Phelps, in 2008
July 26, 1933 |
Evanston, Illinois, U.S.
|Institution||Columbia University 1971â€“
University of Pennsylvania
|Alma mater||Yale University
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)
Friendship Award (China) (2014)
|Information at IDEAS / RePEc|
Statistical studies are all over the lot about the pluses and minuses of raising the minimum wage.
One reason why upturns follow downturns is that downturns tend to overshoot. People get panicky, they're afraid to stay the course, so they start selling. The other thing is that I think, as entrepreneurs keep on waiting to produce new things, that there's an accumulation of as-yet-unexploited new ideas that keeps mounting up.
If you rent, that's it. You don't have to pay any interest to anybody. You don't have to pay any maintenance costs to anybody. You don't have to worry about whether the boiler is going to break down. While if you own your own home, you have a hundred aggravations.
The need to encourage entrepreneurship and ensure that young people have the opportunity to start new businesses is acute.
A healthy economics has got to have both conceptual, theoretical research and applied, empirical research.
There's such a preoccupation with liquidity and such an unwillingness to invest beyond the horizon of the next quarter and making sure that the CEOs hit their quarterly earnings.
When the word 'morality' comes up in connection with economics, income distribution and financial stability are usually the issues. Is it moral for rich countries to use such a high proportion of the world's resources or for investment bankers to earn large bonuses?
Overpaying the banks for their toxic assets could contribute capital, but that may not be politically feasible or attractive.
I'm not attacking the idea that people live in conglomerations of houses in proximity to one another, sharing the same water mains and the same newspaper delivery boy and so forth. I'm not objecting to that. That could happen with or without homeownership.
I don't think the economy telegraphs very clearly where it's going.
Some economists believe that the Greeks' work ethic and thrift can pull them through. But the classical virtues can do nothing to offset the dearth of innovation that plagues the economy.
An indictment of entitlements has to focus on the huge 'social wealth' that the welfare state creates at the stroke of the pen. Yet statistical tests of the effects of welfare spending on employment yield erratic results.
Without being aware, I think I was being indoctrinated into what was called Vitalism, the idea that what makes life worth living, the good life, consists of accepting challenges, solving problems, discovery, personal growth, personal change.
Democrats and Republicans have been very keen to make home ownership almost a national purpose.
To prosper and advance, the American business sector is going to need a financial system oriented toward business, not 'home ownership.'
Germany, Italy and France appear to possess less dynamism than do the U.S. and the others.
Unemployment rates tend to rise and fall in roughly equal proportion at all rungs of the ladder, and that happened between 1973 and 1985.
The fallacy of the neoclassicals is their tenet that total employment, though hit by shocks, can be said always to be heading back to some normal level.
The Keynesian belief that 'demand' is always at the root of underemployment and slow growth is a fallacy.
I just think that the Europeans are depriving themselves of a high-employment economy, and they are depriving themselves of intellectual stimulation in the workplace – and personal growth – by sticking to the stultifying, rigid system that I call corporatism.
In essence, capitalist systems are a mechanism by which economies may generate growth in knowledge – with much uncertainty in the process, owing to the incompleteness of knowledge.
Companies like Google and Facebook may offer jobs allowing or requiring imagination and creativity, but the whole of Silicon Valley accounts for only 3 percent of national income and a smaller percentage of national employment.
For decades, my research was driven by outstanding problems in macroeconomics: mainly growth theory and employment theory.
I grew up thinking that renting is perfectly normal. And then, strangely enough, I never did buy a house. I live in New York City, and I'm still renting. My own personal narrative shows that it is possible to live a respectable life without ever having owned a home.
An economy open to new concepts and novel ventures is bound to generate unequal gains.
When I was in college at Amherst, my father asked me a favor: to take one course in economics. I loved it – for the challenge of its mysteries.
In America, black urban teenagers have long been lacking in inclusion. In France, there is a comparable lack of inclusion among North Africans. In much of Europe, there has been little attempt to include the Roma.
After a major loss of dynamism in the 1960s, productivity growth rates began dropping in most countries, falling by half in the U.S. in the 1970s and more or less ceasing altogether in France, Germany and Britain in the late 1990s.
It was gradually learned that acceptance of a somewhat higher inflation rate would not really bring somewhat higher employment.
Developing new products is labour- intensive. So is producing the capital goods needed to make them. These jobs disappear when innovation stalls.
Chancellor Angela Merkel and Wolfgang Schaeuble, her finance minister, are right to oppose fiscal and bank unions without political union.
The celebration of homeownership seems to be part of a countermovement against popular owning of shares in corporations.
Entrepreneurs have only the murkiest picture of the future in which they are making their bets, and also there is ambiguity: they don't know when they push this lever or that lever that the outcome is going to be what they think it is going to be – there is the law of unanticipated consequences.
A system where self-employment and self-finance was typical gave way to a system of companies having various business freedoms and enabling institutions. This was the 'great transformation' on which historians and sociologists as well as business commentators were to write volumes.
You have little representation of young black men in the business sector, so you have children growing up in disadvantaged neighborhoods who don't hear discussions at the dinner table about what goes on in business. It's almost as if we have two nations.
Most of the big banks were shot through with short-termism, deceptive practices and self-dealing. We must institute basic changes in corporate governance and in management practice to restore responsibility and honesty for the sake of the economy and for the self-respect of the country.
In countries operating a largely capitalist system, there does not appear to be a wide understanding among its actors and overseers of either its advantages or its hazards.
The good life, as it is popularly conceived, typically involves acquiring mastery in one's work, thus gaining for oneself better terms – or means to rewards, whether material, like wealth, or nonmaterial – an experience we may call 'prospering.'
The main cause of Europe's deep fall – the losses of inclusion, job satisfaction and wage growth – is the devastating slowdown of productivity that began in the late 1990s and struck large swaths of the continent. It holds down the growth of wages rates, and it depresses employment.
Well into the 20th century, scholars viewed economic advances as resulting from commercial innovations enabled by the discoveries of scientists – discoveries that come from outside the economy and out of the blue.
'Egalitarians' who complain about inequality view the wealth of the wealthiest as bad in itself: it disfigures society. They would enact a wealth tax to extirpate the offending wealth.
I'm hoping that the administration and other thought leaders will succeed eventually in bringing the country back to the older idea that the American dream is having a career, getting a job, and getting involved in it, and doing well. That was the core of the good life.
I'm old enough to remember in the 1930s and the 1940s when thrift, frugality, was considered an important virtue.
Narrow banks could restart effective intermediation and ensure that consumers and employment-creating small and medium-size enterprises are adequately financed and can contribute to the reactivation of the economy.
Mass prosperity came with the mass innovation that sprung up in 1815 in Britain, soon after in America, and later in Germany and France: It brought sustained growth to these nations – also to nations with entrepreneurs willing and able to copy the innovations.
Unemployment determination in a modern economy was the main subject area of my research from the mid-1960s to the end of the 1970s and again from the mid-1980s to the early 1990s.
Things can get only so bad. People want to eat, so at some point they resist further cuts to their consumption – it's not a bottomless pit.
Capitalist systems function less well without state protection of investors, lenders, and companies against monopoly, deception, and fraud.
The difficulties of many European countries derive from their corporatism: state projects serving cronies and vast social protection programmes, both run by elites. These surged in the 1970s and 1980s.
I attended Amherst College from 1951 to 1955. The first two years were a revelation. There were innumerable exchanges with brilliant classmates, among them the playwright Ralph Allen, the classics scholar Robert Fagles, and the composer Michael Sahl.
I've lived to see key parts of my research absorbed in textbooks and in central banks around the world. And some finance ministries, too.
America's peak years of indigenous innovation ran from the 1820s to the 1960s. There were a few financial panics and two depressions, to be sure. But in this period, a frenzy of creative activity, economic competition and rapid growth in national income provided widening economic inclusion, rising wages for all, and engaging careers for most.
With less competition to fear, companies are emboldened to raise their mark-ups and profits. That lifts share prices and thus the wealth of already wealthy shareholders.
The best part of the high school in Hastings must have been the Music Department. Its orchestra and concert band did well in county competitions, and the dance band formed by its students was the best in the region. I played lead trumpet in all of them.
I do think from time to time that conceptual questions arise: What do we mean by equilibrium? What do we mean by this concept and that concept?
Everybody feels better about himself, his community, and his country if employers are paying workers well. Economics, though, teaches that if every employer is pressured to raise wages, some labor will be priced out of the market.
A nation's economy is more than its markets, tastes, technologies and property rights.
Corporatist attitudes against capitalism came to the fore in the 1920s. Corporatists, with their conservative values, hated the invasion of towns and regions by new businesses, upsetting traditional ways, wealth and status.
Entrepreneurs' willingness to innovate or just to invest – and thus create new jobs – is driven by their 'animal spirits,' as they decide whether to leap into the void.
I think the 19th century is an extraordinary period with a welling up of creativity and all kinds of experimentation and exploration going on at least until 1940.
Statistical studies are all over the lot about the pluses and minuses of raising the minimum wage.
Those of us born into vitalist and expressionist cultures must hope that governments will draw back from shutting down the modernist project of exploring, experimenting, and imagining – of voyaging into the unknown – that has been essential for rewarding lives.
In the 1960s, and stretching back to the 1930s, it was felt by many economists that easy money is a reliable way to increase employment.
To pump up consumer or government demand would force interest rates up and asset prices down, possibly by enough to destroy more jobs than are created.
I would like to see people dreaming of striking out on their own into some other country or their own, wherever they feel the action is, in the hope of an exciting and rewarding career.
Raising the minimum wage seems to all economists to, at the very least, fail to 'raise' employment, and we'd all like to see better inclusion of low-skilled workers into good-paying jobs.
In societies where one sees a higher prevalence of 'modern values' – individualism, vitalism and self-expression – there's also higher reported job satisfaction.
The level of dynamism is a matter of how fertile the country is in coming up with innovative ideas having prospects of profitability, how adept it is at identifying and nourishing the ideas with the best prospects, and how prepared it is in evaluating and trying out the new products and methods that are launched onto the market.
I grew up, until age 6, in Chicago. My parents rented their apartment and, at the end of the Depression, my parents wanted to replicate that situation. So, again, we lived in a somewhat suburban setting outside of New York City, and again, they rented.
As a grandson of farmers in downstate Illinois, I have long admired the dedication of farmers to their work and have written about the role of agriculture in American innovation.
I started to think about what drives innovation and what its social significance might be. The next step was to think innovators are taking a leap into the unknown. That led me to the thought that it is also a source of fun and employee engagement.
A modern economy is marked by the feasibility of endogenous change: Modernization brings myriad arrangements from expanded property rights to company law and financial institutions.
Italy and France could lop off their excessive wealth through a one-time tax on private wealth.
The 1920s and 1930s were a period of sensational productivity growth: new products were springing up all over the place, and most of those new products and new methods were developed by people who started their own companies.
Economics has paid a terrible price for its dalliances with the Keynesian and neoclassical theories.
When I was a teenager, I learned to play the trumpet. Music became my passion.
Disciples of Keynes, who focus on aggregate demand, view any increase in household wealth as raising employment because they say it adds to consumer demand.
In Greece, Italy and, to a lesser extent, France, unsustainable tax cuts and spending sprees added to households' estimates of their private wealth relative to their wage income.
I didn't do my work for money or prizes – only for the excitement of discovery.
What brought mass innovation to a nation was not scientific advances – its own or others' – but 'economic dynamism': the desire and the space to innovate.
Expertise and judgment in the art of lending for novel ventures must be reacquired.
At the simplest level, economics can better show us the consequences of our actions. Less simple are cases in which we don't have the knowledge to predict the full consequences. Global warming and climate change are examples.
Liberal redistributionists in favor of heavy taxation place less weight on incentive than do small-government conservatives.
My view is that innovation has declined in the everyday processes that businesses tinker with incrementally as they try to become more productive over time.
The epic story of the West is the development in the 19th century of a mass prosperity the world had never seen and its near-disappearance in one nation after another in the 20th.
No amount of debt restructuring, even debt forgiveness, will help the Greeks achieve real prosperity. What they need is not short-term relief but, rather, a long-term cure.
My thinking has always been that the worst problem we have with regard to lack of inclusion is the terribly low labor force participation rates and terribly high unemployment rates of young men, especially young men in ethnic minority groups and, in particular, young black men.
Workers in decent jobs view the economy as unjust if they or their children have virtually no chance of climbing to a higher rung in the socioeconomic ladder.
I could try to incorporate or reflect in my models what it is that an employee, manager, or entrepreneur does: to recognize that most are engaged in their work, form expectations and evolve beliefs, solve problems, and have ideas. Trying to put these people into economic models became my project.
When public spending in the form of transfer payments makes various services and benefits free of charge, work is discouraged. Yet it is precisely Social Security that legislators fear to cut.
My God, I don't know anyone who likes to accumulate their wealth more than the Europeans.
There would be plenty of justification to raise revenues in order to subsidize businesses that employ low-wage workers. But there can be no justification for pandering to the economy's entire bottom half merely to attract its votes.
Economists of a classical bent lay a large part of the decline of employment, and thus lagging output, to a contraction of labour supply.
If every effect of any new products or methods were required to be known before they could be produced and marketed, they would not be true innovations – and thus not represent new knowledge of what people would like, if offered.