Edward C. Prescott

How did Prescott predict the effects of policy decisions?

As co-author of papers with both Finn Kydland and Bob Lucas that defined and continues to shape economic research, Prescott does not seem to have many problems coming up with thought-provoking, policy-relevant questions. “It seems to be whenever you get into a problem, interesting questions pop up,” Prescott reveals, getting to the core of his work in an unassuming, down to earth way. “And then when you answer them, it changes your thinking. You have better ways to think about reality, which is pretty complex. And our models are pretty simple. It’s amazing how useful those incredibly simple abstractions are for drawing the inference and making predictions of what will happen if this policy or regime is followed.”

How did Prescott stay relevant across decades of research?

When it was published four decades ago, Prescott’s work marked a watershed moment for the ways in which macroeconomic research is done. In the intervening years, he may have stepped into new terrains with new questions, but he also never abandoned the old ones. He keeps them up-to-date by connecting to the ever-changing current events, particularly when talking about time-inconsistency to the undergraduates. In his own way, Prescott creates continuity for understanding the fundamentals of economics and builds a history of policy-making to pass on to the next generations. Change becomes an integral part of his work, rather than an impediment to progress.

His students seem more than appreciative, because apart from learning concepts in an applicable context, they learn to connect the past with the present and grasp the change. Daniel Weser, one of Prescott’s students, relates: “He constantly updates everything he has ever learned to see how it compares to what is occurring today. For him, everything ties to the world today. He would not claim that the past is a great predictor of tomorrow, but rather it explains that the past is still relevant.”

What made Prescott’s way of thinking unique?

If there is a secret to Prescott’s method, then perhaps it is his ability to always approach the problem from a fresh, novel angle, and not giving up until the answer reveals itself. “I’m very good at forgetting,” jokes the laureate in his office overlooking the Arizona State University campus in the desert. “So I don’t get locked up in the old ways of thinking. And take certain advantage in it, it’s not a lot, but it helps. A lot of times I reinvent wheels. Wheels that have already been invented.” And his technique to remaining open to ideas and solutions is to not “get locked in one way of thinking and go around in a circle: you got to break out of that. You’ve got to put it down and then come back and then forget the old way you went. And you may find a new way that works,” the economist suggests thoughtfully.

I'm very good at forgetting. So I don't get locked up in the old ways of thinking.

How did people inspire Prescott’s economics?

His inspiration comes from talking to other people rather than from sitting at his desk in the office and meditating on ideas. Besides, it’s the inclusion of people that makes Prescott enthusiastic about economics as a science. “Social sciences are different than natural sciences. We have people. That makes it much more interesting in our models,” concludes the economist.

Like a ripple effect, the inspiration and motivation that Prescott accumulates from his interactions with other people is something he passes on to his students. He encourages and inspires both students and colleagues to build their own legacies in their own style. Indeed, his colleague at ASU Berthold Herrendorf recalls expressing his gratitude to Prescott by noting: “You’ve given so much to me!” The humble response from the laureate? “It’s not a problem as long as you give it to next generations.” Commitment to the education of future generations is his way of addressing time-inconsistency in research.

How much government debt is appropriate?

While many of his current and former students see him as an incredibly generous person both with his time and ideas, Prescott finds the nurturing soil to grow these ideas in a classroom. For instance, one of his current research interests is in understanding the complex issues surrounding the public debt, which arose while explaining the tools for conducting inquiries to his undergraduates.

“We wondered in class how much government debt should there be? It’s not zero. Except in certain periods. In the 1950’s, given the demographics, it was zero. Now we have a lot of old people, so we need a lot of government debt. It’s a lot more than the value of the stock market. I guess I’m on a different side than most people in the debt and the deficit. I look at the ratio to the GNP if that’s going up. We need to figure out how much people will want to save for retirement. Sum up over all the people and compare that with gross national income. And then subtract from that the value of business equity, houses and factories and stocks. And get a number there. If that started going way above that, I’d worry,” concludes the economist reassuringly.

We wondered in class how much government debt should there be? It's not zero.

What public systems did Prescott want to improve?

In his research, he has shown that fewer people worry about the amount of current public debt, and rather want reforms in the tax system, or any other system that doesn’t seem to work. “Change is essential to the progress,” he confesses. “I get a little worried when I see systems set up that are wasteful. The U.S. has a really high-quality medical care system and it’s better than people realize. But it’s excessively expensive. I wish we could set up a better system.”

What advice did Prescott give to younger generations?

Leaving Prescott to prepare for an upcoming conference on gender equality in labor markets that he hosts at ASU, we can’t help but ask him for a piece of advice that young people should follow. After taking a second to think, he response with a smile: “You only live once, so work hard and enjoy life. Give things tries, if you do your best and it doesn’t work, you should be proud of yourself because you tried. A lot of times you’ll surprise yourself.”

And to make sure we all get it, he gives a personal example: “Everybody thought I’d fail miserably in public speaking tour after I got the Nobel, and I thought I would too, but I surprised myself. They asked me back.”

You only live once, so work hard and enjoy life. Give things tries.