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Born in the trough of the Great Depression, Edmund Phelps, a professor at Columbia University who this week won the Nobel Prize for economics, has spent much of his intellectual life studying slumps of a different kind. The Depression, which cost both of his parents their jobs, was exacerbated by the monetary authorities, who kept too tight a grip on the money supply. Mr. Phelps is interested in unemployment that even open-handed central bankers cannot cure.

Most scholars stand on the shoulders of giants. But Mr. Phelps won his laurels in part for kicking the feet from under his intellectual forerunners. In 1958 William Phillips, of the London School of Economics, showed that for much of the previous hundred years, unemployment was low in Britain when wage inflation was high, and high when inflation was low. Economists were quick—too quick—to conclude that policymakers therefore faced a grand, macroeconomic trade-off, embodied in the so-called “Phillips curve”. They could setter for unemployment of, say, 6% and an inflation rate of 1%—as prevailed in America at the start of the 1960s—or they could quicken the economy, cutting unemployment by a couple of percentage points at the expense of inflation of 3% or so— which is roughly how things stood in America when Mr. Phelps published his first paper on the subject in 1967.

In such a tight labor market, companies appease workers by offering higher wages. They then pass on the cost in the form of dearer prices, cheating workers of a higher real wage. Thus policymakers can engineer lower unemployment only through deception. But “man is a thinking, expectant being,” as Mr. Phelps has put it. Eventually workers will cotton on, demanding still higher wages to offset the rising cost of living.