STOCKHOLM, Sweden — Paul Krugman, the Princeton University scholar, New York Times columnist and unabashed liberal, won the Nobel prize in economics today for his analysis of how economies of scale can affect trade patterns and the location of economic activity.
Krugman has been a harsh critic of the Bush administration and the Republican Party in The New York Times, where he writes a regular column and has a blog called “Conscience of a Liberal.”
He has also taken the Bush administration to task over the current financial meltdown, blaming its pursuit of deregulation and unencumbered fiscal policies for the financial crisis that has threatened the global economy with recession.
Perhaps better known as a columnist than an economist to the public at large, Krugman has also come out forcefully against John McCain during the economic meltdown, saying the Republican presidential candidate is “more frightening now than he was a few weeks ago.” Krugman also has derided the Republicans as becoming “the party of stupid.”
Tore Ellingsen, a member of the prize committee, acknowledged that Krugman was an “opinion maker” but added that he was honored on the merits of his economic research, not his political commentary.
“We disregard everything except for the scientific merits,” Ellingsen told The Associated Press.
The 55-year-old American economist was the lone winner of the 10 million kronor ($1.4 million) award and the latest in a string of American researchers to be honored. It was only the second time since 2000 that a single laureate won the prize, which is typically shared by two or three researchers.
Not one to tone down his opinions, Krugman has compared the current financial crisis to the devastation of the 1930s.
“We are now witnessing a crisis that is as severe as the crisis that hit Asia in the 90’s. This crisis bears some resemblance to the Great Depression,” Krugman said.
But he was optimistic that a global effort aimed at stemming the financial blood loss had taken root.
“I’m slightly less terrified today than I was on Friday,” he said, referring to the weekend crisis talks among European leaders that led to the nationalization of British banks, unlimited access to U.S. dollars to banks worldwide and efforts to stave off a global recession.
In contrast to his treatment of U.S. financial officials, Krugman has praised leaders in Britain for their response to the global financial crisis.
In a column today in the New York Times, Krugman wrote that British Prime Minister Gordon Brown and Chancellor Alistair Darling “defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up.”
Whereas U.S. Treasury Secretary Henry Paulson at first rejected giving financial institutions more money in return for a share of ownership, the British government “went straight to the heart of the problem … with stunning speed,” he wrote.
“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.”
The Royal Swedish Academy of Sciences praised Krugman for formulating a new theory to answer questions about free trade and said his theory had inspired an enormous field of research.
“What are the effects of free trade and globalization? What are the driving forces behind worldwide urbanization? Paul Krugman has formulated a new theory to answer these questions,” the academy said in its citation.
“He has thereby integrated the previously disparate research fields of international trade and economic geography,” it said.
The award, known as the Nobel Memorial Prize in Economic Sciences, is the last of the six Nobel prizes announced this year and is not one of the original Nobels. It was created in 1968 by the Swedish central bank in Alfred Nobel’s memory.
Besides his work as an economist at Princeton University in New Jersey, where he has been since 2000, Krugman has written for publications including Foreign Affairs, the Harvard Business Review and Scientific American.
He graduated with a bachelor’s degree from Yale in 1974 and received a Ph.D. from MIT in 1977. Besides teaching at Yale and MIT, he also taught at Stanford.
Krugman said winning the Nobel award won’t change his approach to 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.”
Showing a sense of humor, Krugman’s New York Times blog had an entry early today that read “A funny thing happened to me this morning….” with a link to the Nobel announcement.
Krugman’s work on new trade theory also garnered him the John Bates Clark medal from the American Economic Association in 1991. That prize is given every two years to an economist under the age of 40.
The Nobel citation said Krugman’s approach is based on the premise that many goods and services can be produced at less cost in long series, a concept known as economies of scale. His research showed the effects of that on trade patterns and on the location of economic activity.
“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 professor and economist who specializes in trade theory.
Gradually, people began to realize that conditions in the market were less than perfect, and that the small number of companies in some industries had economies of scale which changed the trade equation.
“Krugman was the main person who brought all the theory together, recognized its importance to the real world, produced a large expansion of international trade theory to make it more applicable to the modern world,” Dixit said.
Krugman introduced his trade theory in 1979 in a 10-page article in the Journal of International Economics.
It posited that because consumers want a diversity of products, and because economies of scale make production cheaper, multiple countries can build a product such as cars. A nation like Sweden can build its own car brands for both export and sale at home, while also importing cars from other countries.
The article also outlined a new theory of economic geography. Krugman’s idea was that if two countries were exactly alike, except one had a larger population, real wages would be somewhat higher in the more populous country because companies there could make better use of economies of scale, creating a greater diversity of goods, lower prices, or both.
Because this enhances the welfare of consumers in that country, its population would increase as more people moved there, which would lead to additional increases in real wages.
The Nobel Prizes in medicine, chemistry, physics, literature and economics will be handed out in Stockholm by Sweden’s King Carl XVI on Dec. 10, the anniversary of prize founder Alfred Nobel’s death in 1896. The Nobel Peace Prize is handed out in Oslo, Norway, on the same date.
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Associated Press Malin Rising in Stockholm, Geoff Mulvhill in Mount Laurel, New Jersey, and AP Business Writer Ellen Simon in New York contributed to this report.
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