Edmund S. Phelps

Columbia professor Edmund Phelps, 2006 Nobel laureate in economics, died last week. Ned Phelps won the Nobel in part for disabusing the supposed permanent tradeoff between inflation and the rate of unemployment. Real people would catch on, Phelps explained, and adjust expectations accordingly. Formulas did not account for the short and long-term reactions by real people. Over time, unemployment graduates to its “natural rate”—a concept Phelps first described and a term coined by Milton Friedman a year later.
 
For the past several decades, Phelps developed a theory of how workers as well as entrepreneurs flourish within an open framework of dynamic capitalism that gives people ample room to overcome authentic challenges in their own ways. This individual resourcefulness can’t thrive under stifling bureaucratic and corporatist structures. His 2013 book Mass Flourishing argues that liberating individual initiative is the key not only to a vibrant economy but also a healthy, trustful, and moral society.
 
Phelps’s work on human striving closely aligns with Common Good’s critique of legal micromanagement, and in 2015 I became a Senior Fellow at his Columbia department, the Center on Capitalism and Society. For the past decade we jointly organized forums—most recently, a 2023 forum on “Re-empowering Human Agency,” featuring economists Paul Romer (also Nobel laureate) and Richard Robb, public administration expert Paul Light, philosopher Yuval Levin, government IT expert Jennifer Pahlka, former Columbia law dean David Schizer, and historian Niall Ferguson.
 
The central truth of Phelps’s work for the past several decades is that people need to be free to do things in their own ways. Instead, by boxing people into rigid legal and organizational frames, big business and big government are strangling the goose that created modern prosperity. In his 2023 memoir, My Journeys in Economic Theory, Phelps talks about his friendship with the philosopher John Rawls, who had the adjoining office at Stanford in 1969. Like Rawls, Phelps saw that structures disconnected from human initiative and needs were bound to fail.
 
I don’t think Ned Phelps would mind if I now apply his truths to America’s current dilemma. New leaders can stop some craziness, but new leaders cannot right the ship without first re-empowering human initiative. The wild swings in partisanship are symptoms of a broken state—broken because it disempowers Americans from living their values, and from doing things their own ways. The cure is not just new leaders, but a new framework that lets everyone take leadership in their own lives and communities.

– Philip

NewslettersAndrew Park