Congratulations are due to Ned Phelps, an esteemed member of the FT’s forum of economists, for his well-deserved Nobel Prize - better late than never, in my view. With Milton Friedman, Ned made seminal contributions in the 1960s to the idea of the "natural rate of unemployment". This demolished the naïve notion that there was a stable trade off between inflation and unemployment. The stagflation of the 1970s dramatically demonstrated the truth of this attack on primitive Keynesianism. That, in turn, led to our current understanding that structural factors determine unemployment in the medium run, while central banks determine only inflation. The best contribution central banks can make to stability is, accordingly, to be credible in their pursuit of low and stable inflation.

Ned has continued to pursue his research in many interesting directions. His work is always characterised by its intellectual independence, practicality, relevance and deep insight. I have particularly admired his work on the case for wage subsidies in high-income countried and on the sources of economic dynamism in the long run. I have still more admired the fact that Ned writes words. He is ever mindful of the fact that economics not only studies human beings, but needs to be understood by them.

October 9th, 2006 in Nobel prize | Permalink