Franco Modigliani

Franco Modigliani (born Italian, but later became ‘Murican) swept the Nobel committee off their feet in 1985, winning the Nobel Prize.

Exactly what did this man of amazing-food-countries do to deserve such a prize? Mostly his analysis of household saving behavior. He argued that people like consistency in their income, but of course, income isn’t always consistent.

So what do people do? Young people, who are more likely to be lower income, borrow money, middle-aged folk save up (no wonder they hate taxes so much), and old people DGAF, running down their savings for all its worth. Because YOLO. This was considered an improvement upon the (still) widely accepted Keynesian consumption function.

But that’s not all. Modigliani did a two-fer: he also won the prize for the Modigliani-Miller theorem, a theorem that states that a firm’s value is independent of its debt-to-equity ratio.

Households? Check. Firms? Check. He’s done it all. No big.