You Cannot Be Serious! Paul Krugman's Nobel Prize

I will be writing a lot more about this, but the Swedes just made perhaps the worst decision in the history of the prize today in naming Paul Krugman the 2008 award winner.  It is not that Krugman's work is entirely without merit, but it always had major problems with it.  Right now I have to get over my shock and horror and write a commissioned piece on this.  But today I would say is a sad day for economics, not a day to be celebrated.  Mises supposedly said during his dying days that he hoped for another Hayek, as I am picking up my jaw from the floor I am hoping for another Samuelson or Arrow to get the award rather the hackonomics that was just honored.

Addendum: My Forbes online column can be found here.

I already mentioned in the comments section Alex's first-rate summary of Krugman's contributions to New Trade Theory --- Alex does about as good a job as anyone could in explaining the contribution and its benefits to our understanding. It is a model of charitable interpretation of a theorist.  The consequences of Alex's interpretation focus on another side of the "appreciative theory" of how markets work.  But I think we have to remember that Krugman gets via monopolistic competition and the welfare implications for theory that implies.  This leads us down the road where the absence of public choice considerations produces a more optimistic view of how government can promote the desired ends than is warranted in theory let alone real practice.

Russ Roberts at Cafe Hayek has an assessment that is closer to mine, though Russ focuses on Krugman's popular statements and how they reflect an abandonment of the economic way of thinking.

Bob Higgs at the Independent Institute reacts to the Krugman prize.

Comments

[Alex66@aol.com]

What exactly is wrong with Krugman's models? I suppose you think Kirzner merited the prize.

Tyler Cowen seems to have a favorable view of PK's work.

[Nick]

Krugman criticizes Austrian trade cycle theory, which would obviously cause uproar here.

From my point of view, Krugman fits facts to suit his hypothesis - i.e. the poor are getting poorer. That said, he has done good work on economic geography.

[Ian Dunois]

I am just curious why we care about a prize awarded by a central bank?
http://nobelprize.org/nobel_prizes/economics//

[mt]

So what is the silver lining here?

It seems that Krugman, by being a sole winner has been placed on par with Phelps, Mundell, Sen, Lucus, Becker, Coase, Allais, Solow, Buchanan, Modigliani, Debreu, Stigler, Tobin, Simon, Friedman, Leontief, Kuznets, and Samuelson.

Some of these winners have been advocates of limited markets. Krugman is an advocate of not only the democratic party but of intervention as an efficiency increasing tool. Here he is more like Friedrich List and Alexander Hamilton than any of these other thinkers.

Does Krugman become a visible scapegoat for what is wrong with protectionism, or does he give legitimacy to this?

Krugman's public economist role is enforced here. His penchant for appearing on CNN and telling people the true understanding of various economic events has now been give the highest stamp of approval in our profession. He is now the epitome of the economic expert. Combine this with a willingness to trade-off economic truth with political coherence and we have an interesting outcome.

Does the choice of Krugman undermine in any sense our notion of the economic expert? If so, what can we do to highlight the normative component of economic advice at this level? It seems possible to advance a case now that ideology and economics have a closer relationship than self-gratifying experts have claimed.

How our profession treats this award is a self-appraisal of "wertfreiheit" in real-time.

[Pierre Desrochers]

If it's any consolation, I can imagine that a number of economic geographers are feeling the same way this morning, but not for the same reasons (most of them agree with his politics). Funny how most economist like Tyler are "most fond of Krugman's pieces on economic geography, in particular on cities and the economic rationales for clustering" when in fact Krugman added very little to a body of knowledge that is more than a century old. But it was new to most economists...

[ZH]

What I am far more shocked at is that Krugman won it as a solo award when there at least four or five other trade people with equal or greater publications and impact. Bhagwati comes to mind first.

[Roger Koppl]

Pierre makes a good point about the originality of Krugman's work, at least if Rosser and Kindleberger are right.

In 1989 Kindleberger objected to the idea that "new" trade theory and "new" international economics were, in fact, new. "As I told Krugman at Helsinki, I find it a bizarre notion that increasing returns in international trade are new." He goes on to cite parts of his 1953 textbook "based on the 1929 article of John Williams reprinted in the AEA 'Readings in the Theory of International Trade.'" (From his chapter in Colander and Coat's "Spread of Economic Ideas," Cambridge U. Press, 1993.)

In 1999 Rosser makes a similar, but more severe, argument in a JEBO book review (31(3) pp. 450-454) regarding location theory. Rosser cites quite a few specific sources he thinks Krugman should have cited, sources that give, apparently, fully articulated mathematical models up the the level of technical sophistication Krugman reached. Rosser concludes, "If he is indeed the emperor of the new economic geography, then he is an emperor who has no clothes."

I don't know how far to push this line of reasoning, but it does look as though Krugman's contributions were less original than many have claimed.

[Sukrit]

Indeed, the great Hayek (who talked about money and liberty long before Friedman) was forced to share his prize, and Krugman gets a solo?

[Sukrit]

Krugman's work may have had major problems with it, but I don't think that Being wrong can still have utility - others can build on the work in the future, e.g. Albert Einstein built on the work of Isaac Newton.

The real problem with this whole charade of economics Nobel prizes is that it leads people to believe that economics is a precise science; it is not.

[Scott Jackson]

It seems clear to me, at least over the last several years, that the Nobel committee is at least in the social sciences and the Peace Prize, irrevocably politically entangled in a way that does not promote the notion of the prize as an objective measure of contribution, value or the high ideals of science. So, in my estimation Krugman's prize is more about partisan politics, and his willingness to lend his professional voice to the chorus of displeasure on the policies of the Bush Administration than on any real contribution to economics. This is clearly a better explanation for a sole prize than the value of his body of work cited in the prize notification. I just hope that at some point, the members of the committee will realize this penchant for using the prize to score political points does no service to the award and only diminishes its value and relevance.

[Brian Baugus]

This is just one more piece of evidence that the Nobel has come to be little more than a way to transfer wealth to the politically approved, especially in economics, literature and peace. This slow slide is sad but on Krugman did he not win the John Bates Clark Medal too. Given that the history of those who won the Clark medal and go on to win the Nobel is pretty strong, maybe we in our profession have only ourselves to blame for setting this embarassment up.

[Jonathan]

Even Krugman has said that his idea of increasing returns to scale in international trade wasn't an original idea, he acknowledges that it was quite old. He, however, was the first to show it with nice mathematical models. And, while his models may have a protectionist result, he his anti-protectionist.

Whether that makes him worthy of a Nobel prize is a different story, of course. It doesn't change who he is, and that Hayek had to share his prize doesn't change the greatness of Hayek (and, had Hayek not shared his prize, or declined his prize, his greatness would not have changed).

[Neel]

I agree with Roger and Pierre's remarks above. Another nice paper that challenges the originality of so-called 'new trade theories' is Andrea Maneschi's "What's 'new' in the new trade theory?".

Among the sources Krugman should have cited is Bertil Ohlin's "Interregional and International Trade", but he confessed in a paper ("Was it All in Ohlin?") delivered at a conference celebrating the centennial of Ohlin that he had never read Ohlin, the reason being that "modern economists, trained to think in terms of crisp formal models, typically have little patience with the sprawling verbal expositions of a more leisurely epoch" ! Interestingly, he had given the Ohlin Lectures a few years back (lectures which appear in his collection of essays "Development, Geography and Economic Theory"). Krugman's other essay "How to Be A Crazy Economist" is also interesting on this issue.

[Mario Rizzo]

If a group of "mainstream" economists would draft a letter of protest based on the academic merits I'd happily sign it. But protests by conservative and libertarian economists will look bad -- mean-spirited, politically motivated. Furthermore, this is really a distraction from more fundamental matters like the beginning of a decades-long attack on free markets generated by the financial crisis and the lack of good responses by most, though not all, free-market economists (so far).

[Vedran]

I don't understand everyone's surprise. The direction of the Nobel Prize committee was pretty evident to me when Al Gore won last year.

Also, I disagree with Dr. Rizzo. I believe his analysis is exactly correct, people will see that our attack is politically motivated. But that's what we want because it will show the other side is politically motivated as well! We're right and libertarian. They're left. That's the perspective we need people to think about.

The power of the Nobel is that it claims to be objective. Let's show it to be strictly left and disarm it. We need everyone from talk radio, academia, and journalism defining the Nobel Committee as a leftist organization. It's time to end the respect of this group once and for all.

[Vedran]

Even if it means the loss of esteem for some of our own past winners....

[Steve Horwitz]

Given how many past winners of Nobels have been pretty hard-core free market folks, any attack on this selection by free market types will look shallow and infantile. I'm not sure his scholarly work is Nobel-worthy, but so be it. We can complain around the water cooler and lunch table, but anything organized will look silly.

[Vedran]

Steve,

The Nobel Prize has been and always will be simply a generally acceptable logical fallacy from authority. Just because free market supporters have gotten some awards is not a good reason to keep persisting this prize.

I think our ideas are good enough to stand alone without Nobel Prizes. I don't think the left's are. In the long run, we would benefit from demeaning the prize even if it costs us some face.

We won in the past, but the whole argument is about the present. This isn't the same committee that chose Hayek and we shouldn't pretend that it is. If we do, we only lend more power to Krugpot's post prize winning works.

[Vedran]

If all we do is talk around the water cooler and the lunch table, sooner rather than later that will be the only places our voices are heard.

[Emily]

Is this just one more reason to fear that the Age of Milton Friedman is coming to an end? The worldwide growth experienced over the past decade began with ideas influencing politics. Thacher and Regan liberalized markets and trade, inspired by the likes of Milton Friedman and F.A. Hayek. Despite public choice problems of reform and implementing good economics (which Friedman and Hayek understood) - ideas matter.

Following the Great Depression, the idea that socialism was possible grew out of academic arguments for interventionism. The anti-market rhetoric and public opinion allowed for the interventionism that followed. I agree (in part) with Prof. Rizzo. The financial crisis will bring on decades of market attacks, but Krugman's Prize will only compound the influence of these ideas in ways that I don't think are well understood. What will be the result of "strategic trade theory" if protectionism is the mechanism for increasing returns?

[Steve Horwitz]

Vedran,

No one is saying we should "only" talk around the water cooler or lunch table. Lord knows I've been out in public on the current crisis. My point is that complaining about this Nobel makes us look juvenile and silly, the LAST thing we need right now when the forces of ideology and politics are lined up against us.

We need to pick our battles: bitching about a Nobel Prize is FAR less important than controlling the narrative about the crisis.

And, FWIW, I don't think this was as awful of a choice as Pete does. My complaint would be only that I think there are more deserving people out there. Is PK's scholarly work "Nobel-worthy"? Maybe, maybe not in my view. But it is in the eyes of many, which is how this thing works.

I'd rather someone else (several someone elses) had one it, but I'm not going to the barricades over this choice.

[Steve,]

Steve,

So you think Krugman is not going to write anything about the current crisis???? Yes controlling the narrative is important and guess who's going to be doing it from the opposition's side.

And if you really think Krugman is not such a bad choice. I mean what can I say

[Vedran]

oh sorry that was me directly above. I wrote "Steve" by accident addressing Dr. Horwitz.

[Steve Horwitz]

Sorry Vedran, I don't judge Nobel winners by their politics alone. There are left-leaning economists who have won deservingly and someone like Mankiw probably deserves one down the road.

[Vedran]

oh sorry that was me directly above. I wrote "Steve" by accident addressing Dr. Horwitz.