Paul Krugman wins the Nobel Prize

by on October 13, 2008 at 7:13 am in Economics | Permalink

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 writingsThe 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."

time for classical liberal nobel prize winners to return their medal in protest October 13, 2008 at 7:26 am

I must second Nassim Taleb in calling for the cancellation of the Nobel Prize in Economics. It is a dangerous platonification and legitimization of a heavily politicized field of inquiry. Krugman is a case in point, with his shrill left-wing columnry. Economists with Nobel Prizes are as dangerous as the banks and corresponding printing presses they man.

Andrew October 13, 2008 at 7:37 am

Intriguing choice etc etc, but I’m most interested to hear about the food column, which I’ve looked up. Speaking as a brit, I’m not convinced by the “have” bad food premise. “had”, perhaps (70s/80s in particular), but I think the standard of food for most (maybe this is my middle class perspective)is pretty good, and that my experiences of New York less than totally convincing…
Anyway, as for the prize, it seems a nice time to emphasise/remind about trade rather than finance in international economics.

Nick October 13, 2008 at 7:38 am

P.S. Andrew – Krugman’s article about British is a “had”. It’s about how demand has changed over time, and the Brits now demand better foood.

Michael Greinecker October 13, 2008 at 7:45 am
Tiedemies October 13, 2008 at 7:48 am

I am myself a big fan of Krugman’s, but I can’t help wondering: given the situation in the world economy, the upcoming presidential election, Krugman’s vocal endorsement of Obama and given the Swedes’ intense preference for a president Obama, you do the math…

I am sorry about saying this out loud. I share these preferences, and I remember thinking last week: “wouldn’t it be awesome if Krugman won, it could boost the Obama campaign even further.” And now this… It is just too good to be true.

Andrew October 13, 2008 at 7:52 am

First, there are two Andrews, one (this one) is not an economist) and has no idea about who deserves a Nobel prize. Personally, I’d give it to a guy who predicted the mess we are in before it happened.

However, I’m not sure why we’d listen to someone’s opinion on a subject he considers:
“a theory that I regard as being about as worthy of serious study as the phlogiston theory of fire.”

And says about it:

“Here’s the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn’t that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?”

Where he misses the whole point of the theory, that credit creation exactly decouples price from value.

ck October 13, 2008 at 7:54 am

Is the value of winning the Nobel Prize in Economics going up or down? There can be no question that, at the current moment, economics is lumped in with finance (especially international) and that is definitely giving it a bad name (at least among the masses).

The Nobel Prize is the one academic prize that people know about. If the movies have Oscars, and TV has the Emmies, it’s as if the academy has its Nobel Prizes. (Try to find someone random and ask them about the Clark Medal or the Booker Prize and you’ll most likely meet with blank stares.) It’s my impression that the number of prizes–like most everything else in the information world–is proliferating. Therefore the heritage/legacy of the Nobel Prize is extremely valuable as (I hope I am using this right) a sort of mental Schelling Point around which (semi-)intelligent laymen can coordinate their knowledge of economics.

But is the value of a Nobel Prize in Economics going up or down? I think that in the past, the Nobel in Economics might have been thought of a little bit more like the ones in Chemistry, Physics, or Medicine: Perhaps there’s some politics there; but achievement is what really matters. Now I’m afraid it’s more like a Nobel in Literature or Peace–I’m sorry to have to draw such a stark hard/soft distinction–where it’s more like a straight popularity contest.

Still, congratulations to PK! He is both a scientist and a Public Intellectual. In many ways–but not all–he is the true heir to Milton Friedman.

Tie-wearing Ph.D Economist October 13, 2008 at 8:10 am

DRDR — glad to see you have such a high regard for what is said in press conferences of Swedish award prize committees. The US election and the financial crisis are not things these committees think and talk about or would like to influence in any way, being the disinterested scientists that they are, assessing the works of other disinterested scientists like Krugman.

timcat October 13, 2008 at 8:19 am

Yea of course, Krugman would have got the prize even if he didn’t have a hate site at the NYTimes extolling the vices of Republican land. What a total joke. Then again the Swedes gave Algore the peace prize for not promoting peace and also handed one over to a real live terrorist, so why shouldn’t the Swedes perform another act on intellectual vandalism?

timcat October 13, 2008 at 8:36 am

It’s difficult to argue that he is undeserving. Krugman, upon winning the award, was careful to respect the award. He was asked by the press about the financial crisis, and he respectfully avoided taking any partisan shots.

Yea, you mean he couldn’t bring himself to criticize Barney Frank et al for screwing it up big time or he wasn’t mentally agile this time to make up a lie about the GOP causing the crash?

This is Krugman we’re talking about here: the guy who runs a hate site and gets paid to do it :-)

Cosimo October 13, 2008 at 8:38 am

Krugman deserved it more than anybody else. The set of losers comprises Dixit, Norman, Helpman, Gene Grossman and Bhagwati. Next Nobel prize for trade goes to Marc Melitz in ten years or so.

sad pro-obama new york times editor October 13, 2008 at 8:45 am

Krugman says in his essay on how he works that “one of the joys of policy research is the opportunity to shock the bourgeoisie, to point out the hollowness or silliness of official positions.”

Is he really that far removed from reality that he is unaware that his position IS the bourgeois official position. The “expert” economist preaching from the pages of he NYTimes, that’s about as bourgeois as it gets. His positions are the official positions of the mainstream media, the coastal city-dwellers, the civil servants, all of Washington, the UN and EU elites and nearly everyone who went through the Western university system after the 1960s.
This award at this moment to the most actively left-wing of all eligible economists under the guise of scientific achievement is the Orwellian cherry on the officially hollow, bourgeois Nobel Prize-winner’s cake .

Gabriel October 13, 2008 at 8:51 am

Tyler,

Thanks for the great synopsis.

Speedmaster October 13, 2008 at 8:52 am

Disheartening. I think Krugman ceased to be a legitimate economist long ago, and is now just another socialist sounding-board. Are these the same people that gave an award to Gore?

Gabriel October 13, 2008 at 8:53 am

Steve,

That’s pretty silly. Are you under the impression that the housing bubble happened in the inner cities?

bob October 13, 2008 at 8:59 am

One of the greatest strengths of Economics is the focus on positive versus normative analysis. In my opinion, Economists incapable of writing in a neutral manner about the consequences of various policies are an embarrassment to the profession and undeserving of prizes. This is supposed to be a social *science*. If Brad “Someone I don’t like is Dishonorable, Dishonest, Incompetent, Why oh Why..” DeLong wins the next Nobel, I’m returning my degree.

Kunal October 13, 2008 at 9:05 am

Well, it wasn’t the Swedes who gave the Peace Prize to Gore, it was the Norwegians. That committee can be said with much greater justification to give a lot of weight to pissing off Bush.

DRDR October 13, 2008 at 9:08 am

y81 — Yes, I believe that the Nobel committee cares deeply that economics be respected as a science, and that awards not be based on politics or fads. To win this award, you need ideas that have been respected and stood the test of time for decades, and Krugman meets this criteria, end of story. One point I think people are missing is that economic geography is generally more popular in European academic circles than in the United States, and that this was a greater source of Swedish bias than anything having to do with the Bush administration.

jc October 13, 2008 at 9:19 am

I hope Brad De Long wins the next prize so as to discredit it even further. It doesn’t seem to be worth much anyway.

Even a non-economist has managed to pick up some glaring false/stupid comments by a former winner- Joe Stigliz.

Our ethanol policy is also bad for the taxpayer, bad for the environment, bad for the world†¦it would be hard to invent a worse policy.

I submit to you quite humbly that this is government failure.

Our tax policies need to be changed.

Government failure.

We can have a financial system that is more stable—and even more dynamic—with stronger regulation.

Ok this para suggests market failure, but then concludes

The Federal Reserve Board shares too much of the mind-set of those it is supposed to regulate. It could and should have known that something was wrong. It had instruments at its disposal to let the air out of the bubble—or at least ensure that the bubble didn’t over-expand. But it chose to do nothing.

so lets be reasonable/generous and say market failure, but we can’t expect government to do anything about it (and theres economists who say these instruments are government created, see arnold kling)

we should have an expedited special bankruptcy procedure, akin to what we do for corporations in Chapter 11, allowing people to keep their homes and re-structure their finances.

ok this is neither market or government, its just suggesting a change in some existing bankruptcy laws, fair enough.

Remember, too, that we already give big homeowner subsidies, through the tax system, to affluent families. With tax deductions, the government is paying in some states almost half of all mortgage interest and real-estate taxes.

government failure, bad tax system.

And here we get to the bottom of Stiglitz confusion, or mis-informing of the public:

The free-market fundamentalists—who believe in the miracles of markets—have not been averse to accepting government bailouts. Indeed, they have demanded them, warning that unless they get what they want the whole system may crash.

This comes from Catallaxy written by an observant non-economist about a Nobel prize winner. So one can see the prize is truly devalued when a “layman” can pick up basic errors by a former winner.

So I say give it to Brad next time as it will simply devalue it even more.

jc October 13, 2008 at 9:20 am

I hope Brad De Long wins the next prize so as to discredit it even further. It doesn’t seem to be worth much anyway.

Even a non-economist has managed to pick up some glaring false/stupid comments by a former winner- Joe Stigliz.

Our ethanol policy is also bad for the taxpayer, bad for the environment, bad for the world†¦it would be hard to invent a worse policy.

I submit to you quite humbly that this is government failure.

Our tax policies need to be changed.

Government failure.

We can have a financial system that is more stable—and even more dynamic—with stronger regulation.

Ok this para suggests market failure, but then concludes

The Federal Reserve Board shares too much of the mind-set of those it is supposed to regulate. It could and should have known that something was wrong. It had instruments at its disposal to let the air out of the bubble—or at least ensure that the bubble didn’t over-expand. But it chose to do nothing.

so lets be reasonable/generous and say market failure, but we can’t expect government to do anything about it (and theres economists who say these instruments are government created, see arnold kling)

we should have an expedited special bankruptcy procedure, akin to what we do for corporations in Chapter 11, allowing people to keep their homes and re-structure their finances.

ok this is neither market or government, its just suggesting a change in some existing bankruptcy laws, fair enough.

Remember, too, that we already give big homeowner subsidies, through the tax system, to affluent families. With tax deductions, the government is paying in some states almost half of all mortgage interest and real-estate taxes.

government failure, bad tax system.

And here we get to the bottom of Stiglitz confusion, or mis-informing of the public:

The free-market fundamentalists—who believe in the miracles of markets—have not been averse to accepting government bailouts. Indeed, they have demanded them, warning that unless they get what they want the whole system may crash.

This comes from Catallaxy written by an observant non-economist about a Nobel prize winner. So one can see the prize is truly devalued when a “layman” can pick up basic errors by a former winner.

So I say give it to Brad next time as it will simply devalue it even more.

Russ Nelson October 13, 2008 at 9:24 am

terminating italics.

Russ Nelson October 13, 2008 at 9:28 am

terminating italics, harder.

Petter, Stockholm October 13, 2008 at 9:35 am

The literature price winner often gives a rant about American foreign policy, followed by the Swedish commentators torrent of “ah!”:s and “gasp!”:s and heavy breathing. The balancing fun of the Nobel event is often to hear the torrent of “cough!”:s, “hmpf!”:s and change of subject when the economists have spoken.

I guess there will be no balance on that part this year, but hopefully there is no Florida this year and the most injury inducing head nodding will not take place.

John Médaille October 13, 2008 at 9:37 am

The odd thing about the Austrian theory is that it is self-contradictory. On the one hand, it says that “the market knows all”; on the other it says that “the market knows nothing.” It says that we should trust all to the market, and that the market always gets it wrong, either on the high or the low side.

Anonymous October 13, 2008 at 9:51 am

I think Dixit is probably out of the running now, as is Bhagwati. I think Helpman could still win a decade down the road, when Melitz and Antras will be too young for the next trade prize.

Anonymous October 13, 2008 at 9:57 am

terminating italics, with emphasis. Did it work?

Eric H October 13, 2008 at 9:58 am

Kieran – so you came here to exercise your confirmation bias? I mean, at the time of your comment, the previous comments were nearly equally split on pro v con Krugman, with several going off on tangents that don’t indicate one way or the other. Can you cite any CT discussions that were that even-handed, politically?

Brian J October 13, 2008 at 10:01 am

Had Krugman been anything but an extremist leftist he would not have been considered by Nobel.

Which surely explains Vernon Smith’s award, to pick just one name off the top of my head. That would also explain why Barro is mentioned year in and year out.

Yancey Ward October 13, 2008 at 10:06 am

This was a political choice. The very fact that it was a solo prize is tellin. This was the Swedes’ way of kicking Bush in the ass on the way out the door.

DRB October 13, 2008 at 10:07 am

I think most reasonable people agree the Krugman deserved to win the prize at some point. However it is pretty clear the timing of the award was a pretty overt political message from the committee, it would be naive to believe otherwise.

Sebastian October 13, 2008 at 10:16 am

You’d think people would know this, but just to clarify: Each nobel prize is awarded by a different committee. The peace prize is very political. The literature prize, to its own detriment, increasingly so.

Economics? The prize that went to Friedman, Hayek, Becker, and, more recently, Vernon Smith? (and Stiglitz, Akerloff, Sen, Krugman on the other side). Get a grip.

Chris E October 13, 2008 at 10:34 am

‘Bush/GOP is bad < => Sound science’

Those who live by their self-definition as part of the ‘faith based community’ ..

Robert Speirs October 13, 2008 at 10:47 am

What has Krugman ever predicted that came true? What disasters has the application of Krugman’s theories or analysis ever prevented? What useful principles have been derived from Krugman’s work? Bueller, anyone?

CA October 13, 2008 at 10:55 am

I used to support the GOP, but now I cannot run away from it fast enough. It has become not only the “party of stupid” as PK said, but also the party of haters. But if during McCain rallies you year people screaming “terrorist” or “kill him” when refering to Obama, why should Republicans be more civilized when refering to PK? Now, I must say that I do not agree with many of Paul’s political views and often with his tone, but the position that he did not deserve the Nobel Prize because he dared to criticize the GOP is facist and dangerous, while the claim that the criterion for awarding the Prize is how liberal a person is is stupid. As a proof, here are some Nobel laureate economists who are anything but liberal: Gary Becker, Milton Friedman, Robert Lucas, Ed Prescott, and the list goes on.

Mark Amerman October 13, 2008 at 10:57 am

DRDR,

So in other words, when we lose entire industries to China or Japan or India or Taiwan,
this would mean that we are never going to get them back — or at least in the forseeable
future — because much of the comparative advantage that one nation has over another in
a specific area isn’t due to profound differences like resources or average education or
policy or wage levels but rather the self-reinforcement of having a particular concentration
of business expertise in a given area. So that once such a concentration has appeared
it’s difficult for some place faraway to participate or break-in or in our case break back in.

Anderson October 13, 2008 at 11:14 am

The lack of respect here isn’t exactly surprising, but it’s revealing.

Tyler’s post makes it clear that Tyler, who is by no means an ideological fellow-traveler with Krugman, thinks that the choice is valid and worthy.

Tyler knows more about economics than 99% of the commenters in this thread, and at least as much as the other 1%.

Instead of responding, “well, thanks Tyler, at first I assumed it was just a political jab, but now I have actually LEARNED SOMETHING from reading your blog …”

… we get comments that were obviously formed before even reading Tyler’s post, and remained unaffected by Tyler’s judgment. Not arguing with Tyler, not showing why Krugman’s vaunted theories are actually bad, just “Krugman hates the GOP blah blah blah.”

So, my question to you folks is: if you think so little of Tyler Cowen, why are you commenting at his blog?

M1EK October 13, 2008 at 11:19 am

I wonder at what point we’ll actually see the authors of this blog having to do what McCain had to do at that rally a couple of days ago: rescue the discourse from the reactionaries?

The dichotomy is obvious: Few would doubt the economic chops of many of the folks most quoted by the right-wingers, even if they disagree with their policy prescriptions. But because Krugman opposes Bush, he must also be a bad economist, huh? Even after 8 years of this nonsense? Even after Krugman has been shown to be right more often than not outside the economic realm?

Really? We’re still there? Even now? How much cognitive dissonance can you guys stand?

Robert Speirs October 13, 2008 at 11:28 am

“Even after Krugman has been shown to be right more often than not outside the economic realm?”

What has Krugman ever been shown to be right about? Ever?

jorge October 13, 2008 at 11:43 am

Por Dios, leer que Krugman es un peligroso extremista.

timcat October 13, 2008 at 11:55 am

Here’s another example of daft Krugman economics relating to his short piece on why the British had such bad food.

Krugman argues that the market wasn’t able to provide good food to the English cities for various reasons and people consequently became “stuck” in a rut.

Of course the fool finds the market at fault as any shallow thinker:

So what does all this have to do with economics? Well, the whole

point of a market system is supposed to be that it serves consumers,

providing us with what we want and thereby maximizing our collective

welfare. But the history of English food suggests that even on so

basic a matter as eating, a free-market economy can get trapped for

an extended period in a bad equilibrium in which good things are not

demanded because they have never been supplied, and are not supplied

because not enough people demand them

First off the fool isn’t able to distinguish between personal preferences and changing consumer needs. Krugman thinks these were static in for the British the sense that the consumer is left in limbo because s/he doesn’t know any better. Krugmans idea of bad food could vary greatly from other people.

English food was influenced by its colonies and food tastes were ever changing. English food was a case of consumer preference in the same way as French good was. Food was also a very highly traded sector during Britain’s reign as the superpower.

Furthermore if the fools reasoning was sound the same thing would have had to applied to French which with a few stumbles wasn’t that far away in terms of industrialization compared to the Brits.

In other words it doesn’t even dawn of Krugman that the consumer was making choices with their food variety in the same way the french were. They ate what they liked. In actual point of fact a great deal of traditional English food wasn’t that much different than Northern French and German stodge.

Another example of Krugman’s shallowness as an economist who doesn’t deserve any prize other than the prize of rebuke.

the buggy professor October 13, 2008 at 12:01 pm

1) That’s a good analysis, Barkley, of Krugman’s contributions and the possible influences of others.

2) Note though. Nobody in this thread so far has referred to the role of the prisoners’ dilemma in strategic trade theory . . . the term that battles with New trade theory for the work of Krugman and others since the late 1970s.

In particular, new or strategic trade theory doesn’t just realistically look at trade across countries in the presence of imperfect competition (oligopoly) and economies of scale. It also then allows for a role for the government through various trade subsidies or protection to foster advanced technological industries in the ways Japan and South Korea and now China have pioneered.

……..

3) Enter the prisoners’ dilemma — a game theoretical model developed in the 1950s that shows how such trade competition in the presence of oligopoly and government subsidies or protection can be modeled as a PD. In such a model, the alternatives are 1] cooperation or 2]defection between governments seeking to promote the growth of exports of their countries’ champion industry in third countries.

Brander and Spencer, the first to use this PD interaction (strategic) game theory model for trade, showed that unless cooperation is arrived at as an outcome between the competing governments, they will — if both governments are rational — end up with the worst outcome: mutual defection, with a huge waste of taxpayer money (subsidies) by both.

— In PD modeling, the preferred outcome is always Defection by each actor, with a hope the other will be suckered (Cooperate). Hence the four options in a 2×2 modeling are DC, then CC, then DD, then CD …. where the first choice is yours (D), and the other actor (government or firm) is suckered by choosing (C) and suffering all the losses that you gain from.

……

4) Krugman adopted these ideas — virtually all scholars draw on earlier work — and applied it in the late 1980s and into the 1990s — in a variety of interesting and informative ways. The more realistic, too, from the viewpoint of a political scientist like me, because of the role of governments and market-power that strategic trade theory realistically focuses on in contrast to traditional pre-1980 trade theories.

…..

5) Wait though.

Krugman also supports free trade — has said so as recently as this year. So, theoretically, what to do if the PD-model can capture the relationship, say, between Japan’s computer industry in the 1980s and early 1990s and the US’s computer industry . . . with the latter having gained “first move” advantage?

If Krugman and others are right, then free trade would be a suckered- policy for the country that practices it in the face of a protected and heavily subsidizing government-influenced country like China these days. China, after all, has been moving rapidly upward in both absolute and relative GDP-terms as originally a low-wage economy. It still is that, but what could then explain its rapidly growing percentage of advanced electronic goods . . . including those in ICT industries?

.

In the early 1990s, to clarify this point, Krugman said that strategic trade theory really didn’t require any policy changes for the US (and others) that conformed to the GATT (and later WTO) policies. His reasoning? In a journal (World Trade), he argued that GATT already let governments believe that imports were good, and exports bad. Remember, he didn’t buy trade protection beyond, possibly, some government subsidies for certain advanced technological industries if other countries were doing this. He just said that the existing trade system already, wrongly, fostered the belief that imports were bad, exports good.

….

6) Leave aside whether that’s convincing. The big problem for trade theory still remains — whether for New or Old theory.

As Krugman has also rightly noted — to return to the Chinese rapid advance in high-tech ICT and consumer electronics — trade theory hasn’t fully come to terms with “multi-stage† global production.

In such production, you see, a country like China with low wages but a competent work force can benefit from multinational implants — on Chinese government terms (almost always with a Chinese partner-firm and a certain amount of local R&D financed by the multinational). In this way, Chinese firms work with the advanced technologies even if they don’t create them; learn how to use them on their own — with, so far, off-and-on success; assemble the final product from inputs produced elsewhere; and then export them to the US, Japan, Europe, and elsewhere.

….†¦†¦

7) The political fall-out — and the key economic problem.

And that, ladies and gentleman, along with the enormous pressures on low-skilled and semi-skilled workers in trade-competing industries — including in Europe and the US pressures from large numbers of low-skilled immigrants who add to the pool of low-skilled and semi-skilled workers who have been edged out of former trade-competing industries — is why, among other things, the populist backlash against immigration, globalization, big finance, big business generally (to an extent), and politicians is at a maximum height these days in the US.

And alas, talking about Austrian economists or free-trade values will not make this most recent populist backlash — 80% of Americans saying we were in a bad or very bad economy almost a year ago before this recent financial crisis, with a growing majority opposed to globalization — go away. Nor will ranting at Lou Dobb or others do the trick either.

…….

Michael Gordon, AKA, the buggy professor

Anonymous October 13, 2008 at 12:03 pm

The Royal Swedish Academy of Sciences (09.Oct.1974):

The Functional Efficiency of Economic Systems
von Hayek’s contributions in the field of economic theory are both profound and original. His scientific books and articles in the twenties and thirties aroused widespread and lively debate. Particularly, his theory of business cycles and his conception of the effects of monetary and credit policies attracted attention and evoked animated discussion. He tried to penetrate more deeply into the business cycle mechanism than was usual at that time. Perhaps, partly due to this more profound analysis, he was one of the few economists who gave warning of the possibility of a major economic crisis before the great crash came in the autumn of 1929.

von Hayek showed how monetary expansion, accompanied by lending which exceeded the rate of voluntary saving, could lead to a misallocation of resources, particularly affecting the structure of capital. This type of business cycle theory with links to monetary expansion has fundamental features in common with the postwar monetary discussion.

The Academy is of the opinion that von Hayek’s analysis of the functional efficiency of different economic systems is one of his most significant contributions to economic research in the broader sense. From the mid-thirties he embarked on penetrating studies of the problems of centralized planning. As in all areas where von Hayek has carried out research, he gave a profound historical exposé of the history of doctrines and opinions in this field. He presented new ideas with regard to basic difficulties in “socialistic calculating”, and investigated the possibilities of achieving effective results by decentralized “market socialism” in various forms. His guiding principle when comparing various systems is to study how efficiently all the knowledge and all the information dispersed among individuals and enterprises is utilized. His conclusion is that only by far-reaching decentralization in a market system with competition and free price-fixing is it possible to make full use of knowledge and information.

von Hayek’s ideas and his analysis of the competence of economic systems were published in a number of works during the forties and fifties and have, without doubt, provided significant impulses to this extensive and growing field of research in “comparative economic systems”. For him it is not a matter of a simple defence of a liberal system of society as may sometimes appear from the popularized versions of his thinking.

bob October 13, 2008 at 12:14 pm

The issue is not Krugman’s politics. The issue is “conduct unbecoming:” Krugman’s liberal use of the rhetoric of morality in place of positive analysis. This is supposed to be a science, scientists who castigate their opponents as evil and incompetent deserve a rebuke and not praise. Remember, type C and type M arguments? Does anyone want to start a Krugman quote-fest? Why don’t we enumerate the most noteworthy examples of moral righteousness? Remember, positive statements, like, the honest prediction about Enron outweighing 9/11 on the American psyche down the road, don’t count.

DRDR October 13, 2008 at 12:28 pm

Re: Krugman & trade policy: here are the most important quotes from Helpman & Krugman (1989).

“There is only one way to be perfect, but many ways to be imperfect… Free trade is rarely the optimal policy under oligopoly, but no clear alternative emerges. The case for any particular deviation from free trade is highly sensitive to assumptions about market structure and behavior.”

For instance, in the strategic trade literature, whether the optimal policy is tax or subsidy depends on whether competition is Bertrand or Cournot!!

John Lilly October 13, 2008 at 12:40 pm

I find it bizarre that the word “rationing” appears nowhere in Krugman’s piece on British food. If the Ministry of Food constituted a “free market,” I’ll eat my hat.

Greg Ransom October 13, 2008 at 12:51 pm

Krugman’s short piece on Austrian trade cycle theory is an intellectual disgrace, as are almost every word and punctuation mark Krugman has scribbled on Hayek generally. Krugman’s fraudulent writings on Hayek reveal one outstanding fact about the man — he’s not a particularly honest individual. Few economists will speak this truth, but I’m not the first to note it.

A Cassel October 13, 2008 at 12:55 pm

from DataPoints at Dismal Scientist I was into Krugman before Krugman was cool.

That is, I read his website, his pop-economics books, and his early columns (like this one) before he began writing his regular New York Times column in 2000. And before the Bush tax cuts evidently drove him around the bend.

I’ve had mixed feelings about him since then. While agreeing with a fair amount of what he wrote, I wasn’t comfortable with the unbridled partisanship that overtook a lot of his newspaper writing. You give up something as a columnist (not to mention as an economist) when your analysis starts with the postulate that one party is morally bankrupt, and the other one represents the Hope of a Nation.

I also felt he over-romanticizes the era and place he grew up in—1950s Long Island, which as it happens is the same era and place I grew up in. Yes there were lunchbucket union jobs and single-breadwinner families, but it was hardly Eden. We rebelled in the 1960s for a reason.

One incident in particular made me wonder what had happened to Krugman’s brain: He was a guest on a Sunday morning talk show in the summer of 2001, called in to comment on the then-darkening economy (we were already in recession then, but it wasn’t official yet.)

After Krugman had been booked but before he appeared, however, some news broke in the Gary Condit case. If you’ve forgotten, this involved a congressman and a missing aide. It was a sexy, juicy story, and I don’t remember all the details except that it had nothing whatever to do with economics.

The talk-show host introduced Krugman as a distinguishied economics commentator, then proceded to ask his opinon—of the Condit story.

And … Krugman gave him one.

None of this reflects on Krugman’s authority or credibility as an economist, of course. I’ll happily defer to the Swedish academy on that score.

But as a media figure, you have to admit he’s carved out some strange ground.

Snorri Godhi October 13, 2008 at 1:10 pm

After skimming through Dr. Krugman’s op-ed in the NY Times, “Gordon does good”, I wish to add a word of praise for him. Not because I necessarily agree that the British response to the crisis is the correct response: I would not know about that (disarmingly, Krugman himself is not sure what will come out of it). But the fact that Krugman is willing to stick his neck out and endorse a specific course of action endears him to me: I simply cannot imagine Joe Stiglitz not sneering at any concrete action by any government.

peter October 13, 2008 at 1:19 pm

“The Royal Swedish Academy of Sciences (09.Oct.1974):

von Hayek showed how monetary expansion, accompanied by lending which exceeded the rate of voluntary saving, could lead to a misallocation of resources, particularly affecting the structure of capital.”

isn’t that the austrian-business-cycle-theory?
…the central planning agency originating the boom-bust-cycle by failing to guess the correct prices, i.e. the central bank setting interest rates too low in a fractional-reserve-system.

givemeliberty October 13, 2008 at 1:58 pm

This award makes perfect sense, ranking right up there with Al Gore and Yassar Arafat. It confirms the value system of the selection committee, and keeps all of the lunatics in the same asylum.

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