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STEVE INSKEEP, host:

The business news starts with the Nobel Prize for the dismal science. Edmund Phelps won the 2006 Nobel Memorial Prize in Economic Sciences. Like every other Nobel Prize winner so far this year, he is an American, and he was awarded the prize for working in the '60s, challenging what was then the conventional wisdom.

NPR's Adam Davidson is on the line, and Adam, what was that conventional wisdom?

ADAM DAVIDSON: Most people believed that governments had a lot of power to control the unemployment rate. They could lower the unemployment rate, get more people back to work by simply accepting a slightly higher inflation rate. Basically governments thought that they had a lot of power to control how the economy works. It was something known as the Phillips Curve.

Well, Phelps - not Phillips - Phelps showed that that doesn't actually work. It doesn't work in the long run. It completely breaks down. And he forced government economic policy-makers to recognize that they have a lot less power than they thought they did.

INSKEEP: This must be huge, because the major thing that governments seem to be able to do to or with the economy is mess with interest rates, affect the deficits, all of which affects inflation.

DAVIDSON: That's right. And they do focus on interest rates and inflation. But governments now, thanks to Phelps, no longer think about the unemployment rate as a number that they can control, much like they can control inflation rates.

INSKEEP: I want to ask about another thing. The Nobel committee also cited his work on what's called inter-generational justice. What is that?

DAVIDSON: He asked this question, which is a fascinating question: What economic policies that we have today will impact future generations? And he actually wrote in philosophy as well as economics that we have an obligation to future generations as well as to ourselves. And so he came up - they're pretty technical, but with a technical thing - he calls it the Golden Rule of investments, that maximizes well-being not only for current generations but for future generations as well.

INSKEEP: What's the Golden Rule?

ADAMSON: It's - it looks pretty complicated on paper.

INSKEEP: Does it just boil down to invest unto others as you would have them invest - never mind. What is it?

ADAMSON: It's basically let's invest an amount today that - that leaves enough money in the future for people to enjoy and consume as much as we do now.

INSKEEP: Adam Davidson, one other quick question. They do call it the dismal science for a reason. You never know if these brilliant economists know what they're talking about. How do we know this guy actually deserved a Nobel Prize?

ADAMSON: Well, there's an economics joke, that economists are very good at predicting the past and not so good at predicting the future. He's someone whose work really has stood up - at least the 40 years, so far, since he wrote it, and has really transformed in a way that seems sustainable, how economists look at the government. So I think the consensus seems to be he definitely deserved it.

INSKEEP: NPR's Adam Davidson, thanks very much.

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