New Nobel Prize Economist – Wrong on Unemployment?

This year’s Nobel Prize winner in economics has just been announced: Edmund Phelps, a Columbia University economist, for his work on unemployment and inflation. Phelps is one of the economists of the “natural rate of unemployment” theory — the theory that has provided the intellectual foundation for employing fear-mongering about inflation to fight job-creation policies.

In the current issue of D&S, Dr. Dollar offers a primer on the history of the unemployment-inflation tradeoff and a political-economy critique of natural-rate-of-unemployment theory (and of its recent demise — in the late 1990s, the U.S. unemployment rate went well below what economists claimed was its “natural” rate without causing the accelerating inflation that they’d repeatedly warned would result): http://www.dollarsandsense.org/archives/2006/0906drdollar.html

If you’re looking for a (brief) progressive analysis of Phelp’s technical arguments about inflation and real-wage expectations, check out Dean Baker’s Oct. 9 “Beat the Press” column: http://www.prospect.org/deanbaker/