Summer 2003
The Wealth of a Nation
Photo by Jayme Halbritter
EDWARD PRESCOTT
Professor, economics
Education
Ph.D., economics, Carnegie-Mellon University
M.S., Case-Western Reserve University
B.A., mathematics, Swarthmore College
Selected honors and awards
Laurea Honoris Causa in Economica, University of Rome “Tor Vergata”
Erwin Plein Nemmers Prize in Economics
Fellow, American Academy of Arts and Sciences
Fellow, Econometric Society
Web page motto
People would be surprised to learn…
He was a Fabian socialist in high school.
Is renewed by…
“Doing new things. I like working on puzzles. If I were not a professor of economics, I would be discovering and inventing things. ”
Takes time out to…
Coach youth soccer.
At the end of a long day…
“I walk around Lake of the Isles. Then sip a glass of good wine from my wine cellar and listen to music.”
Family ties
Wife, Jan, an industrial psychologist
three children:
Andy (“the soccer player”),
Wynne (CLA history, ’93),
Ned (who, “to [Ned’s] chagrin, became an economist”)
and four grandchildren.
Looks forward to…
“More time for travel adventures.”
Ed Prescott has no tolerance for mumbo jumbo. Clear logic and precise language are the essential tools of good economic science, argues the University of Minnesota economics professor. Economists who traffic in high-falutin’ terms and only speak faster when questioned don’t impress Prescott.
“I like a nice neat language,” the 62-year-old macroeconomist says. “Some words in economics are used six different ways. If someone uses one of those terms and you don’t know how they’re using it, you can’t communicate. I get very frustrated by that.”
His own knack with straightforward economic vocabulary has allowed Prescott to ask and answer questions many economists once thought too complex or too broad to tackle: What causes depressions? Why do some countries thrive while others stagnate economically? Why is American productivity so much higher than that of other countries?
These are big questions, of course, but Prescott’s facility at developing economic models for studying such issues and positing answers has earned him considerable international recognition. In April, Prescott was awarded the $125,000 Erwin Plein Nemmers Prize in Economics, one of the most prestigious honors in the field of economics. The award, which is paired with a prize in mathematics, is generally reserved for economists believed to be future contenders for the Nobel Prize.
The Nemmers ceremony, held at Northwestern University in Chicago, came just days before Prescott was to accept an equally impressive laurel on the U of M campus. A longtime Regents’ professor, Prescott was recognized with a McKnight Presidential Endowed Chair in Economics. The award, made possible by a gift from the Minneapolis-based McKnight Foundation, recognizes excellence in research and teaching.
Just as he has an interest in questions that affect real people, so, too, has Prescott made a commitment to making sure his theories jibe with real numbers, says Ed Foster, chair of Minnesota’s economics department. “What most strikes me about Ed’s work is his commitment to the science of economics. Economics isn’t always described as a science, but Ed insists on being able to test theories with numbers, to look at data and see if the theories hold up. He always focuses his evaluation, even of students’ work, on the contributions to economic science.”
Sphere of influence
Prescott’s wide-ranging research covers the globe. Recently, he has zeroed in on the matter of productivity. At a 2002 conference, he posed this puzzler: “Why do Americans work so much more than Europeans?”
What sounds like a cheeky question was actually serious academic inquiry. “Americans [generate] 50 percent more [output] than the French on a per-person basis,” says Prescott. That’s a big difference. But in the early seventies, that wasn’t the case. The French worked more than Americans then. So what happened?”
Searching for an answer, Prescott and his students sorted through mounds of economic data on productivity, consumption, and taxation. They compared data of other industrialized nations. “The primary reason that people get richer is that productivity factor,” he says. “There are huge differences between countries.”
American productivity increases don’t necessarily mean that Americans are working harder or longer. Other factors—including technology and government incentives for business—significantly boost productivity, says Prescott. “People in the U.S. and Western Europe now get 16 times as much output from the same work effort as do the people of India,” Prescott notes. But he believes the gap will close, noting that Indian living standards have begun to rise rapidly in recent decades. Just as the United States is now 20 times more productive than it was 200 years ago, India and other developing countries will likewise see changes. “My expectation is that this increase in productivity will continue,” he says, “and that in a hundred years, the entire world will be many times richer than the United States is today.”
As for the state of the U.S. economy, Prescott says bluntly, “There is no downturn.” The U.S. is trending upward at roughly three percent a year in terms of productivity, he says. Telecommunication innovations and Y2K fixes boosted output four percent above that trend in early 2000, but a year later the output per working-age person was back on track, per economists’ predictions.
Prototypes developed by Prescott have become the platform for economic models now used by central banks throughout the world. Art Rolnick, senior vice president and director of research at the Federal Reserve Bank of Minneapolis, where Prescott is a senior advisor, has said he believes Prescott is one of the most influential economists of the last 30 years.
The 1995 Nobel laureate in economics, Robert Lucas—one of Prescott’s professors at Carnegie Mellon University and a frequent research collaborator—is equally impressed with his protégé’s work. “Prescott practices high-wire economics, economics without a net,” said Lucas recently. “You begin by admiring his nerve, but after watching him land on his feet again and again, you gain respect for his skill and methods and start to try to imitate them.”
Prescott, who knows something about teamwork from volunteering as a kids’ soccer coach, notes that his own students are vital collaborators in much of his work. He has an enviable reputation as a research adviser, says department chair Foster, and many of his graduate students have gone on to groundbreaking careers in economics.
For his part, Prescott appreciates the value of innovative interaction: “Students are less wedded to traditional ways of thinking,” he says, “so it’s easier to break out of the boxes. If you start thinking like other people do, you’re going to come to the same conclusions that they do and hit the same dead ends that they did.
“With students, you start fresh—and often a student will come in with a question that should’ve been asked but wasn’t. It opens up different ways of thinking.”
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