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This week, the Nobel Memorial Prize in Economic Sciences was jointly awarded to two American economists, Michael Woodford of Columbia University and Robert Hall of Stanford University, for their work on “microeconomic foundations of macroeconomic stabilization.” The prize committee concluded that Woodford and Hall each provided a theoretical foundation for the models now used by central banks and governments around the world.

What links Woodford’s and Hall’s work? What political context did it emerge from? And does U.S. Federal Reserve Chair Kevin Warsh reject Woodford’s model for central banking?

This week, the Nobel Memorial Prize in Economic Sciences was jointly awarded to two American economists, Michael Woodford of Columbia University and Robert Hall of Stanford University, for their work on “microeconomic foundations of macroeconomic stabilization.” The prize committee concluded that Woodford and Hall each provided a theoretical foundation for the models now used by central banks and governments around the world.

What links Woodford’s and Hall’s work? What political context did it emerge from? And does U.S. Federal Reserve Chair Kevin Warsh reject Woodford’s model for central banking?

Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.

Cameron Abadi: Woodford is known for helping change what central bankers do, whereas Hall’s work is more far-ranging, from consumption theory to unemployment. More recently, he wrote about a flat tax. So, what holds Hall’s work and Woodford’s work together? Why was this a pairing in the first place?

Adam Tooze: This is the most technical Nobel prize in economics we’ve had in a while, and when trying to convey its general import, part of the problem is that Woodford’s and Hall’s theorizations are themselves very complicated and situated in very sophisticated ways in bodies of literature.

Yet they’ve entered the mainstream to such an extent that it’s quite difficult to pinpoint against the backdrop of our general, kitchen-sink economics what the brilliance of their contribution is. Because, in some sense, we live in a world that they—well, the question you’re asking is, did they shape it?

I think a fairer assessment might be to say that Hall, in his late ’70s work, opened a discursive space for thinking about the way in which expectations shape long-term future economic behavior—most fundamentally consumption, which is the largest driver of demand.

In the simple models that Woodford uses, the entire economy is consumption. Then, in the ’90s, central bankers, driven by their own policy logic, adopted the signature policy that these two converge on—or Woodford in particular converges on—which is inflation targeting. In 2003, Woodford published his foundational book, which founded a kind of modeling tradition that rationalized ex post what central bankers were doing.

So I think it’s that order. We have the breakthroughs in the theory from Hall; we have the........

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