Paul Krugman Wins Nobel Prize in Economics

Almost a year ago to the day, I wrote:

One would hardly know it from his New York Times commentaries, but Paul Krugman's actually one of the country's great contemporary economists...

The point's certainly relevant, with this morning's announcement that Professor Krugman has won the Nobel Prize in Economics.

I've been familiar with Krugman's work since my days in graduate school in the early '90s. I even attended a lecture given by Krugman while still at UCSB.

While Krugman's Nobel was awarded for his work on "the effects of economies of scale on trade patterns and on the location of economic activity," many scholars remember him especially for the impact he made in strategic trade theory. As Tyler Cowen notes:

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.

Because strategic trade theory gained powerful policy relevance simultaneously with the rise of Japanese economic power in the late-1980s, Krugman's work was often used to bolster arguments in favor of trade protection.

Consequently, Krugman spent later years shoring up his free trade bona fides, and in a 1994 Foreign Affairs essay he went so far as to ague that international economic competitiveness was a "dangerous obsession" (full article available in pdf, here). Clyde Prestowitz, himself a major advocate of strategic trade, took issue with Krugman's longstanding efforts of "running away from the implications of his own findings."

These are old debates, and while Krugman still claims "I’m not a protectionist," what's even more interesting about today's news are the political circumstances surrounding the award.

Krugman, in his capacity as a New York Times columnist, is a superstar on the hardcore ideological left. Many of these nutty nihilists are now claiming political vindication in the Nobel committee's decision, for example, Matthew Yglesias:

Krugman has become known to a wide audience as a left-of-center newspaper columnist. The fact that he’s a credentialed economist has always been well-known, but the point that he’s actually a really well-regarded economist is not all that well-understood. But a Nobel Prize is something people understand. It doesn’t make his political pronouncements the word of God, of course, and there are Nobel Prize winning economists on the right as well. But it does underscore the fact that very many people who really and truly know what they’re talking about think the progressive approach to economic and social policy is the way to go.

That's one of the more simplistic things I've read in some time, considering the partisanship associated with the award, but I'll let Jules Crittenden explain some of the thinking that went into the decision of the Royal Swedish Academy of Sciences:

I wouldn’t want to suggest Krugman excuses terrorism or hates America. It is likely, however, that his extensive Bush-bashing, Saddam-dismissing, GWOT-mocking absurdism was a heavy thumb on the Nobel scale.

These are the same folks who awarded Al Gore the Nobel Peace Prize for his environmental work, so go figure.