Edmund Phelps was born in 1933 in Evanston, Ill., spent his childhood in Chicago and, from age six, grew up in Hastings-on-Hudson, N.Y. He earned his B.A. from Amherst in 1955 and his Ph.D. from Yale in 1959. He is McVickar Professor of Political Economy at Columbia University, Director of Columbia’s Center on Capitalism and Society. He was the winner of the 2006 Nobel Prize in Economics. His career began with a stint at the RAND Corporation. Back east in 1960, he held positions at Yale and its Cowles Foundation until 1966, then a professorship for five years at Penn. In 1970 he moved to New York and joined Columbia in 1971.
        Phelps’s work can be seen as a program to put “people as we know them” back into economic models – to take into account the incompleteness of their information and their knowledge and to study the effects of their expectations and beliefs on the workings of markets. He has adopted this perspective in studying unemployment and inclusion, economic growth, business swings and economic dynamism.
        Phelps holds many honorary doctorates and professorships, including from the Université libre de Bruxelles (2010), Tsinghua University (2007) and the Institut d’Etudes Politiques de Paris (2006), among others. Phelps is a Fellow of the National Academy of Science and a Distinguished Fellow of the American Economic Association, and in 2001 a Festschrift conference was held in his honor. In 2008, he was named Chevalier de la Légion d’Honneur and awarded the Premio Pico della Mirandola and the Kiel Global Economy Prize. The same year the UBA Law School established the Catedra Phelps and the Phelps Medal for Innovation. In 2010, he was appointed Dean of New Huadu Business School at Minjiang University in Fuzhou. In 2011, Professor Phelps received the Louise Blouin Creative Leadership Award and was named a Full Foreign Member of the Russian Academy of Sciences and in 2012 he was elected an Honorary Patron of the University Philosophical Society of Trinity College and was awarded the Mendeleev Medal for Achievement in the Sciences.

The main discovery from these models was the potential for disequilibrium and its effects on economic activity. Errors in wage or price expectations would disturb the volume of unemployment. If, in the labor turnover model, each firm deciding its next wage, say, underestimates the wage being set at the other firms, i.e., the actual wage exceeds the expected wage, the error reduces the firms’ expected turnover and hence their expected costs, thus encouraging them to pay less and hire more, which drives down unemployment. If, in the islands model, the average wage exceeds what workers expect it is, the underestimate prompts some workers to accept a job rather than go on searching, so, again, unemployment drops. In the same spirit, a 1967 paper supposed that an underestimate by each firm of the price being set by the others would encourage increases in output supply and labor demand, raising employment; a 1970 paper introducing the “customer market,” coauthored with Sidney Winter, supplied a basis for this idea. From all this, an answer to the puzzle of Keynes emerged: An unperceived rise in “effective demand,” in driving up the average money wage and the price level, would reduce unemployment if the average firm (or island) did not know or imagine that the general price and wage level had increased by as much as its own – i.e., if the actual price or wage inflation exceeded the expected. A persistent over-estimation of upcoming money wages and prices could cause a protracted depression. The volume deriving from a conference Phelps organized at Penn, Microeconomic Foundations of Employment and Inflation Theory (Norton, 1970), was the first wave in this new macroeconomics. Applications to demand management were made in the 1967 paper and in his monograph Inflation Policy and Unemployment Theory (Norton, 1972).

While these views went on winning support among macroeconomics experts, the last two decades were testing times. The ‘80s witnessed a powerful slump in Europe with no evidence of unexpected disinflation or deflation; the latter half of the ‘90s brought a strong boom to the U.S. economy and northern Europe without evidence of unexpected inflation—all contrary to the simple models. In response, Phelps began in the late ‘80s to develop a theory of the equilibrium path itself – a theory of the determinants of the natural unemployment rate. The models built and their first statistical test were set forth in Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest and Assets (Harvard, 1994). Subsequent papers in this project include ‘Growth, wealth and the natural rate: is Europe’s jobs crisis a growth crisis?’ ‘The rise and downward trend of the natural rate,’ ‘Natural rate theory and OECD unemployment,’ and ‘Lessons in natural-rate dynamics.

job subsidies to increase it,’ and a critique of proposals for stakeholder grants and universal income benefits titled ‘Subsidize wages.’