From Money Morning Staff Reports
Paul R. Krugman, a Princeton University professor and New York Times columnist known as much for his attacks on Bush Administration policies as for his academic achievements, was named the winner of the Nobel Prize in economics for his theories on global trade.
Krugman, 55, was honored "for his analysis of trade patterns and location of economic activity," said the showed how economies of scale influence trade and urbanization, Bloomberg News reported., which selects the winners. His work
While Krugman found broader fame with his New York Times columns attacking Bush, Krugman built his reputation in economic circles by arguing that nations could achieve a competitive advantage by subsidizing key industries – a theory that helped explain how large-scale production for the global market has led to higher overall wages by attracting workers to cities.
In recent years, however, as a columnist for The Times and a self-proclaimed liberal, Krugman built a loyal following and achieved a measure of fame for hammering U.S. President George W. Bush for everything from the war in Iraq to the do-nothing tax cuts that has the U.S. economy creaking under trillions of dollars in debt.
In a May 18, 2007 column, for instance, Krugman wrote that "Mr. Bush has degraded our government and undermined the rule of law. He has led us into strategic disaster and moral squalor."
While his journalistic jousting with the White House has brought Krugman no small measure of fame, "this award is clearly for Paul Krugman the economist, not for Paul Krugman the journalist or political critic," Robert M. Solow, a 1987 Nobel laureate who once taught Krugman, told Bloomberg. "What's remarkable about Paul is he manages to do everything. He's a contributor to fundamental economic theory and a top- ranked journalist."
Krugman said the award was "a total surprise."
The Princeton economist's academic work analyzed how world trade came to be dominated by countries that both import and export similar products – cars, for example, one expert explained.
Before Krugman, "all the models for trade explained why countries that are different trade: You're a better baker, I'm a better shoemaker," Rutgers University Economics Professor Thomas J. Prusa told Bloomberg. "Paul was one of the first to realize that those kinds of models only explained about half of the trade in the world. [He] was the first one to explain economically why it made sense that countries that are similar should trade, as opposed to countries that are different."
It's that kind of trade that "enables specialization and large-scale production, which result in lower prices and a greater diversity of commodities," the Royal Academy said in a statement today.
Solow said globalization shows the value of Krugman's work.
"As multinational corporations become more prominent, it's important to have a way of thinking about trade that gives them adequate attention," he said.
Krugman isn't merely a powerful theorist – he's an elegant one, too, said Arvind Panagariya, the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University, and the recent author of "India: The Emerging Giant."
"A hallmark of Krugman's work is parsimony," Panagariya wrote yesterday in a Forbes.com column. "His models are among the most elegant: lean and thin and transparent. They have all the required parts but no unnecessary fat. It is quite remarkable that while other scholars in the field handsomely incorporated the Krugman model into their research, perhaps the most insightful and elegant applications still came from Krugman."
As early as 2005, Krugman was warning readers about the dangers the U.S. economy faced from ballooning housing prices and the soaring trade deficit. Indeed, in a late August column that year the economist stated that "Americans [these days] make a living by selling each other houses, paid for with money borrowed from China. One way or other, the economy will eventually eliminate both imbalances."
Indeed, in an interview with Bloomberg Television on Friday, Krugman said the current financial turmoil had similarities with the Great Depression.
"The parallels are stronger than I thought they would be," he said. "We developed a financial system that is out of control. The only things people want to buy are Treasury bills and water.'"
In a press conference at Princeton University yesterday, Krugman hesitated to say when the financial crisis would end
"Every time you think you've hit bottom, another floor opens up beneath you," he said.
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