US scoops Nobel economics prize

[Stockholm]

snip

Professor Phelps has been concerned with explaining the relationship between unemployment and inflation, which had been described by some economists as a trade-off.

He argued that inflation expectations could become embedded in the economy, leading to stagflation despite high unemployment.

This also meant that if inflation expectations were kept in check, the economy could run at a lower level of unemployment than would otherwise be the case.

Such views helped influence central banks to try and curb inflationary expectations promptly.

http://news.bbc.co.uk/2/hi/business/6033837.stm

http://nobelprize.org/

[Warpy]

1. Gee whiz, finally some egghead doesn't blame labor

for all the ills of the economic world. That's gotta hurt men like Rubin, Bernanke, Greenspan, all old school cold fish who thought every time a working stiff fell into poverty, the economy got stronger.

There was relatively low inflation through the 50s plus high employment and the best deal in wages and benefits working people have ever had in this country. I don't think any of them ever thought of the 50s when they posed their elegant theories on the best way to depress wages for the many and maximize profit for the few.

It's amazing how many economists miss the obvious: economies are spurred by demand, not supply.

[robcon]

2. That's a misreading, IMO, of the economics involved.

The primacy of aggregate demand (over supply) has been boilerplate economics since 1937 (Keynes "General Theory...")

This Nobel-prize winning theory posits the primacy of inflationary expectations, rather than a simple economic knee-jerk from money supply. This upsets the right wing theory that changes in government spending are neutral for the economy (summarized in Milton Friedman's famous phrase "only money matters.")

[happyslug]

3. Some more on Edmund S. Phelps

http://www.columbia.edu/~esp2/

[Shipwack]

4. Since Americans have been sweeping the Nobles so far...

Does this mean that President Bush needs to start polishing his Peace Prize acceptance speech?

/e straight face