Alumnus wins Nobel Prize in economics

When the Royal Swedish Academy of Sciences told Edmund Phelps GRD ’59 on Monday that he would receive this year’s Nobel Prize in economics, a huge weight dropped off his shoulders.

“I had a mystical feeling that this just might be the year,” he said. “The alignment of the heavens was right.”

Phelps, an economics professor at Columbia University, received the prize for challenging conventional wisdom on the relationship between inflation and unemployment early in his career. Phelps received his doctoral degree in economics from Yale and then worked at the University as a junior professor for several years in the 1960s.

Phelps said he left Yale for the University of Pennsylvania in 1966 due to a lack of available professorships in the economics department.

“At that time there were a number of junior faculty … who were tenure candidates,” said economics professor T.N. Srinivasan GRD ’62, who knew Phelps during his time at Yale. “The number of positions were limited. The department, as far as I know, had a very high opinion of his work.”

Several of his former colleagues at Yale said given Phelps’s ground-breaking work in economics, it was just a matter of time before he won the prize.

Yale economics professor William Brainard GRD ’63 — who worked next door to Phelps for several years — said he enjoyed a “nice intellectual exchange” during their time as neighbors.

“He was a very engaged economist,” Brainard said. “I did not think [his winning the prize] was a surprise at all.”

Phelps was awarded the prize for his ideas about the relationship between wages, unemployment and inflation, which he published in the late 1960s. Brainard said Phelps’ analytic model was the most clear and comprehensive on the subject at that time. It challenged contemporary macroeconomic thinking by suggesting that there were trade-offs between the level of unemployment and the level of inflation.

“[Phelps’ contribution] enriches our understanding of how inflation and unemployment interact by incorporating expectations of future inflation,” said Michael Boskin, an economics professor at Stanford University who knows Phelps both personally and professionally. “His work greatly reduced the case for overly-aggressive monetary policy to try to continuously fine-tune small deviations of unemployment.”

But economists said this model, while important, was part of a much larger body of significant economic work that Phelps has produced during his career.

“This prize does not reflect his full contribution to the field,” Brainard said.

Boskin said another of Phelps’ important contributions was his development of the “golden rule of accumulation,” which has helped economists understand how savings can affect the stability of consumption.

Srinivasan said despite all of Phelps’ intelligence and “vivaciousness,” he had one habit that annoyed a few colleagues.

“He smoked cigars,” Srinivasan said. “I am not one who enjoys being around those who smoke cigars.”

Phelps said after the phone call from Sweden, he was a changed man.

“I should go to my doctor to get new readings on everything,” he said.

Phelps currently lives with his wife in Manhattan and is an active member of the Columbia faculty. He received his bachelor’s degree from Amherst College in 1955 and has been awarded numerous honorary degrees.