Archive for March 17th, 2008

Why wasn’t Alban William Phillips given a Nobel Prize?

March 17, 2008

I will not be surprised if the reader of this post says Alban William Phillips who?

Well, he is the guy who developed perhaps the most important concept in macroeconomics – The Philips curve. It says there is a trade-off between inflation and unemployment and policymakers have to decide what they want. If they want lower inflation they need to live with high unemployment and vice-versa. The way Philips derived the theory is itself a superb story. He first conducted the experiment on the UK economy in 1958 and found this inverse relationship. This relationship was then tested for other countries and found to be somewhat true. Then policymakers started teaching this as a bible.

Since then, it has been one of the most fiercely debated topic. Later, Milton Friedman and Edmund Phelps thrashed the Philips Curve and showed that there is no trade off and infact there is always a case for some unemployment in a country which leads to non-accelerating inflation (also called as NAIRU).

But still, there are so many discussions centred around this curve -whether the slope of the curve has changed (like they say it has flattened now) or whether the curve has shifted (downwards) etc.  Like Wikipedia says:

But still today, modified forms of the Phillips Curve that take inflationary expectations into account remain influential. The theory goes under several names, with some variation in its details, but all modern versions distinguish between short-run and long-run effects on unemployment. The “short-run Phillips curve” is also called the “expectations-augmented Phillips curve”, since it shifts up when inflationary expectations rise….

For more on Philips Curve, read this primer from Richmond Fed.

Now, coming to the main question, why didn’t Philips get a Nobel Prize (or some other honour). It is surprising. He should have atleast copyrighted the use of the term Philips Curve (like people say Nash should have copyrighted Nash equilibrium), would have atleast got some royalty from heavy usage of the term. Well, Wikpedia profile answers the question: 

Had he lived longer, Phillips’ contributions may have been worthy of a Nobel prize in economics. …..He had a stroke, prompting an early retirement and return to Auckland, New Zealand, where he died in March, 1975.

I checked his birth details, born in 1914 and dies in 1975. He was 61 when he dies. So by Nobel Prize standards, he was quite young.

But there is more to the story. He actually was trained as an Engineer and moved to Economics after 1946 and was around 31 years by then. (Ok here is another after thought- would he have developed the Philips Curve if he was an economist from the beginning? How much did the engineering background help?)

So, he was quite a sharp guy and learnt the tricks of the game quite fast. He went on to become a full tenured Professor in Economics by 40. Simply amazing!

Assorted Links

March 17, 2008

1. Fed is in action again and this time I expect the criticism to be much bigger than ever. It has cut discount rate by 25bps to 3.25 % , provide funds to securities firms and provided support to Bear Sterns via JP Morgan Chase.

WSJ Blog points to comments over increasing moral hazard. It also pointsthe reason behind Fed’s support to Bear Sterns. Read Mankiw’s comments as well. FIn Prof has detailed post

2. Econbrowser on recession

3. Jeff Frankel questions why commodity prices continue to rise despite the world economic growth slowing down? The answer will come in next post.

4. JRV saysBerkshire Hathaway is more like a hedge fund than an investment company. Well, so is the case with most financial firms.

5. TTR points to the mechanics of the debt waiver. He also points to the diverse views over India’s economic forecast

6. Rodrik asks whether he should start reading the economist again?


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