget that there has historically been a lot of back and forth between the Chicago and Columbia econ departments at least since Friedman was in grad school at Columbia in the 30's & 40's. In fact, Uncle Milty's Ph. D. was actually granted by Columbia, NOT Chicago!
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