Paul Krugman wins Nobel in economics

[url=http://www.latimes.com/business/la-fi-nobel14-2008oct14,0,4413752.story]... Krugman wins the Nobel economics prize[/url]

pretty cool, eh?

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In announcing the prize, the Royal Swedish Academy of Sciences cited in particular Krugman's work nearly 30 years ago in advancing a theory on trading patterns and why certain nations produce what they do.

Perhaps owing to Krugman's columnist perch, he was barely asked about his research Monday during a news conference. Instead, he was asked about the U.S. government's $700-billion financial system bailout, about the causes of the credit crisis and even about whether he would consider taking a Cabinet post in the next presidential administration. (He said no thanks.)
Krugman has been fiercely critical of Bush administration policies in his columns for the Times.

When asked a question about China on Monday, he said: "I've been spending my last few years trying to save my own damn republic."

Some economists wondered whether Krugman's politics might have somehow swayed the Swedish Academy. Its selections in the past have been viewed as politically motivated, and Krugman's selection came just weeks before a U.S. presidential election in which Bush's legacy is playing no small role.

Krugman, at age 55, is still relatively young in economist years.

"They could have waited and nobody would have asked that question," said Tyler Cowen, a professor of economics at George Mason University who has closely followed Krugman's research. "It's fair speculation that in part they are making a political statement. Krugman does deserve it, though. It's not only a political statement."

Robert Solow, a 1987 Nobel laureate in economics and Krugman's former professor at MIT, said, "I don't think it's true for one minute. I wouldn't be surprised if next year it was a conservative who wins. I really think that it's pure coincidence, and there is no reason at all to suppose his columns had any role in this choice."

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The Swedish Academy praised Krugman's work in explaining how a theory of trade dating to the 1800s had become less applicable.

The theory suggested that trade could be defined by initial differences among countries. Some should specialize in industrial products because they have more labor, others in agricultural because of their location. Then they should trade with one another.

But that doesn't explain why, for instance, Sweden would come to both make cars and import them -- why countries that dominate trade have similar conditions and trade similar products. Krugman suggests that it's because consumers prefer a diversity of products.

"It becomes advantageous for a country to specialize in manufacturing a specific car, and to produce it for the world market, while another country specializes in a different brand of car," the Swedish Academy wrote in a commentary that explained Krugman's work.

"This allows each country to take effective advantage of economies of scale, thereby implying that consumers worldwide will benefit from greater welfare due to lower prices and greater product diversity, as compared to a situation where each country produces solely for its own domestic market, without international trade."

Solow, Krugman's former professor, said he had for years thought his former pupil would be awarded a Nobel Prize. In 1991, Krugman won the John Bates Clark Medal, given every two years to the most outstanding American economist under age 40.

But as the Times column took on more importance in Krugman's life, taking him away from more traditional academic work, "I expected he would miss out," Solow said. "I was very pleased that the Swedish Academy looked back and decided this body of work was really worth a prize, as I think it was."

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Not that I had any idea what work he had done, but from the description looks like fairly pedestrian stuff to me. Which is not knocking it.

It reflects the norm among European social democrats and other progressives who are generally supportive of liberalized trade- wanting to use regulations to include strong environmental and labour standards, rather than leave it in its laiseez faire form or ditch it.

The anti-free trade agreement consensus among North American progressives is very different.

Internationally, only the anti-glob movement feels free trade agreements should be ditched and replaced with ________ ... whatever ______ is. While in North America the sharing of that anti-glob view is dominant even in the 'mainstream left' [including the NDP].

[url=http://www.nytimes.com/2008/10/14/business/economy/14econ.html?ref=busin... is from the NYTimes article you have to register for.[/url] I actually had to look around for it, while the LATimes article on him was prominent in the daily digest. But this article was much longer.

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“To be absolutely, totally honest, I thought this day might come some day, but I was absolutely convinced it wasn’t going to be this day,” Mr. Krugman said in an interview on Monday. “I know people who live their lives waiting for this call, and it’s not good for the soul. So I put it out of my mind and stopped thinking about it.”

The prize committee cited Mr. Krugman for his “analysis of trade patterns and location of economic activity.”

Mr. Krugman, 55, is probably more widely known for his Op-Ed columns in which he has been a perpetual thorn in President Bush’s (and now John McCain’s) side. His columns have won him both strong supporters and ardent critics.

The prize, however, was awarded for the academic — and less political — research that he conducted primarily before he began writing regularly for The Times.

Mr. Krugman won the prize for his research, beginning in 1979, that explained patterns of trade among countries, as well as what goods are produced where and why.

Traditional trade theory assumes that countries are different and will exchange only the kinds of goods that they are comparatively better at producing — wine from France, for example, and rice from China.

This model, however, dating from David Ricardo’s writings of the early 19th century, was not reflected in the flow of goods and services that Mr. Krugman saw in the world around him. He set out to explain why worldwide trade was dominated by a few countries that were similar to one another, and why a country might import the same kinds of goods it exported.

In his model, many companies sell similar goods with slight variations. These companies become more efficient at producing their goods as they sell more, and so they grow. Consumers like variety, and pick and choose goods from among these producers in different countries, enabling countries to continue exchanging similar products. So some Americans buy Volkswagens and some Germans buy Fords.

He developed this work further to explain the effect of transportation costs on why people live where they live. His model explained under what conditions trade would lead people or companies to move to a particular region or to move away.

Mr. Krugman’s work has been praised for its simplicity and practicality — features economists are often criticized for ignoring.

“Some people think that something deep only comes out of great complexity,” said Maurice Obstfeld, an economics professor at the University of California, Berkeley, who wrote a textbook on international economics with Mr. Krugman. “Paul’s great strength is to take something very simple and make something new and very profound.”

Mr. Krugman applied his skill at translating complex ideas into clear, entertaining prose to his Times columns, which he began writing in 2000. In recent years, in his column and a related blog on nytimes.com, nearly everything about the Bush administration — from health care policy to Iraq to “general incompetence” — has been the object of his scorn.

Along the way, Mr. Krugman has come in for criticism himself from both economists and lay readers.

“Much of his popular work is disgraceful,” said Daniel Klein, a professor of economics at George Mason University, who this year wrote a comprehensive review of Mr. Krugman’s body of Times columns. “He totally omits all these major issues where the economics conclusion goes against the feel-good Democratic Party ethos, which I think he’s really tended to pander to especially since writing for The New York Times.”

But he has equally fervent fans of his popular work.

“I praise today’s prize as being deserving and even overdue, but more than that I reproach the Pulitzer committee, which owed him at least a couple of prizes in the past,” said Paul A. Samuelson, a previous winner of the Nobel in economic science. “Paul Krugman is the only columnist in the United States who has had it right on almost every count from the beginning.”

Mr. Krugman said he did not expect his award to have much effect on how colleagues and his popular readership — whether they be friends or foes — regard him.

“For economists, this is a validation but not news,” he said. “We know what each other has been up to.”

“For readers of the column,” he added, “maybe they will read a little more carefully when I’m being economistic, or maybe have a little more tolerance when I’m being boring.”

He said he did not expect the prize to silence his critics, given the treatment of another outspoken laureate, the 2001 winner Joseph E. Stiglitz. Mr. Stiglitz has been both praised and criticized for his writings on whether globalization in its current form has been beneficial.

“I haven’t noticed him getting an easy time,” Mr. Krugman said. “People just say, ‘Sure, he’s a great Nobel laureate and he’s very smart, but he still doesn’t know what he’s talking about in this situation.’ I’m sure I’ll get the same thing.”

Mr. Krugman first gained a popular following while writing about economics for Slate magazine and Forbes in the 1990s. He frequently weighed in on contemporary free trade debates related to his research.

“He was appalled by the monster he created,” said Michael Kinsley, the founding editor of Slate, who hired Mr. Krugman. “He’d come up with this theory about why sometimes free trade wasn’t the best policy, and suddenly everyone was citing it as an argument against free trade, while he thinks it applies once in a blue moon.”

While Mr. Krugman’s popular writing is now more focused on politics and his research more concentrated on international finance, he has occasionally returned to his interest in trade. In the last year he has written several times about the negative results of free trade, both in his column and in a paper he wrote for the Brookings Institution about whether trade with poor countries increases inequality in developed nations like the United States.

Mr. Krugman joins another Princeton economist, albeit one of different ideological leanings, who has been in the news recently: Ben S. Bernanke, the chairman of the Federal Reserve who, coincidentally, offered Mr. Krugman his Princeton post. Mr. Bernanke and Mr. Krugman were fellow graduate students at M.I.T. in the 1970s.

“Lots of people are saying to me, ‘Why didn’t you get it?’” said Jagdish Bhagwati, an economics professor at Columbia who helped Mr. Krugman publish one of his seminal papers when other academics thought it was too simple to be true. “Given the fact that I didn’t get it, this is the next best thing.”

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[ 14 October 2008: Message edited by: KenS ]