Oct. 13 (Bloomberg) -- Princeton University Professor
Paul Krugman, known as much for his criticism of George W. Bush's policies as for his academic work, won the
Nobel Prize in economics for his theories on world trade.
Krugman, 55, was
honored ``for his analysis of trade patterns and location of economic activity,'' said the Royal Swedish Academy of Sciences, which selects the winners. His work showed how economies of scale influence trade and urbanization.
While Krugman found broader fame with his
New York Times columns attacking Bush, he won his reputation in economics by arguing countries could gain a competitive advantage through subsidies to key industries. His research helped explain how the development of large-scale production for the world market has attracted more people to cities and led to higher wages.
``This award is clearly for Paul Krugman the economist, not for Paul Krugman the journalist or political critic,'' said Robert Solow, a 1987 Nobel laureate who once taught Krugman. ``What's remarkable about Paul is he manages to do everything. He's a contributor to fundamental economic theory and a top- ranked journalist.''
In a brief telephone interview after the award was announced, Krugman said
``it's a total surprise.''
Krugman's Work
The Princeton economist's academic work analyzed how world trade came to be dominated by countries that both import and export similar products -- automobiles, for example.
``Prior to Paul, all the models for trade explained why countries that are different trade: You're a better baker, I'm a better shoemaker,'' said
Tom Prusa, professor of international economics at Rutgers University in New Brunswick, New Jersey.
``Paul was one of the first to realize that those kinds of models only explained about half of the trade in the world,'' Prusa said.
``Paul 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.''
Such trade
``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.
Globalization
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.
A self-proclaimed liberal, Krugman has regularly taken Bush to task in his columns for the New York Times, slamming the president personally for everything from the war in Iraq to his big tax cuts.
``Mr. Bush has degraded our government and undermined the rule of law,'' Krugman wrote in a column on May 18, 2007. ``He has led us into strategic disaster and moral squalor.''
In an interview with Bloomberg Television on Oct. 10, 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 today, 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.
Krugman was warning in 2005 about the dangers posed to the U.S. economy by its then-ballooning house prices and trade
deficit.
Imbalances
``These days, Americans make a living by selling each other houses, paid for with money borrowed from China,'' he wrote in a column on Aug. 29, 2005. ``One way or other, the economy will eventually eliminate both imbalances.''
Krugman's public commentary on the economy and politics has earned him criticism from conservatives such as
Donald Luskin, chief investment officer for Trend Macrolytics, an investment consulting firm in Menlo Park, California.
``Paul Krugman the economist died a long time ago; the man named Paul Krugman is a public intellectual,'' Luskin, a contributing editor for National Review Online, said in an interview. ``He is not in the same category as John Maynard Keynes, he is in the same category as Oprah Winfrey. To give it to him is to dishonor the Nobel Prize.''
Krugman's selection was somewhat of a surprise, said
Douglas Irwin, professor of economics at Dartmouth College.
``It's well deserved but it's earlier than I thought he would get it,'' said Irwin, who added that he didn't think politics played a role in the decision.
Made Enemies
Krugman
``made quite a few enemies, especially when his columns in the New York Times started to go beyond economic issues and into political territory,'' said
Dani Rodrik, a Harvard University economist, who welcomed Krugman's selection.
``His disdain for Bush and the Republicans did not exactly endear him to the substantial minority of professional economists who are Republican.''
Columbia University economist
Edmund Phelps, a 2006 Nobel laureate, said he has
``no reason to think'' that anything other than Krugman's academic work influenced his choice by the Royal Academy's Economics Prize Committee.
``I doubt the committee is an avid reader of the New York Times,'' he said.
Phelps said Krugman's award marked a break after three years in which the prize rewarded work focused on uncertainty in economics rather than more classical studies of forces such as trade.
Scarcity Value
``Trade theory had not had much in the way of a creative advance for a century so the scarcity value of Paul's work was very high,'' Phelps said.
Krugman said today he saw little danger of a move toward protectionism in the U.S., no matter which party wins in next month's elections.
``There may be a standstill, or slowdown at least, on new trade agreements, but I find reversal on trade agreements implausible,'' he said in remarks via telephone to a group of reporters in Stockholm.
``Full-scale protectionism I don't see.''In 1991, Krugman was awarded the John Bates Clark Medal by the American Economic Association, which gives the prize to the best economist under the age of 40.
Krugman was born in Long Island and studied economics at Yale University. He obtained a Ph.D. from the Massachusetts Institute of Technology in 1977. From 1982 to 1983 he served on the White House Council of Economic Advisers, during the presidency of Ronald Reagan.
To contact the reporters on this story:
Simon Kennedy in Washington at
skennedy4@bloomberg.netRich Miller in Washington at.
