To the long list of sharp reactions provoked around the world by George W. Bush now must be added another: the decision last week by the Royal Swedish Academy of Sciences to give its 2008 Nobel Prize in economics to Paul Krugman, 55, of Princeton University and The New York Times.
Not that the honor is in any sense undeserved. On the contrary, it has long been anticipated; for two decades, it has been a question of how and when. The central part that Krugman played in overturning 175 years of conventional thinking about international trade by introducing the analytic tools of monopolistic competition is by now something of a legend, thanks to two autobiographical essays as forthcoming as any in economics:
How, feeling adrift, the 24-year-old assistant Yale professor returned to MIT in January 1978 to talk over various projects with his MIT thesis adviser, the late Rudiger Dornbusch. How, suitably encouraged, Krugman adapted a newly-invented model of product diversity to show how the logic of falling costs in high-tech industries might be used to make a strong case for protectionism in pursuit of export-led growth.
How his MIT teacher, Jagdish Bhagwati, overruled uncomprehending referees’ reports and published Krugman’s paper in the Journal of International Economics in 1979, even though it meant his own work would be eclipsed by that of his former student. How MIT hired him back from Yale, only two years out of graduate school.
How, after exploring the implications of his surprising findings in a pair of monographs with Harvard’s Elhanan Helpman, Krugman turned his attention from trade to international finance, only to jump back into the monopolistic competition derby in 1990 with a series of papers culminating in another joint monograph about the significance of falling costs for economic geography.
Before 1980, exponents of infant industry protection and strategic export promotion, especially in Europe and Asia, and their American and European critics were routinely ruled out of court in technical economics by the “law” of comparative advantage, and a series of assumptions that more-or-less perfect competition among little firms in markets for grain, wine and wool pretty much explained the way the world works.
After “Increasing Returns, Monopolistic Competition and International Trade” appeared in November 1979, economists tackled the machinations of giant companies in multinational markets for automobiles, computers and pharmaceuticals with new models of monopolistic competition. It was a sudden and enormous gain in insight and relevance for a field that had been on the verge of being elbowed aside by business consultants and lawyers.
But the fact that the Swedish prize authorities moved Krugman’s contribution to trade theory to the top of their list, ahead of several other skeins of earlier work in other fields that are awaiting recognition, coupled with their decision to give it to him alone, rather than also recognizing Helpman, of Harvard University, his co-author in two influential monographs, was a clear indication that the Swedes wanted to send a message along with the stardust: that they enjoy reading the penetrating and acerbic commentary that he writes in his second career as a twice-a-week newspaper columnist.
The prize authorities have conferred honors with political overtones before, most notably in 1986, when they made a sole award to James Buchanan, for his work on government failure, withholding recognition from his research partner Gordon Tullock, as well as from two other students of different, though complementary problems, Richard Musgrave and Janos Kornai, with whom Buchanan could have been creatively paired. Sweden’s finance minister, Kjell-Olof Feldt, was said to have been a staunch advocate of honoring Buchanan alone, as a means of calling attention to criticism of the Swedish welfare state.
The awards to Amartya Sen, in 1998, and Robert Mundell, in 1999, were also viewed in some quarters as conveying political judgments, though of very different sorts, essentially because vs. despite their outside work. In contrast, the awards to Edward Phelps, Robert Lucas, Gary Becker, Ronald Coase and Robert Solow, each of them singletons, were for work whose influence operated almost entirely within the confines of economics.
An especially good discussion of Krugman’s work can be found in a column by Avinash Dixit in the popular VoxEU site operated by the Centre for Economic Policy Research. Dixit, of Princeton University, is another of those whom the Swedes might have honored along with Krugman. He and Joseph Stiglitz, already a laureate, conceived in 1974 and published three years later the workhorse model of product diversity that Krugman and others adopted to build that better description of international trade. “He was the undisputed leader of the group that took on this task…,” writes Dixit. “He had the vision to make the idea work in two ways, using it to make new discoveries and by recognizing its implications as a far-reaching instrument for transforming general attitudes.”
(The award this year creates an interesting problem for the Swedes as to how and when to recognize advances in growth economics that connect to Krugman’s work on trade, and do so as tightly as one interlocking jigsaw piece to another. Dixit’s proposed solution is to nominate a ticket of Paul Romer, of the Stanford Institute for Economic Policy Research, Harvard’s Helpman, and Gene Grossman, of Princeton for next year’s prize.)
Meanwhile, the award provided a vivid illustration of the parallel nature of work in the community of scientific economics, in the story of Wilfred J. Ethier, of the University of Pennsylvania. Working on more or less the same problems with the same tools, Ethier produced a pair of highly significant papers in 1979 and 1982. In terms of the originality and scope of his ideas, Ethier often is judged by colleagues to have penetrated more deeply to the international division of labor that is the heart of the matter. In terms of influence on other economists, however, he was a distant third – partly because, being significantly older than the intense young professor at Yale, he was of a different generation. “I think they did the right thing in picking Krugman alone,” Ethier said last week. “But it would have been a much more fortunate choice had it come last year… or next year” – the better not to confuse the issue.
Which brings us back to Krugman’s newspapering.
For decades, economists have written regularly for the public; Milton Friedman and Paul Samuelson wrote dueling columns in the back of Newsweek for more than fifteen years, and Samuelson still writes regularly for European newspapers. Many others have followed in their train.
But no economist in modern times has ever abandoned research in order to take a day job on a newspaper until Krugman did it in 2000, leaving MIT for the New York Times and a sinecure at Princeton’s Woodrow Wilson School of Public and International Affairs. (Long-time Times columnist Leonard Silk was working in think-tanks before he joined Business Week; MIT’s Lester Thurow spent six months writing editorials for the Times in 1980, but quickly returned to teaching.)
Krugman turned out to be a natural commentator – shrewd, energetic, and often surpassingly well-informed. Within months, he was scoring scoops, some of them of major proportions. He was the first to recognize that the California energy crisis involved deliberate manipulation by some of the companies involved. He warned persuasively of the vulnerabilities to fraud of new digital voting machines. He was an early and perceptive critic of US strategy and tactics in Iraq. And he has been brilliant on the economic crisis all along, especially in the last six weeks, scouting out the shortcomings of the administration’s rescue plan as quickly as it had been proposed.
The problem is his tendency to write with prosecutorial zeal. Having never really assimilated the cultural values of the news profession, Krugman has a hard time being fair to those with whom he disagrees. Dixit concedes that “I sometimes dislike his polemical and combative style of writing at the same time as I agree with the substance of his criticisms.” I wrote in January, “Two words you won’t find in Krugman’s dictionary are ‘exculpatory evidence.’”
But Krugman’s legion of fans feel differently. Paul Samuelson last week told Catherine Rampell of the Times, “I praise today’s prize as being deserving and even overdue, but more than that I reproach the Pulitzer committee, which owed him at least a couple of prizes in the past. Paul Krugman is the only columnist in the United States who has had it right on almost every count since the beginning.”
True enough, as far as it goes. But in journalism, as in economics, being right is not all that counts. Intellectual honesty requires something more complicated than that: a systematic marshalling, of not just your own arguments, but the arguments of those with whom you disagree, all the arguments, not just some. The Nobel prize attests that Krugman met that test with flying colors in his work on trade.
But then formal methods in economics are designed to lead in that direction. The goal in news is something far more provisional than proof. Still, professional standards of fairness require that take your opponents’ views into account and state them as clearly as possible along with your own, even within the limits of a 750-word column, or a series of columns over time. It’s not just what you say, but the way that you say it.
Will Krugman win a Pulitzer Prize for commentary next spring? In January, I doubted it, on the grounds that he can’t keep his thumb off the scale. Today, after so many perspicacious judgments, it is an even more interesting question, one that has as much to do with the freefall in which the newspaper industry finds itself as with the columns themselves. Its resolution is something to look forward to in April. Meanwhile, all bets are off. It is easy to lose money underestimating Paul Krugman.