Edmund Phelps, 1933-2026

Economics has recently lost another of the greats, Nobel Prize-winning economist Edmund Phelps, who passed away last week. Phelps was a macroeconomist, and among his many contributions he helped to formalise the concept of the natural rate of unemployment. Phelps won the Nobel Prize in 2006 for "his analysis of intertemporal tradeoffs in macroeconomic policy".

Surprisingly, for a Nobel Prize winner there have been few obituaries online so far. However, the New York Times has a good one (albeit paywalled). Phelps was 92, and had been among the oldest living economics Nobel laureates. Vernon Smith (born in 1927, so 99 years old), and Robert Aumann (born in 1930, so 95 years old) are the only economics Nobel Prize winners who are older.

The inter-temporal trade-offs that Phelps won his Nobel Prize for were not the only trade-offs that he considered in his research. Phelps also had a lot to say about one of the most famous trade-offs in macroeconomics - the short-run trade-off between inflation and unemployment that is embodied in the Phillips Curve (named after the New Zealand economist Bill Phillips). Phelps provided a keen critique of the short-run Phillips Curve, in particular noting that policymakers could not exploit the relationship permanently and, for example, 'buy' lower unemployment at a cost of higher inflation. He argued (successfully) for greater consideration of the role of inflation expectations in the relationship between inflation and unemployment (which my ECONS101 students will encounter next week). This critique contributed to our understanding that the Phillips Curve is vertical in the long run.

Phelps also contributed the 'Golden Rule' saving rate in the Solow growth model, which is the saving rate that maximises sustainable consumption per capita in the long run, as well as some of the key ideas underlying statistical discrimination (for more on that, see this post, or this one).

Phelps’s passing is a reminder that many of the ideas we now teach as standard macroeconomics were derived from hard-won arguments about expectations and the limits of policy.