American Wins Nobel Economics Prize
Another American has won a 2006 Nobel Prize, continuing what so far has been a sweep for the U.S.
Edmund S. Phelps won the Economic Sciences award on Monday for furthering the understanding of the trade-offs between inflation and its effects on unemployment.
The 73-year-old Columbia University professor's work showed how low inflation today leads to expectations of low inflation in the future, thereby influencing future policy decision making by corporate and government leaders.
Phelps is the sixth American to win a Nobel this year, meaning that every prize except for the literature and peace awards, which are yet to be announced, have gone to Americans.
"It's always a surprise because, even if you feel pretty certain you're going to get it, you never know when you're going to get it, in your 60s, your 70s, your 80s, whenever," Phelps laughed when contacted by CBS Radio News.
His personal economy will be improved by the $1.4 million prize, reports CBS News' George Wood.
The Royal Swedish Academy of Sciences said Phelps' work, done in the late 1960s, had "deepened our understanding of the relation between short-run and long-run effects of economic policy."
Phelps challenged the prevailing view in the 1960s that there was a stable, negative relationship between inflation and unemployment, illustrated by the so-called Phillips curve.
"He recognized that inflation does not only depend on unemployment, but also on the expectations of firms and employees about price and wage increases," the academy said.
Phelps put together a new model to describe the relationship between inflation and unemployment, known as the expectations-augmented Phillips curve.
He also showed that there is a precise "equilibrium unemployment rate" at which firms raise workers' wages at the same rate as average wages are expected to rise in the economy overall. Those findings have influenced central banks in their interest-rate decisions, the academy said.
"Phelps' work has fundamentally altered our views on how the macroeconomy operates," the citation said, adding his work proved fruitful in understanding the causes of the increases in both inflation and unemployment in the 1970s.
In its citation announcing the award, the academy said that Phelps had advanced the understanding of the trade-offs between full employment, stable pricing and rapid growth, all of which are the central goals of any sound economic policy.
"But policy always faces difficult goal conflicts. How should inflation and unemployment be balanced against each other?" the academy asked in the citation. "What trade off should be made between the consumption of current and future generations?"
Phelps' work advanced the understanding of those trade-offs.
"He has emphasized that not only the issue of savings and capital formation but also the balance between inflation and unemployment are fundamentally issues about the distribution of welfare over time," the academy said. "Phelps' analyses have had a profound impact on economic theory as well as on macroeconomic policy."
Phelps also pioneered the analysis of the importance of human capital, or workers themselves, for the diffusion of new technology and growth in the business and corporate world, the academy said in its citation.
Previous winners of the economics prize, given out since 1969, ranged from how the control of information affects markets to welfare economics used to explain the economic mechanisms that underlie famine and poverty.
Last year's winners were Robert J. Aumann, a citizen of Israel and the United States, and American Thomas C. Schelling, for their work in game-theory analysis.
The economics prize is the only one of the awards not established in the will left by Swedish industrialist Alfred Nobel 111 years ago.
The medicine, physics, chemistry, literature and peace prizes were first awarded in 1901, while the economics prize was set up separately by the Swedish central bank in 1968.
The economics prize is the fourth of six to be announced. The winner of the Nobel Prize in literature will be announced Thursday, followed by the Nobel Peace Prize in Oslo, Norway, on Friday.
Last week, the Nobel medicine prize went to Andrew Z. Fire and Craig C. Mello for discovering a powerful way to turn off the effect of specific genes. John C. Mather and George F. Smoot won the physics prize for work that helped cement the big-bang theory of how the universe was created.
American Roger D. Kornberg won the prize in chemistry for his studies of how cells take information from genes to produce proteins, a process that could provide insight into defeating cancer and advancing stem cell research.
The Nobel prizes are presented Dec. 10, the anniversary of the death of their founder. The peace prize is awarded in Oslo, Norway, and the other Nobel prizes are presented in Stockholm.