Edmund Phelps

Edmund Phelps
Born	Edmund Strother Phelps 26 7, 1933
Birthplace	Evanston, Illinois, U.S.
Nationality	American
Occupation	Economist, academic
Title	McVickar Professor Emeritus of Political Economy
Employer	Columbia University
Known for	Golden rule savings rate, natural rate of unemployment, microfoundations of macroeconomics
Education	Yale University (PhD)
Awards	Nobel Memorial Prize in Economic Sciences (2006), Chevalier de la Légion d'honneur (2008), China Friendship Award (2014)
Website	[http://www.columbia.edu/~esp2/ Official site]

Edmund Strother Phelps (born July 26, 1933) is an American economist and the recipient of the 2006 Nobel Memorial Prize in Economic Sciences. Over the course of a career spanning more than six decades, Phelps has made foundational contributions to the study of economic growth, unemployment, and the role of expectations in macroeconomics. His formulation of the golden rule savings rate in the early 1960s initiated a broad research program on the optimal balance between present consumption and investment for future generations. His later work on the natural rate of unemployment, grounded in a microfoundational approach that emphasized imperfect information and expectations about wages and prices, reshaped the field of macroeconomic theory and influenced central bank policy for decades. Phelps has been affiliated with Columbia University since 1971, where he held the McVickar Professorship of Political Economy from 1982 to 2021 and subsequently became McVickar Professor Emeritus. He is also the founding director of Columbia's Center on Capitalism and Society, established in 2001, which focuses on the study of innovation, inclusion, and economic dynamism. In his more recent work, Phelps has turned to the study of business innovation, economic dynamism, and the conditions under which societies flourish, themes explored in his 2013 book Mass Flourishing and subsequent writings.

Early Life

Edmund Strother Phelps was born on July 26, 1933, in Evanston, Illinois. He grew up during the era of the Great Depression and World War II, formative experiences that shaped his intellectual curiosity about economic systems and human welfare. His family later moved to Hastings-on-Hudson, a small village in Westchester County, New York, where he spent much of his youth.

Phelps has described his early intellectual development as influenced by a broad curiosity that extended beyond economics. In his autobiographical reflections, he noted the importance of his upbringing and early education in fostering a disposition toward independent thinking and analytical reasoning. These formative years instilled in him an interest in understanding how economies function at a fundamental level—questions about growth, employment, and the distribution of prosperity that would become central to his life's work.

The intellectual environment in which Phelps came of age was one in which Keynesian economics dominated academic discourse, yet questions about the microfoundations of macroeconomic phenomena were beginning to surface among a new generation of theorists. Phelps would eventually position himself at the center of this emerging conversation, but his path to economics was shaped first by a liberal arts education that encouraged broad inquiry across disciplines.

Education

Phelps attended Amherst College, where he earned his Bachelor of Arts degree. His undergraduate education at the liberal arts college exposed him to a wide range of intellectual traditions and disciplines. Phelps has credited the breadth of his Amherst education with cultivating the kind of interdisciplinary thinking that later characterized his economic theorizing.

He subsequently enrolled at Yale University for his graduate studies in economics. At Yale, Phelps studied at the Cowles Foundation for Research in Economics, a leading center for mathematical economics and econometrics. His doctoral advisors were James Tobin, himself a future Nobel laureate, and Arthur Okun, who would later serve as chairman of the Council of Economic Advisers under President Lyndon B. Johnson. Under their supervision, Phelps completed his doctoral dissertation, titled A Test for the Presence of Cost Inflation in the United States Economy, 1955–1957, and received his PhD in 1959.

Among the intellectual influences Phelps has cited from his formative years are Paul Samuelson, William Fellner, Thomas Schelling, and the philosopher John Rawls, whose work on justice and fairness would later inform Phelps's thinking about economic inclusion and the good economy.

Career

Early Research at the Cowles Foundation (1960s)

Following the completion of his doctorate, Phelps began his academic career with research positions that allowed him to develop the theoretical insights for which he would become known. He worked at the RAND Corporation before returning to Yale's Cowles Foundation, where he conducted research during the first half of the 1960s on the sources of economic growth.

It was during this period that Phelps formulated the concept of the golden rule savings rate, a result related to earlier work by John von Neumann. The golden rule savings rate defines the rate of savings that maximizes steady-state consumption per capita in a growing economy. Phelps's 1961 paper, "The Golden Rule of Accumulation: A Fable for Growthmen," presented this concept through a parable that made the underlying economic logic accessible and intuitive. The paper started a significant wave of research on how much a nation should optimally spend on present consumption versus saving and investing for future generations. This contribution established Phelps as a leading figure in growth theory and attracted attention from economists across the discipline.

University of Pennsylvania (1966–1971)

Phelps moved to the University of Pennsylvania in 1966, where he continued to develop his research program. It was during this period that he produced what is considered his most seminal body of work: the insertion of microfoundations—specifically, those featuring imperfect information, incomplete knowledge, and expectations about wages and prices—into macroeconomic theory to support a new understanding of employment determination and price-wage dynamics.

This line of research led to Phelps's development of the concept of the natural rate of unemployment, the idea that there exists a level of unemployment consistent with stable inflation, determined by structural and institutional features of the labor market rather than by aggregate demand alone. Phelps's formulation of this concept, developed independently of and roughly contemporaneously with similar work by Milton Friedman, represented a fundamental challenge to the prevailing Keynesian consensus that policymakers could permanently reduce unemployment by tolerating higher inflation—the trade-off suggested by the Phillips curve.

Phelps's approach was distinctive in its emphasis on the microeconomic underpinnings of macroeconomic phenomena. He argued that because workers and firms operate with imperfect information about the overall state of the economy, their expectations about wages and prices play a critical role in determining actual employment and inflation outcomes. When expectations adjust to reflect actual inflation, the short-run trade-off between unemployment and inflation disappears, and the economy returns to its natural rate of unemployment. This insight—that the long-run Phillips curve is vertical—had profound implications for monetary policy, suggesting that central banks cannot permanently reduce unemployment below the natural rate through expansionary policies.

In 1970, Phelps edited and contributed to the influential volume Microeconomic Foundations of Employment and Inflation Theory, which brought together contributions from several economists working on related problems. The volume helped establish the research program of providing microfoundations for macroeconomic theory as a major intellectual movement in the discipline.

Columbia University (1971–present)

In 1971, Phelps joined the faculty of Columbia University, where he would remain for the rest of his career. In 1982, he was appointed McVickar Professor of Political Economy, a position he held until 2021, when he became McVickar Professor Emeritus of Political Economy effective January 1, 2022.

At Columbia, Phelps continued to extend and refine his theoretical contributions. His research in the 1970s and 1980s addressed a range of issues in macroeconomics, including the dynamics of inflation and unemployment, the design of fiscal and monetary policy, and the theory of optimal taxation. He also contributed to the literature on statistical discrimination, publishing work on the statistical theory of racism and sexism that examined how rational decision-making under uncertainty could lead to discriminatory outcomes in labor markets.

Throughout his career, Phelps supervised doctoral students who went on to make their own contributions to economics, including Gylfi Zoega and Hian Teck Hoon.

Center on Capitalism and Society

In 2001, Phelps founded the Center on Capitalism and Society at Columbia University's Earth Institute. The center was established to promote research and discussion on the functioning of capitalist economies, with particular attention to questions of innovation, inclusion, and economic justice. The Center has organized annual conferences and published research on topics including the determinants of economic dynamism, the relationship between capitalism and the good life, and the institutional conditions that support or inhibit innovation.

Turn Toward Innovation and Dynamism

In the early 2000s, Phelps turned to the study of business innovation and its role in generating widespread economic prosperity. This research program culminated in the publication of his book Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change in 2013. In the book, Phelps argued that the dynamism of modern economies—their capacity for indigenous innovation arising from the creativity and initiative of ordinary people, rather than from a small cadre of scientists or inventors—was the key driver of broad-based prosperity and personal fulfillment through work.

Phelps contended that the values prevalent in a society, including a taste for exploration, experimentation, and individual initiative, were fundamental determinants of economic dynamism. He argued that the decline in innovation and productivity growth observed in many Western economies since the 1970s could be attributed in part to a shift in values away from those that support dynamism, toward corporatism, risk aversion, and excessive regulation.

This theme continued in Phelps's subsequent work. In a 2024 essay for the International Monetary Fund's Finance & Development magazine, he argued that regaining modern values could reverse the slowdown in innovation and its associated rewards, maintaining that the conditions for "mass flourishing" depended on the renewal of cultural attitudes favorable to exploration and creativity.

Reflections on the Natural Rate

In later years, Phelps engaged critically with his own earlier theoretical contributions. In a 2017 commentary published by Project Syndicate, he called on central banks to rethink their reliance on the concept of the natural rate of unemployment, which he had helped pioneer. Phelps observed that the simultaneous presence of low unemployment and subdued inflation in many advanced economies presented a paradox for the standard framework, suggesting that the relationship between unemployment and inflation had become more complex than the original theory implied. This willingness to revisit and reassess his own foundational contributions reflected a broader intellectual openness that characterized Phelps's career.

Memoir and Later Writings

In 2023, Phelps published My Journeys in Economic Theory, a memoir reflecting on his intellectual development and the evolution of his ideas over more than half a century. The book was described by reviewers as providing "a glimpse into the creative mind of a theorist and the world of the" economics profession. The memoir covered Phelps's experiences from graduate school through his Nobel Prize and beyond, offering personal reflections on the development of growth theory, the expectations-augmented Phillips curve, and the economics of dynamism and innovation.

Phelps continued to lecture and engage in public discourse well into his tenth decade. In April 2024, he delivered a lecture at Seton Hall University based on his memoir, discussing his journey through economic theory with students and faculty.

Views on Keynesian Economics

Phelps has engaged critically with Keynesian economics throughout his career. While acknowledging the contributions of John Maynard Keynes, he has argued that Keynesian theory lacked adequate microfoundations and that its policy prescriptions were insufficient to address the structural determinants of unemployment and growth. In a paper titled "Keynes Had No Sure Cure for Slumps," Phelps outlined his critique of the Keynesian approach to economic downturns, contending that fiscal stimulus alone could not resolve the deeper structural problems affecting modern economies.

Personal Life

Edmund Phelps has been a resident of New York for much of his adult life, associated with Columbia University since 1971. He has described the experience of meaningful work—work that provides challenge, growth, and a sense of accomplishment—as central to human flourishing, a theme that pervades both his academic writings and public commentary. In an interview with Texas Public Radio in 2023, Phelps emphasized that he wanted people to "have rewarding work—and not just work with" material compensation, but work that provided deeper personal satisfaction.

Phelps has maintained an active public intellectual presence, writing for outlets including Project Syndicate, First Things, and publications of the International Monetary Fund, as well as participating in international conferences and policy discussions.

Recognition

Phelps's contributions to economics have been recognized with numerous awards and honors. The most significant of these was the 2006 Nobel Memorial Prize in Economic Sciences, which he received for "his analysis of intertemporal tradeoffs in macroeconomic policy." The Royal Swedish Academy of Sciences, in its announcement of the prize, cited Phelps's work on the golden rule savings rate and, in particular, his contributions to understanding the relationship between inflation and unemployment through the expectations-augmented Phillips curve and the natural rate of unemployment.

In his Nobel Prize lecture, delivered on December 8, 2006, at Aula Magna, Stockholm University, Phelps discussed the evolution of his ideas and their implications for macroeconomic policy.

In 2008, Phelps was made a Chevalier de la Légion d'honneur by the French government. That same year, he received the Pico della Mirandola Prize and the Global Economy Prize, reflecting international recognition of his scholarly contributions.

In 2014, Phelps received the China Friendship Award, one of the highest honors the Chinese government bestows on foreign nationals, in recognition of his contributions to economic research and education in China.

Columbia University announced Phelps's Nobel Prize in October 2006, noting his long tenure at the university and the significance of his research for the understanding of macroeconomic policy.

Legacy

Edmund Phelps's contributions to economics have shaped the discipline in several enduring ways. His formulation of the golden rule savings rate established a benchmark concept in growth theory that continues to be taught in graduate economics programs and referenced in policy discussions about savings, investment, and intergenerational equity. His work on the natural rate of unemployment and the expectations-augmented Phillips curve fundamentally altered the way economists and central bankers think about the relationship between inflation and unemployment, contributing to the widespread adoption of inflation-targeting frameworks by central banks around the world.

The microfoundational approach that Phelps championed—embedding macroeconomic analysis in explicit models of individual behavior under imperfect information—became a defining methodological commitment of modern macroeconomics. The research program initiated by Phelps and continued by his students and collaborators helped bridge the gap between microeconomic theory and macroeconomic policy analysis, influencing subsequent generations of economists working on issues of labor markets, monetary policy, and economic fluctuations.

In his later career, Phelps's work on innovation, dynamism, and the conditions for "mass flourishing" broadened the scope of his inquiry beyond the technical domain of macroeconomic modeling to encompass questions about the cultural, institutional, and philosophical foundations of prosperous societies. His argument that the values and attitudes prevalent in a society are fundamental determinants of its economic vitality represented a distinctive synthesis of economic theory, moral philosophy, and cultural analysis. This body of work has attracted attention from policymakers, social scientists, and public intellectuals seeking to understand the sources of economic stagnation and the conditions for broad-based prosperity.

Through the Center on Capitalism and Society at Columbia University, Phelps has created an institutional platform for ongoing research and debate on these questions, ensuring that his intellectual legacy extends beyond his own publications to encompass a broader community of scholars engaged with the fundamental problems of economic organization and human welfare.