Nobel for Edmund Phelps, Peter Boettke

I served on a doctoral dissertation committee with Phelps when I taught at NYU. He co-chaired the committee with my colleague Roman Frydman, and the student was Michael Goldberg (now of Univesity of New Hampshire). Phelps and Frydman had resisted the Lucas revolution of a strict interpretation of rational expectations, and offered instead a notion of "theory consistent expectations" and the dymanic market process—as opposed to equilibrium economics.

For Austrian economists these two developments represented interesting choices. When Lucas started his assault on Keynes and insisted that an equilibrium theory of the business cycle be erected in place of Keynesian theory he took inspiration from Hayek. Lucas's island model in which the noise between relative prices and price level changes cause economic distortions was his explicit attempt to formally render Hayek's business cycle theory from the 1930s. Similarly, Frydman's work on theory consistent expectations and the market process drew inspiration from Hayek's work on the coordination of economic activities. The main macroeconomists in the Austrian tradition at the time—Gerald O'Driscoll and Roger Garrison—choose to emphasize the critical differences between the Austrian approach to macroeconomics and these post Keynes developments in the 1970s and 1980s. Neither Lucas/Sargent nor Clower/Leijonhufvud nor Phelps/Frydman became the critical allies for theory advancement that perhaps they could have. Personally, I have always found the Clower/Leijonhufvud work the most compelling of this bunch, but then again I am not a macro economist. (...)

Anyway, I am pleased for Ned. I wish the Nobel Prize committee would have been as thoughtful as Ned's own journal and given a nod to Axel as well. That way the full array of alternatives to traditional Keynesian macroeconomics would have been awarded—pre-Keynesian (Hayek), adaptive expectations and monetarism (Friedman), critique of functional finance (Buchanan), rational expectations and New Classical economics (Lucas), theory consistent expectations and the long run natural rate (Phelps), and the coordination Keynesianism and the Wicksellian connection (Leijonhufvud).