[OPE] Paul Krugman wins Nobel

Jerry,

I am taking a break from writing - here's a NYT clip though about Krugman's achievement:

Mr. Krugman won the prize for his research, beginning in 1979, that explained patterns of trade among countries, as well as what goods are produced where and why.

Traditional trade theory assumes that countries are different and will exchange only the kinds of goods that they are comparatively better at producing - wine from France, for example, and rice from China.

This model, however, dating from David Ricardo's writings of the early 19th century, was not reflected in the flow of goods and services that Mr. Krugman saw in the world around him. He set out to explain why worldwide trade was dominated by a few countries that were similar to one another, and why a country might import the same kinds of goods it exported.

In his model, many companies sell similar goods with slight variations. These companies become more efficient at producing their goods as they sell more, and so they grow. Consumers like variety, and pick and choose goods from among these producers in different countries, enabling countries to continue exchanging similar products. So some Americans buy Volkswagens and some Germans buy Fords.

He developed this work further to explain the effect of transportation costs on why people live where they live. His model explained under what conditions trade would lead people or companies to move to a particular region or to move away.

Mr. Krugman's work has been praised for its simplicity and practicality - features economists are often criticized for ignoring.

"Some people think that something deep only comes out of great complexity," said Maurice Obstfeld, an economics professor at the University of California, Berkeley, who wrote a textbook on international economics with Mr. Krugman. "Paul's great strength is to take something very simple and make something new and very profound."

Mr. Krugman applied his skill at translating complex ideas into clear, entertaining prose to his Times columns, which he began writing in 2000. In recent years, in his column and a related blog on nytimes.com, nearly everything about the Bush administration - from health care policy to Iraq to "general incompetence" - has been the object of his scorn.

Along the way, Mr. Krugman has come in for criticism himself from both economists and lay readers.

"Much of his popular work is disgraceful," said Daniel Klein, a professor of economics at George Mason University, who this year wrote a comprehensive review of Mr. Krugman's body of Times columns. "He totally omits all these major issues where the economics conclusion goes against the feel-good Democratic Party ethos, which I think he's really tended to pander to especially since writing for The New York Times."

http://www.nytimes.com/2008/10/14/business/economy/14econ.html?_r=1&em&oref=slogin

Ironically there are still many Marxists who hold to Ricardo's theory of "comparative advantage" which Marx almost certainly rejected, and Ricardian this theory is still mainfare in economics classes because it seems to explain the benefits of trade and the division of labour (specialization). But that is just to say that the real problem concerns the costs and benefits of particular kinds of trade, and particular kinds of division of labour (different ways of organising work). Obviously so long as we talk about markets in general, trade in general, and the division of labour in general, this problem will never be solved. But more about this some other time.

Jurriaan

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Received on Tue Oct 14 12:28:29 2008