Edmund Phelps

Phelps, in 2008
Born	(1933-07-26) July 26, 1933 (age 78) Evanston, Illinois, U.S.
Nationality	United States
Institution	Columbia University 1971- University of Pennsylvania
Field	Macroeconomics
Alma mater	Yale University Amherst College
Influences	Paul Samuelson James Tobin Thomas Schelling William Fellner Henry Wallich
Influenced	Roman Frydman Mordecai Kurz Gylfi Zoega Hian Teck Hoon
Contributions	Micro-foundations of macroeconomics Effects of wage and price expectations Natural rate of unemployment Golden Rule savings rate
Awards	Nobel Memorial Prize in Economic Sciences (2006) Chevalier de la Legion d'Honneur (2008) Pico della Mirandola Prize (2008) Global Economy Prize (2008)
Information at IDEAS/RePEc

Edmund Strother Phelps, Jr. (born July 26, 1933) is an American economist and the winner of the 2006 Nobel Memorial Prize in Economic Sciences. Early in his career he became renowned for his research at Yale's Cowles Foundation in the first half of the 1960s on the sources of economic growth. His demonstration of the Golden Rule savings rate, a concept first devised by John von Neumann and Maurice Allais, started a wave of research on how much a nation ought to spend on present consumption rather than save and invest for future generations. His most seminal work inserted a microfoundation—one featuring imperfect information, incomplete knowledge and expectations about wages and prices—to support a macroeconomic theory of employment determination and price-wage dynamics. This led to his development of the natural rate of unemployment—its existence and the mechanism governing its size.

Phelps has been McVickar Professor of Political Economy at Columbia University since 1982. He is also the director of Columbia's Center on Capitalism and Society.

Biography[link]

Early life and education[link]

Phelps was born in Evanston, Illinois, and moved with his family to Hastings-on-Hudson, New York when he was six years old, where he spent his school years.^[1] In 1951, he went to Amherst College for his undergraduate education. At his father's advice, Phelps enrolled in his first economics course in his second year at Amherst. Economist James Nelson gave the course, which was based on the famous textbook Economics by Paul Samuelson. Phelps was strongly impressed with the possibility of applying formal analysis to one of his old interests: business.^{[citation needed]} He quickly became aware of an important unsolved problem with the existing theory,^[specify] and the existing gap between microeconomics and macroeconomics.

After receiving his B.A. at Amherst in 1955, Phelps went to Yale University for graduate studies. While at Yale he studied under future Nobel prize winners James Tobin and Thomas Schelling, among others. Phelps was also strongly influenced by William Fellner and Henry Wallich,^{[citation needed]} whose courses emphasized the expectations of agents. Phelps received his Ph.D. from Yale in 1959.

Research in the 1960s and 1970s[link]

After receiving his Ph.D., Phelps went to work as an economist for the RAND Corporation. However, feeling he could not pursue macroeconomics (his main research interest^{[citation needed]}) at RAND (which focused on defense work), Phelps decided to return to the academic world. So, the next year, in 1960, he took a research position at the Cowles Foundation, while also teaching at Yale. While at the Cowles Foundation, his research focused mainly on neo-classical growth theory, following the seminal work of Solow.^{[citation needed]} As part of this research, in 1961 Phelps published a famous paper^[2] on the Golden Rule savings rate, one of his major contributions to economic science. He also wrote papers dealing with other areas of economic theory, such as monetary economics or Ricardian equivalence and its relation to optimal growth.

His position at Cowles gave Phelps the chance to interact with Arthur Okun and other notables in the field. He was able to collaborate with other top economists working on growth theory, including David Cass and fellow Nobelist Tjalling Koopmans. During the academic year 1962-63 Phelps visited MIT, where he was in contact with future Nobel prize winners Paul Samuelson, Robert Solow and Franco Modigliani.^[1]

In 1966, Phelps left Yale and moved to University of Pennsylvania, where he was offered a tenured position as professor of economics. While at Penn, Phelps' research focused mainly on the link between employment, wage setting and inflation, leading to his influential 1968 paper "Money-Wage Dynamics and Labor Market Equilibrium". This research contributed important insights in the microeconomics of the Phillips curve, including the role of expectations (in the form of adaptive expectations) and imperfect information in the setting of wages and prices.^{[citation needed]} It also introduced the concept of the natural rate of unemployment and argued that labor market equilibrium is independent of the rate of inflation, thus there is no long run tradeoff between unemployment and inflation. This observation, if accurate, would have the crucial implication that the Keynesian policy of demand management has only transitory effects and cannot be used to control the long run rate of unemployment in the economy. In January 1969, Phelps organized a conference at Penn in support of the research on the micro-foundations of inflation and employment determination. The conference papers were published the next year in a book^[3] which had a strong and lasting influence, becoming known as the "Phelps volume".^[1][4] During this period, along with the research on the Phillips curve, Phelps also collaborated with other economists on research regarding economic growth, the effects of monetary and fiscal policy and optimal population growth.

In the following years, an element in Phelps's foundations came under heavy criticism with the introduction of Muth's rational expectations, which was popularized by future Nobel prize winner Robert Lucas, Jr.. Phelps, with Calvo and John Taylor, started a program to rebuild Keynesian economics with rational expectations by employing sticky wages and prices. They achieved this by explicitly incorporating in models the fact that wage contracts are set in advance for multiple periods, an idea originating from Phelps' 1968 paper. This research lead to a paper published with John Taylor in 1977,^[5] proving that staggered wage setting gives monetary policy a role in stabilizing economic fluctuations. The use of staggered wage and price setting, further developed by Calvo in a 1983 paper,^[6] became a cornerstone of New Keynesian economics. During the '70s, Phelps and Calvo also collaborated on research regarding optimal contracts under asymmetric information.^{[citation needed]}

Phelps spent the year 1969-1970 at the Center for Advanced Study in Behavioral Science at Stanford University. Discussions with fellow Nobel prize winners Amartya Sen and Kenneth Arrow, and especially the influence of the philosophy of John Rawls, whom he met during the year at the Center, led Phelps to undertake some research outside macroeconomics. As a result, in 1972 he published seminal research in the new field he named statistical discrimination.^[7] He also published research on economic justice, applying ideas from Rawls' book A Theory of Justice.

In 1971, Phelps moved to the Economics Department at Columbia University, which also included future Nobel prize winners William Vickrey and James J. Heckman (future laureate Robert Mundell joined three years later), as well as Phoebus Dhrymes, Guillermo Calvo and John B. Taylor.^{[citation needed]} There he published research on the inflation tax and the impact of fiscal policy on optimal inflation. In 1972, Phelps published a new book^[8] which focused on the derivation of policy implications of his new theory. The book further popularized his "expectations-augmented Phillips curve", and also, among other things, introduced the concept of hysteresis with regard to unemployment (prolonged unemployment is partially irreversible as workers lose skill and become demoralized).

In the late '70s, Phelps and one of his former students, Roman Frydman, conducted some research on the implications of assuming rational expectations, first independently and then in collaboration. Their results suggested that rational expectations are not the correct way to model agents' expectations.^{[citation needed]} They organized a conference on this issue in 1981 and published the proceedings in a 1983 book.^[9] However, as rational expectations were becoming the standard in macroeconomics, the book was initially received with hostility, and was largely ignored. The financial crisis of 2007, and the attendant failure of rational expectations models to predict it, led to a renewed interest in this work.^[1]

In 1982 Phelps was appointed the McVickar Professor of Political Economy at Columbia. During the early '80s he wrote an introductory textbook synthesizing the current economics knowledge. The book, Political Economy, was published in 1985, but had limited classroom adoption.^{[citation needed]}

Research and work since mid-1980s[link]

'In the 1980s Phelps increased collaboration with European universities and institutions, including Banca d'Italia (where he spent most of his 1985-86 sabbatical and Observatoire Français des Conjonctures Économiques (OFCE). He became interested in the puzzle of the persistent high unemployment in Europe despite no let-up in inflation and published on this subject with Jean-Paul Fitoussi (the director of OFCE). Fitoussi, Jean-Paul and Edmund S. Phelps (1988). The Slump in Europe: Open Economy Theory Reconstructed. Basil Blackwell. Further study of the subject led Phelps to believe that it is not a transitory phenomenon, but rather the effect of changes in equilibrium unemployment.^{[citation needed]} During the next years, Phelps tried to build a theory to determine endogenously the natural rate of unemployment. He published partial research results in a 1994 book, Structural Slumps: The Modern Equilibrium Theory of Employment, Interest and Assets. Phelps also collaborated closely with Luigi Paganetto at the University of Rome Tor Vergata and, between 1988–98, as co-organizers of the Villa Mondragone International Seminar.

In 1990 Phelps took part in a mission from the then-forming EBRD to Moscow, where he and Kenneth Arrow designed a proposal for the reform of the USSR.^[10] After the EBRD was established, he became a member of its Economic Advisory Board, where he stayed until 1993. From work at EBRD and collaboration with his former student Roman Frydman, Phelps developed a strong interest in the Eastern European transition economies.

Over the late 1980s and early 1990s, Phelps created a new non-monetary theory of employment in which business asset values drive the natural rate. This theory, first fully set out in his book Structural Slumps (1994), explains Europe’s slump without disinflation in the 1980s: the elevation of the world real rate of interest, declining opportunities for continuing technological catch-up and the mushrooming social wealth granted by Europe’s emerging welfare state play the main causal roles. Two sequel papers in 2000 and 2001 on the theory of ‘structural booms’ explained America’s inflationless expansion in the late 1990s and explicitly implied its transience.^{[citation needed]} These and other papers develop the thesis that the great economic swings experienced by the West in the past century not only originate in non-monetary shocks but also operate fundamentally through non-monetary mechanisms.

In the mid-1990s his research turned to what he called economic inclusion. He published in 1997 a book for the general public, Rewarding Work, about the causes and cures of the joblessness and low wages among disadvantaged workers.

Current focus[link]

Phelps’s current work is about the benefits and sources of a country’s structural dynamism – the enterprise and creativity of entrepreneurs, the skill of financiers in selecting and supporting the best projects, and the knowledge managers draw upon in evaluating and making use of new methods and products. Every dynamic economy has its doldrums and even torpid economies may rise, perhaps with delay, to an extraordinary opportunity. Yet great dynamism, he argues, brings advantages in virtually every dimension of economic performance, not just in productivity. For Phelps, the challenges presented in a creative and evolving business sector provide most people with their main vehicle for the exploration, exercise and development of their talents.^{[citation needed]} In the already advanced economies this is perhaps the best reason why policy must aim to build a business sector of high dynamism and broad inclusion. The research task is to identify the institutions that are pathways to dynamism and the institutions that are obstructions. Phelps’s own research on dynamism began at the European Bank for Reconstruction and Development in 1990 and 1992–93, where he worked on the theory of capitalism and issues of mass privatization in eastern Europe. Later in the decade he turned to studying a range of economic institutions in western Europe and the United States. He conducted research with a focus on the Italian economy as Senior Advisor to the Project <Italy in Europe> of the Consiglio Nazionale delle Ricerche in 1997-2000.

In 2001 he and Roman Frydman founded the Center on Capitalism & Society at Columbia (now a unit of Arts and Sciences) to promote and conduct research on capitalism.

In 2008, writing in the wake of the recession in the United States, Phelps wrote with disregard of the Keynesian resurgence:^[11]

"What theory can we use to get us out of the impending slump quickly and reliably? To use the 'new classical' theory of fluctuations begun at Chicago in the 1970s – the theory in which the "risk management" models are embedded – is unthinkable, since it is precisely the theory falsified by the asset price collapse. The thoughts of some have turned to John Maynard Keynes. His insights into uncertainty and speculation were deep. Yet his employment theory was problematic and the 'Keynesian' policy solutions are questionable at best....At the end of his life Keynes wrote of 'modernist stuff, gone wrong and turned sour and silly'. He told his friend Friedrich Hayek he intended to re-examine his theory in his next book. He would have moved on. The admiration we all have for Keynes's fabulous contributions should not sway us from moving on."

Personal life[link]

In 1974 Phelps married Viviana Montdor; the couple have two children.^[12] Publications have noted that despite his many accomplishments, Phelps does not own a car. ^[13]

Honors and awards[link]

In 2006, Phelps was awarded the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, referred to, colloquially, as the Nobel Prize in Economics for (in the words of the award committee) "his analysis of inter-temporal tradeoffs in macroeconomic policy". In announcing the prize, the Royal Swedish Academy of Sciences said Phelps' work had "deepened our understanding of the relation between short-run and long-run effects of economic policy."^[14]

In the year 2000, Phelps was made a Distinguished Fellow of the American Economic Association. In February 2008, he was named Chevalier of France's Legion of Honor. Four months later he was given the Global Economy Prize of Kiel Institute for the World Economy.

Publications[link]

References[link]

External links[link]

• Edmund Phelps official webpage at Columbia University
• Edmund Phelps' syndicated op/ed column from project-syndicate.org
• Center on Capitalism and Society – Edmund Phelps, director
• Who is Edmund Phelps from whoswhoineconomics.com
• Summary of Phelps' influence by George Mason University's Professor Tyler Cowen
• Phelps and the Nobel Prize by Arnold Kling. EconLog and Econlib
• True and False Lessons Drawn from the Structural Slump, a November 21, 2011 speech by Phelps to the Council on Foreign Relations

Nobel Prize

• Macroeconomics for a Modern Economy, Phelps' Prize Lecture at nobelprize.org
• Professor Edmund S. Phelps Wins 2006 Nobel Prize in Economics, a Columbia University press release
• "Edmund Phelps’s Contributions to Macroeconomics". nobelprize.org. Archived from the original on 2007-01-03. http://web.archive.org/web/20070103074826/http://nobelprize.org/nobel_prizes/economics/laureates/2006/ecoadv06.pdf. Retrieved 2011-11-26. 

Ólafur Ragnar Grímsson
President of Iceland
Incumbent
Assumed office 1 August 1996
Prime Minister	Davíð Oddsson Halldór Ásgrímsson Geir Haarde Jóhanna Sigurðardóttir
Preceded by	Vigdís Finnbogadóttir
Minister of Finance
In office 28 September 1988 – 30 April 1991
Prime Minister	Steingrímur Hermannsson
Preceded by	Jón Baldvin Hannibalsson
Succeeded by	Friðrik Sophusson
Personal details
Born	(1943-05-14) 14 May 1943 (age 69) Ísafjörður, Iceland
Political party	Independent (1996–present)
Other political affiliations	People's Alliance (Before 1996)
Spouse(s)	Guðrún Katrín Þorbergsdóttir (1974–1998) Dorrit Moussaieff (2003–present)
Children	Guðrún Ólafsdóttir Svanhildur Ólafsdóttir
Residence	Bessastaðir
Alma mater	University of Manchester University of Iceland
Profession	Professor
Religion	Lutheranism
Signature

Ólafur Ragnar Grímsson [ˈoːulavʏr ˈraknar ˈkrimsɔn] ( listen) (born 14 May 1943) is the fifth and current President of Iceland.^[1] He has served as President since 1996; he was unopposed in 2000, re-elected for a third term in 2004, and re-elected unopposed for a fourth term in 2008.

Early life[link]

Ólafur was born in Ísafjörður, Iceland. From 1962 to 1970, he studied economics and political science at the University of Manchester; in 1970 he was the first person from Iceland to earn a PhD in political science. He became a lecturer in political science at the University of Iceland in 1970, then a Professor of Political Science at the same university in 1973. He was the University's first Professor of Political Science.^[1]

In 1984, he participated, along with other three left-wing intellectuals, in a debate with the known economist Milton Friedman, who was in Iceland to give a lecture on the "tyranny of the status quo" at the University of Iceland.

Political career[link]

As part of the left-wing People's Alliance, Ólafur was a Member of Althing for Reykjavík from 1978 to 1983; during this time he was Chairman of the People's Alliance parliamentary group from 1980 to 1983. Subsequently, he was Chairman of the People's Alliance executive committee from 1983 to 1987; additionally, from 1983 to 1985 he was editor of a newspaper, Þjóðviljinn. From 1987 to 1995, he was Leader of the People's Alliance; during this time, he served as Minister of Finance from 1988 to 1991 and as a Member of Althing for Reykjanes from 1991 to 1996.^[1]

As member of the Althing, Ólafur was among the most controversial politicians in Iceland.^{[citation needed]} Originally elected as President from a field of four candidates with 42% of the total votes, Ólafur has from the outset been a controversial figure in the office of President,^{[citation needed][2]} an office that has mainly ceremonial functions meant to symbolise national unity and bears little responsibility for government affairs.

President of Iceland[link]

Ólafur with President of Russia Vladimir Putin at the Kremlin on 19 April 2002.

In the 1996 presidential election, he was elected with 41.4% of the votes.

Refusal to sign media law[link]

He is the first president to use the authorization given in the 26th article of the Icelandic constitution to put a law from Alþingi in to a referendum. He did that on 2 June 2004 to a law about the mass media. His decision remains controversial with politicians and legal scholars alike. Some consider the refusing to sign as "an attack" on Alþingi and parliamentary sovereignty and lawyers debate whether article 26 is actually valid. No national referendum was ever held about the controversial media law as the government withdrew the law before a referendum could be held.

Re-election 2004[link]

In the 2004 presidential election, Ólafur was re-elected with 67.5% of the votes cast (down from over 95% in the only other time an incumbent has been contested), but that election also saw a record number of empty ballots (21.2%) and an exceptionally low turnout of 63% (usually 80–90%), both of which have been interpreted as dissent with the president's decision to not sign the media law. Since then, the issue of a constitutional amendment to revoke the veto power of the president has been raised by the Independence Party. Some have also wanted to rest that power with the people themselves, who could then force referendums to be held on laws by – for instance – collecting a certain number of signatures.

Re-election 2008[link]

On 1 January 2008, in his new year's address, Ólafur announced his intention to seek a fourth term in office later in 2008. Because there was no challenger, he was automatically re-elected and sworn in for another term on 1 August 2008.^[3]

Crisis of 2008 statements[link]

In the aftermath of the 2008–2012 Icelandic financial crisis, Ólafur has criticised other countries for lack of help to Iceland.

In early November, the President attended a traditional informal lunch with all ambassadors to Iceland, held by the senior Danish ambassador. According to a confidential memo from the Norwegian embassy, quoted in the Norwegian newspaper Klassekampen, the President said: "The North Atlantic is important to Scandinavia, the US and Britain. This is a fact these countries now seem to ignore. Then, Iceland should rather get some new friends". However, he praised Norway and the Faroes for their swift decisions to grant major loans to Iceland. He also said Iceland should rather invite Russia to use the Keflavík Air Base. According to the memo, the offer was turned down by an "amazed and smiling" Russian ambassador who said Russia did not have any need for this. Ólafur also criticised the International Monetary Fund for the system's flaws and for their bad treatment of Iceland. He said it was part of Icelandic political mentality to "fight alone" rather than being threatened to submit, and that he expected Iceland to overcome the crisis sooner than the US and Britain by showing initiative and international activity in new fields. The memo, however, underlines that the President of Iceland has no political power and that no government official has presented similar points of view "to the same degree".^[4][5][6]

The Danish ambassador to Iceland, Lasse Reimann, confirmed to the daily Politiken that the lunch had taken place, but declined to comment on the President's speech.^[7]

On 5 January 2010 the President of Iceland vetoed a measure of the Icelandic government to pay the governments of Britain and the Netherlands for their bailouts of customers of private Icelandic banks (no such bailout was required under Icelandic law, though on 26 May 2010 the EFTA found it was required by the terms of Iceland's membership of the EEA).^[8] The President's veto was upheld by the people of Iceland when they voted upon the measure in March 2010. This dispute is known as Icesave dispute.

On 20 February 2011 the President of Iceland again vetoed an effort by the Icelandic government to pay (over a period of years) money to the governments of Britain and the Netherlands. In a referendum, which was held on 9 April 2011, Icelanders rejected for a second time a proposal to pay $5 billion to Britain and the Netherlands.^[9][10] Nearly 60% of Icelanders rejected the proposal put forward by the government.^[11] The President's veto was upheld by the people and the government now needs to find a way to solve this issue.^[12]

2012 Election[link]

Ólafur Ragnar announced on March 4, 2012 that he would be seeking a fifth term as the President of Iceland in the 2012 presidential election.^[13]

Views on current global issues[link]

Ólafur has identified the 2009 financial crisis, the need for a green energy revolution, and climate change as the three most pressing issues in today’s world. Declaring these three problems to be interconnected, he has said, “None of these three crises can be solved without solving the other.”^[14]

Other achievements[link]

In recent years the President has been outspoken on the issues of renewable energy and global climate change. He initiated a Global Roundtable on Climate Change with the participation of a large group of companies and individual opinion leaders. President Ólafur strongly advocates the use of geothermal energy, which is renewable, economically viable and reliable resource, as proven convincingly by the case of Iceland.

In relation to his efforts on these issues, President Ólafur has participated in the Global Creative Leadership Summit,^[15] organized by the Louise Blouin Foundation,^[16] in 2007 and 2008. He was also awarded the Louise T Blouin Award for Creative and Cultural Achievement. In 2008, as a delegate at the Summit he delivered the Keynote Speech on Climate Change versus Globalization.

Family[link]

He married Guðrún Katrín Þorbergsdóttir in 1974, who gave birth to twin daughters the following year, Guðrún Tinna, a graduate in Business Studies, and Svanhildur Dalla, a graduate both in Political Science and Law.^[1][17] Guðrún Katrín was a popular figure in Iceland, and the country mourned when she passed away after a fight with leukaemia in 1998.

Ólafur's second marriage was to Israeli-born Dorrit Moussaieff, to whom he became engaged in May 2000. The wedding took place on his 60th birthday, 14 May 2003, in a private ceremony held at the presidential residence.

They have a dog, Sámur, who is named after the dog of Gunnar of Hlíðarendi, one of the main characters in the Icelandic family saga Njála.

Health[link]

Ólafur was hospitalized in Reykjavík on 6 October 2008 for an angioplasty procedure. This was announced on 9 October, with his saying that he was "recovering and has resumed most activities".^[18]

External links[link]

Wikimedia Commons has media related to: Ólafur Ragnar Grímsson

References[link]

v t e Presidents of Iceland Sveinn Björnsson • Ásgeir Ásgeirsson • Kristján Eldjárn • Vigdís Finnbogadóttir • Ólafur Ragnar Grímsson