Phelps, Edmund Strother (1933-…), is an American economist who won the 2006 Nobel Prize in economic sciences. Phelps won the award for advancing economists’ understanding of the balance between inflation and unemployment. The award also recognized Phelps’s earlier work on the ratio of the amount of money that people should spend to the amount they should save for future generations for a nation’s economy to thrive.
Before Phelps, most economists believed that inflation and unemployment were negatively linked. According to this belief, a decrease in unemployment would lead to an increase in inflation, while an increase in unemployment would lead to a decrease in inflation. National policymakers therefore felt that they had to accept a trade-off between unemployment and inflation. However, Phelps’s work showed that inflation depends in part upon the expectations of employees and employers about future increases in prices and wages. Therefore, in periods of inflation, for example, firms and employees assume that prices and wages will continue to rise, and this expectation itself helps promote inflation. Phelps’s research has brought about new economic policies. Today, policymakers no longer tend to try to keep inflation in check by attempting to alter levels of unemployment. Instead, they generally seek to control inflation by changing the interest rates through monetary policy.
Phelps was born on July 26, 1933, in Evanston, Illinois. In 1955, he received a bachelor’s degree from Amherst College in Massachusetts. Phelps then studied economics at Yale University, where he received a master’s degree in 1956 and a Ph.D. in 1959. Phelps taught at a number of institutions, including Yale and the University of Pennsylvania, before becoming the McVickar Professor of Political Economy at Columbia University in 1982.
