Princeton University's Paul Krugman Wins Nobel Economics Prize

By Simon Kennedy and Rich Miller
Oct. 13 (Bloomberg) -- Princeton University Professor Paul Krugman, known as much for his criticism of George W. Bush's policies as for his academic work, won the Nobel Prize in economics for his theories on world trade.
Krugman, 55, was honored ``for his analysis of trade patterns and location of economic activity,'' said the Royal Swedish Academy of Sciences, which selects the winners. His work showed how economies of scale influence trade and urbanization.
While Krugman found broader fame with his New York Times columns attacking Bush, he gained his reputation in economics by arguing countries could gain a competitive advantage through subsidies to key industries. His research helped explain how the development of large-scale production for the world market has attracted more people to cities and led to higher wages.
``This award is clearly for Paul Krugman the economist, not for Paul Krugman the journalist or political critic,'' said Robert Solow, a 1987 Nobel laureate who once taught Krugman. ``What's remarkable about Paul is he manages to do everything. He's a contributor to fundamental economic theory and a top- ranked journalist.''
In a brief telephone interview after the award was announced, Krugman said ``it's a total surprise.''
The Princeton economist's academic work analyzed how world trade came to be dominated by countries that both import and export similar products -- automobiles, for example.
``This kind of trade enables specialization and large-scale production, which result in lower prices and a greater diversity of commodities,'' the Royal Academy said in a statement today.
Globalization
Solow said globalization shows the value of Krugman's work.
``As multinational corporations become more prominent, it's important to have a way of thinking about trade that gives them adequate attention,'' he said. ``As industry and modern economic activity spreads around the world, the question of what goes where and whether the world can get locked into production that is not the most efficient is going to become extremely important.''
A self-proclaimed liberal, Krugman has regularly taken Bush to task in his columns for the New York Times, slamming the president personally for everything from the war in Iraq to his big tax cuts.
``Mr. Bush has degraded our government and undermined the rule of law,'' Krugman wrote in a column on May 18, 2007. ``He has led us into strategic disaster and moral squalor.''
Depression Parallels
In an interview with Bloomberg Television on Oct. 10, Krugman said the current financial turmoil had similarities with the Great Depression. ``The parallels are stronger than I thought they would be,'' he said. ``We developed a financial system that is out of control. The only things people want to buy are Treasury bills and water.''
Krugman was warning in 2005 about the dangers posed to the U.S. economy by its then-ballooning house prices and trade deficit.
``These days Americans make a living by selling each other houses, paid for with money borrowed from China,'' he wrote in a column on Aug. 29, 2005. ``One way or other, the economy will eventually eliminate both imbalances.''
Krugman's public commentary on the economy and politics has earned him criticism from conservatives such as Donald Luskin, chief investment officer for Trend Macrolytics, an investment consulting firm in Menlo Park, California.
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