Edward C. Prescott’s work on explaining the economic shocks in the 1970s prompted new approaches to fiscal and monetary policies. This breakthrough earned him an award. Nobel Economics prize, died Nov. 6 in Paradise Valley (Arizona). He was 81.
Ned Prescott’s son said that the cause was cancer.
Dr. Prescott was an important member of the generation economic thinkers that confronted in the 1970s the collapse of Keynesian models. These had dominated policymaking from the 1930s, but were unable to account for the changes. for the decade’s high inflation and low growth.
Keynesian economics focuses largely on the demand side of the equation. Changes in this, it claims, can cause fluctuations in business cycles. But Dr. Prescott, working with his frequent collaborator Finn Kydland, asked whether the supply side — like energy costs, and especially technological progress — could be just as important, if not more so.
They are actually very good at what they do, especially in a seminal 1982 paperAccording to the study, supply-side shifts were responsible for the majority of the changes in the business cycle that occurred since the end World War II. Their research led to decades of policies that began under President Ronald Reagan to reduce taxes and regulate to maximize supply-side efficiency.
John Maynard Keynes might have agreed with you: He once said that he believed in the idea of a “single market.” “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”
And to be fair, Keynes didn’t have the advanced computer modeling systems that made Dr. Prescott’s work possible, and that gave him and Dr. Kydland perspective on the economy as a dynamic system.
This understanding of dynamism is related to their second critical insight regarding time inconsistency, which economists refer to as time inconsistency. As they explained in a 1977 paperPoliticans tend to set long-term goals and policies but then cut corners. for short-term expediency.
As an example, they cited public flood insurance. The government may refuse to insure an area deemed too dangerous for building on. But once people do build there, politicians are likely to cave to constituent pressure — and, in fact, people will build because they expect politicians to cave.
This credibility problem was particularly troubling for When it came to central bankers, Dr. Prescott was Dr. Kydland. The banks’ directors might make low inflation their primary long-term goal. However, if they are under political pressure, they might shift their priorities to higher employment even though it may mean higher inflation.
Therefore, Dr. Prescott argued, governments should set long-term rules and keep to them — by, for One example is to protect central banks against political pressure by setting multiyear budgets and insulating them from political pressure.
These insights were made in the late 1970s. Dr. Prescott returned in 2004 to the limelight, the same year that he was awarded the NobelWith a paper exploring why Americans worked longer hours than Europeans.
Dr. Prescott, unlike other economists who emphasized cultural differences in explanations, argued that it was all down to taxes and provided empirical evidence to support his argument. When taxes in France were higher than in the United States in 1950s, French workers worked more hours than Americans.
This was reversed as the tax rates in France rose and the US fell in the following decades. Dr. Prescott, along with 367 other economists, signed a criticism letter against Senator John Kerry’s 2004 Democratic presidential nomination to repeal tax cuts for high income earners.
“The idea that you can increase taxes and stimulate the economy is pretty damn stupid,” Dr. Prescott spoke to reporters.
Dr. Prescott was awarded the 2004 Distinguished Service Award by Dr. Kydland for their outstanding work. Nobel.
“They offered a new and operational paradigm for macroeconomic analysis based on microeconomic foundations,” the Nobel committee wrote. “Kydland and Prescott’s work has transformed academic research in economics, as well as the practice of macroeconomic analysis and policymaking.”
Edward Christian Prescott was conceived in Glens Falls, N.Y. on December 26, 1940. It is a city near Albany on the Hudson River. His early interest in economics was sparked by his father William Prescott, an engineer who managed factory operations. Mathilde (Helwig), Prescott was Mathilde’s mother and was a homemaker and librarian.
Edward Even though he was physically weak, he played football in high school, college, and summers worked in a nearby papermill and as a golf caddy.
He entered Swarthmore College planning to study physics on the way to a career in rocket science, but he came to see the school’s department as insufficiently theoretical. He changed to mathematics and graduated from Swarthmore College in 1963.
He received a master’s degree in operations research from the Case Institute of Technology, in Cleveland, which merged a few years later with Western Reserve University, and a doctorate in economics from the Carnegie Institute of Technology in 1967, the same year the school merged with the Mellon Institute to form Carnegie Mellon University.
He married Janet Dale Simpson in 1965. He also survived her, along with their son Ned. Wynn Prescott and Andrew, their other sons, Wynn Prescott and Andrew, Prudence Robertson and six grandchildren.
Dr. Prescott studied at Carnegie Mellon University of Pennsylvania, University of Minnesota, and University of Minnesota. He then moved to Arizona State University in 2003. He became a consultant in 1981. for The Federal Reserve Bank of Minneapolis.
At one point he almost took a job at the University of Chicago, but decided against it because his son Ned was a graduate student in the university’s economics department, and he didn’t want to run the risk of a conflict of interest. Ned Prescott currently works for The Cleveland Fed.