The groans from free marketers and the right wing are inevitable as they turn on their TVs and read their online editions of the New York Times and Wall Street Journal to find Paul Krugman has been awarded the 2008 Nobel Prize in Economics. Krugman is best known for his explicitly liberal NY Times column, arguing for more redistribution, government subsidized (and run) health care, and all manner of government activism in the economy. Policy positions aside, Krugman is a deserving a winner of the prize as any economist the Nobel committee could choose. The Nobel Prize is awarded for contributions to the academic and research side of economics, not policy positions. Here, Krugman has made lasting, meaningful, and insightful contributions to our understanding of international trade and the growth of cities. If anything, his academic work has strengthened the case for economic freedom on international trade by weakening the hands of central planners. As the press release from the Nobel Prize notes:
Traditional trade theory assumes that countries are different and explains why some countries export agricultural products whereas others export industrial goods. The new theory clarifies why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products Ã¢â?¬â?? for instance, a country such as Sweden that both exports and imports cars. This kind of trade enables specialization and large-scale production, which result in lower prices and a greater diversity of commodities.
Moreover, Krugman’s theory has been instrumental in resuscitating the subfield of urban and regional economics, giving economic geography a place on the top tier of economic analysis and research.
Economies of scale combined with reduced transport costs also help to explain why an increasingly larger share of the world population lives in cities and why similar economic activities are concentrated in the same locations. Lower transport costs can trigger a self-reinforcing process whereby a growing metropolitan population gives rise to increased large-scale production, higher real wages and a more diversified supply of goods. This, in turn, stimulates further migration to cities. Krugman’s theories have shown that the outcome of these processes can well be that regions become divided into a high-technology urbanized core and a less developed “periphery”.
That’s why Krugman’s work is now standard in international trade courses and I continue to make his insightful and pathbreaking book “Geography and Trade” required reading in my classes on urban and regional econonmics. Krugman’s liberalism, I believe, has much more to do with, 1) core values that favor redistribution of income and a more egalitarian society despite the potential cost in innovation and economic progress, and 2) the more pedestrian hubris of academia that tends to put too much faith in experts and expertise to manage the affairs of others and diminish the value of individual freedom and choice. Besides, if one keeps count, interventionist economists still rank among the minority of economists receiving the Nobel Prize. Free market economists who have received the prize include Ronald Coase, James Buchanan, Milton Friedman, F.A. Hayek, Gary Becker and others. See a complete list here.