13 October 2008

2008 Nobel Prize for Economics

The 2008 Nobel Prize for Economics (officially called: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) was awarded to the American Paul Krugman for his work on international trade patterns.
The economist, analyst and commemtator is a relentless critic of the current Bush administration, and most recently a strong opponent of the $ 700 billion financial bailout for Wall Street banks.

Paul Krugman, a professor at Princeton University in New Jersey and a columnist with the New York Times, is the best-known US economist to receive the prize of 10 million Swedish Kronor (€ 1,024,427) in decades, and the latest in a long line of Americans to be honoured.
It is only the second time since 2000 that the Nobel Prize for Economics, which is typically shared by two or three researchers, is awarded to a single laureate.

The Nobel committee in Stockholm commended Krugman's work on global trade, beginning in 1979 with a ten-page paper that knit together two fields of study and helped to foster a better understanding of why countries produce similar products, and why people move from the small towns to cities.

Prof. Krugman is best known for his unabashedly liberal column in the New York Times, which he writes since 1999. In it he has said that Republicans are becoming "the party of the stupid" and that the economic meltdown made Republican presidential nominee John McCain "more frightening now than he was a few weeks ago".
But at a news conference Krugman declared that he does not think he was honoured for his political views. "Nobel prizes are given to intellectuals," he said. "A lot of intellectuals are anti-Bush."

However, it is not a secret that the Nobel committee of the Swedish Academy has more than once expressed serious concerns over the way the USA has chosen under Bush, and especially over the insular and ignorant attitude of its politics, culture and literature. (see also my entry from October 5th)

Tore Ellingsen, a member of the committee, acknowledged that Krugman was an "opinion maker", but said he was honoured "solely for his research".
"We disregard everything except for the scientific merits," Ellingsen said in Stockholm.

Following last year's Nobel Prize for Peace, awarded to former Vice President Albert Gore, and the 2002 Nobel Prize for Peace for former President Jimmy Carter, some US commentators on the political right have dismissed the prizes as "politically motivated". By picking one of the best-known voices on the left three weeks before a presidential election, the Royal Swedish Academy is sure to provoke further criticism from that biased quarter.

But many leading economists have stated that Krugman's academic work merits the prize quite easily.
"The prize was rightly given for his early academic work on the theory of international trade, not his more recent work as a political pundit," said one of them, Harvard economist N. Gregory Mankiw, former chairman of George W. Bush's Council of Economic Advisers.

Paul Krugman is the rare academic economist who is also part of pop culture. A YouTube video of his joint appearance with Fox News pundit Bill O'Reilly on "Meet the Press" has been viewed by more than 100,000 people.
Besides co-authoring textbooks, he has written two best-sellers, The Great Unraveling: Losing Our Way in the New Century and The Conscience of a Liberal, which has jumped into the top-25 on Amazon.com and is currently out of stock.

Always outspoken, Krugman has compared the current financial crisis to the Great Depression of 1929-1932, saying today that he hopes a global effort to address the crisis might work.

"I'm slightly less terrified today than I was on Friday," he explained, referring to the weekend talks among European leaders that led to the partial nationalisation of British banks and unlimited access to US dollars for banks worldwide.

That said, he has not found much to praise about the Bush administration's actions during the crisis. In a New York Times column Krugman commended British Prime Minister Gordon Brown and his Chancellor Alistair Darling, saying they "went straight to the heart of the problem ... with stunning speed" by demanding ownership stakes in banks in exchange for financial aid, while the US Treasury Secretary Henry Paulson at first rejected that model

"And whaddya know," Krugman continued, "Mr. Paulson - after arguably wasting several precious weeks - has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities."
Krugman stated that he hopes to continue focusing on his research and writing. "The prize will enhance visibility," he said, "but I hope it does not lead me into going to a lot of purely celebratory events, aside from the Nobel presentation itself."
"I'm a great believer in continuing to do work, and I hope that two weeks from now I'm back to being pretty much the same person I was before."

Krugman's work looked at the question how economies of scale - the idea that as the volume of production increases, the cost of making each unit falls - worked alongside population levels and transportation costs to affect global trade. Krugman's theory was that because consumers want a diversity of products, and because economies of scale make production cheaper, multiple countries can build similar products, such as cars. Sweden builds its own car brands for export and to sell at home, for example, while also importing cars from other countries.

"Trade theory, like much of economics, used to be discussed in the context of perfect competition: thousands of farmers and thousands of customers meeting in a market, with supply and demand governing prices," said Avinash Dixit, a Princeton economist who specialises in trade theory.
The theory changed as economists realised conditions in the market were imperfect, and that only a small number of companies in certain industries, such as automobiles, had economies of scale.

"Krugman was the main person who brought all the theory together, recognised its importance to the real world and produced a large expansion of international trade theory to make it more applicable to the modern world," Dixit explains.

Paul Krugman, a native of Bellmore, New York, graduated from John F. Kennedy High School and then went to Yale University, from where he graduated with a bachelor's degree in 1974. He received a PhD from the Massachusetts Institute of Technology (MIT) in 1977. Besides teaching at Yale and MIT, he also taught at Stanford University.

The last Nobel laureate in Economics who was this well-known outside academia was Milton Friedman, who received the prize in 1976. A professor at the University of Chicago, Friedman also starred in a radio series called "Free to Choose".

The Bush administration would not comment on whether Krugman will be invited to the White House, as it is custom with American Nobel laureates. I am sure the Nobel laureate can easily live without the company of George W. Bush and will certainly be received by his successor.

The Emerald Islander


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