Paul Krugman wins the Nobel Prize

He is cited for trade theory and, appropriately, location theory and economic geography.  He could have been cited for his work on currency crises as well.  Here are the most basic links on Paul, it is hard to know where to start.  I have to say I did not expect him to win until Bush left office, as I thought the Swedes wanted the resulting discussion to focus on Paul’s academic work rather than on issues of politics.  So I am surprised by the timing but not by the choice.

Here’s Krugman’s NYT column from today; there is so so much on him and by him.  Here is his blog.  Here is a short post-prize interview.  He has been influential in pushing the United States toward a bank recapitalization plan.  Here is Krugman on video, from just the other day, talking about the crisis and how bad it might get.  Krugman, of course, also called the housing bubble in advance.

Krugman is very well known for his work on strategic trade theory, as it is now called.  Building on ideas from Dixit, Helpman, and others, he showed how increasing returns could imply a possible role for welfare-improving protectionism.  Krugman, however, insisted that he did not in practice favor protectionism; it is difficult for policymakers to fine tune the relevant variables.  Boeing vs. Airbus is perhaps a simple example of the argument.  If a government can subsidize the home firm to be a market leader, the subsidizing country can come out ahead through the mechanism of capturing the gains from increasing returns to scale.  Here are some very useful slides on the theory.  Here is Dixit’s excellent summary of Krugman on trade.  Krugman himself has admitted that parts of the theory may be less relevant for rich-poor countries trade (America and China) rather than rich-rich trade, such as America and Japan.

I am most fond of Krugman’s pieces on economic geography, in particular on cities and the economic rationales for clustering.  He almost single-handedly resurrected the importance of "location theory," an all-important but previously neglected branch of economics.  Here is the best summary piece of Krugman’s work in this area.  I believe this work will continue to rise in influence.

I have my own favorite pieces by Krugman.  This include his short critique of Austrian trade cycle theory and his short piece on why the British had such bad food.

He is also, by the way, a loyal MR reader but he is not the first reader to win the prize.

Krugman’s books:

Here is my review of Conscience of a Liberal.  That book argued that politics and policy can reshape the distribution of income in a more egalitarian direction.  Peddling Prosperity is one of the best-written economics books, ever, as are also The Age of Diminished Expectations and Pop Internationalism.  The latter started a trend of Krugman as a debunker of erroneous economic claims.  The supply-siders and the low-level industrial policy advocates were early targets of his pen.  Pop Internationalism is also the work of Krugman’s most likely to be popular with market-oriented economists.  Here is a collection of Krugman’s earlier writings.  The Great Unraveling — circa 2004 — is for me too under-argued.  His book Currencies and Crises is in my view his most underrated work; it provides a very readable introduction to some of his ideas on financial crises and it has a nice use of the concept of option value.  Development, Geography, and Economic Theory is a very good and very readable introduction to his work on economic geography.  That and the currency book are my two favorites by Krugman.  Geography and Trade is useful plus here is a more technical collection on the spatial economy.

Krugman has a widely used Principles text, co-authored with his wife Robin Wells.  He also has a leading text in international economics co-authored with Maurice Obstfeld.

Here are profiles and bio pieces, none very recent.  Here is Krugman on how he works — very personal and insightful.  Some of Krugman’s thinking on the liquidity trap — a key issue today for the crisis — can be found here.

Krugman of course is a controversial figure in the blogosphere and in politics but I believe for today it is best to set those issues aside.  His Wikipedia page has lots on the critics plus some bio as well.  Daniel Klein for instance argued that Krugman should do more to speak out for freer markets in various settings.

Krugman’s early columns for Slate.com were an important model for shaping what the econ blogosphere later became.  They are models of clarity and rigor which we all would do well to emulate.  His exposition of Ricardo’s theory of comparative advantage is remarkably good and it is one of the best pieces of popular economics writing I know.

Award analysis: This was definitely a "real world" pick and a nod in the direction of economists who are engaged in policy analysis and writing for the broader public.  Krugman is a solo winner and solo winners are becoming increasingly rare.  That is the real statement here, namely that Krugman deserves his own prize, all to himself.  This could easily have been a joint prize, given to other trade figures as well, but in handing it out solo I believe the committee is a) stressing Krugman’s work in economic geography, and b) stressing the importance of relevance for economics.  Daniel Davies also sees it as a career-based award. 

Who are the big losers?  Avinash Dixit and Elhanan Helpman and Maurice Obstfeld have to feel their chances for the prize went down significantly.

Addendum: Here is Bryan Caplan on "Paul Krugman, Guilty Pleasure."