Monday, October 9, 2006

2006 Nobel Memorial Prize in Economics

This year the prize for economics, formally called The Bank of Sweden Prize for Economic Sciences in Memory of Alfred Nobel, is awarded to Edmund S Phelps of Columbia "for his analysis of intertemporal tradeoffs in macroeconomic policy." (Yet another American wins in Nobel season? The Nobel Committee usually spreads the wealth.)

In short, Phelps challenged the conventional wisdom that the price for lower unemployment is higher inflation rates. Instead, Phelps said policy decisions made in the present made at several levels -- wages, employment policy, as well as how to fight inflation now -- are what have an impact on future events. As we know all too well in Canada: John Crow tried to fight inflation with higher interest rates -- which only fueled inflation even more and less to mass unemployment; the damage is still evident with the continuing presence of food banks.

While his analysis (technical details here) is focused on macroeconomics, his Phelps Curve does have political ramifications. Today's nuclear test in North Korea is proof of that -- America went after the wrong enemy, and has now forced the world entire to pay the price. Thus, I don't think it was an accident Phelps was named the winner. The decision may have been made some time ago, but it's another gloveslap for You Know Who.

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