By Lauren Otis, Staff Writer
Paul Krugman, a Princeton University professor of economics and international affairs who brought his opinions on global trade, finance and politics to a broader audience through his regular columns and “Conscience of a Liberal” blog for the New York Times, was awarded the 2008 Nobel Prize in economics Monday morning.
The Royal Swedish Academy of Sciences conferred the prize on Professor Krugman, 55, in recognition of his research dating back to 1979 on contemporary international trade patterns and economic geography, one outgrowth of which is crowded global cities and underdeveloped rural regions.
”In case you were wondering how these things work, I actually took the call stark naked because I was about to step into the shower,” Professor Krugman said before a standing-room audience of colleagues, students and media at Dodd Auditorium in Robertson Hall on Monday afternoon.
The audience, which treated Professor Krugman to several ovations, included John F. Nash, a senior research mathematician at the university who won the Nobel for economics in 1994.
”It’s an incredible honor, it is stirring, it hasn’t quite set in,” said Professor Krugman, who has been a professor at Princeton since 2000.
”One Nobel Prize can discombobulate your whole day,” he said of the surge of attention the award brought on.
”On behalf of international trade people I would like to thank the Nobel committee for recognizing this field,” he said.
The Royal Swedish Academy of Sciences stated: “By having shown the effects of economies of scale on trade patterns and on the location of economic activity, his ideas have given rise to an extensive reorientation of the research on these issues,” in announcing Professor Krugman had won the 2008 prize in economic sciences.
”In addition to economies of scale in production, Krugman’s new theory was based on an assumption that consumers appreciate diversity in their consumption. At the time, this was a rather new concept in economics, but it appeared to correspond to reality. Indeed, most of us have witnessed greater diversity in the supply of available commodities,” the Swedish Academy stated.
”Economic geography deals not only with what goods are produced where, but also with the distribution of capital and labor over countries and regions. The approach Krugman used in his foreign trade theory — the assumption of economies of scale in production and a preference for diversity in consumption — was also found to be appropriate for analyzing geographical issues. This allowed Krugman to integrate two disparate fields in a cohesive model,” continued the Swedish Academy.
”I hope all of you agree that the uptick in the markets is a result of the recognition of Professor Krugman and the extraordinary work he has done,” quipped Princeton University President Shirley Tilghman in introducing Professor Krugman on Monday, a day when stocks soared on news of global efforts to stem the credit crisis. “This is a very exciting day, primarily for Professor Krugman, but also for Princeton University,” President Tilghman said.
Anne-Marie Slaughter, dean of the Woodrow Wilson School of Public and International Affairs, said “we salute him in the Woodrow Wilson School for crossing boundaries, doing cutting edge theoretical work but also translating it to a wider public.”
Christina Paxson, chairwoman of Princeton’s department of economics, described Professor Krugman’s work as “a major leap forward” from what had preceded it theoretically. He has created “a unified theory of trade and the location of economic activity,” she said.
Professor Krugman’s Nobel prize came in the midst of the ongoing global financial and credit crisis, a subject he has written and spoken about frequently, often being critical of the handling of the crisis by the administration of President George W. Bush, including its $700 billion financial rescue plan.
Asked about recent developments, Professor Krugman praised British Prime Minister Gordon Brown for his government plan to inject capital into Britain’s banks to stabilize them and leading other nations to do the same, saying it should be adopted in the U.S. “Yesterday was the first day I actually felt policy makers exceeded expectations rather than falling short,” he said.
”It’s terrifying. I am more hopeful now than I was a few days ago,” said Professor Krugman, adding “I think we are intellectually starting to get a grip on this thing, whether we are financially getting a grip is not clear.”
Professor Krugman said he saw no quick or easy solution to the current crisis. Even with capital injections and financial guarantees in place, the current financial upheaval will only begin to fade out over several months, he said. “The recession is still gathering force, the real economy is suffering,” he said of broader U.S. economic troubles at present.
Professor Krugman said the current economic system is basically sound, although specific aspects of it must be revamped, specifically the regulation of the financial institutions that grew without oversight and recently collapsed. “Basically anything that has to be rescued like a bank has to be regulated like a bank,” he said, with capital and liquidity requirements mandated.
”The New Deal had it right and it just needs to be updated for the modern system,” Professor Krugman said.
Professor Krugman said neither presidential candidate, John McCain or Barack Obama, has been taking the lead in proposing solutions to the current crisis, but this was to be expected. “It is honestly difficult for anyone but a minister of finance to come up with solutions to this kind of thing,” he said.
Sen. McCain’s proposal to buy up mortgages at face value “was a really bad idea,” said Professor Krugman, who said he aligned himself with Sen. Obama’s pro-regulation positions. He has criticized Sen. McCain as an opponent of financial regulation.
Professor Krugman said he had no interest in serving in the cabinet of the next president, saying “I am temperamentally not suited, I say the wrong things.”
He said that the award of the Nobel for his work in economics did not constitute a critique of “free-market orthodoxy” and support of “neoliberalism” because there are not significant policy implications either way in his work on global trade patterns and economic activity.
Asked what advice he had for young economists, Professor Krugman answered, “don’t overthink it; follow what seems interesting.”
A graduate of Yale, who received his doctorate from Massachusetts Institute of Technology, Professor Krugman taught at Yale, MIT and Stanford before joining the Princeton faculty. He also served as an international policy economist for the president’s Council of Economic Advisers from September 1982 to August 1983, when Ronald Reagan was president.
By Lauren Otis, Staff Writer