Krugman’s highlights

It is hard to think of a more inevitable Nobel prize winner than Paul Krugman. And I guess today the Nobel committee agreed and awarded him the prize. Before he turned his career towards the popular, Krugman revolutionised trade theory, the theory of currency markets and economic geography. It was on the latter part that I had most interaction with him as his tutorial assistant for his 1994 Stanford class on the subject.

Paul Krugman’s earlier work was rejected consistently. When George Shepherd and I wrote to him (in 1993) researching our article on classic rejections he wrote back: “This is in response to your letter of April 3 requesting stories about paper rejections — if any, you say!! As it happened, your letter arrived in the same day’s mail as the second rejection of a paper that I thought (and still think) is one of my better ones. I don’t know what other peoples’ experience is, but I would estimate that 60% of my papers sent to refereed journals have been rejected on the first try.” And this was during his hey-day.

Krugman’s seminal paper on monopolistic competition and trade that was cited by the Nobel committee was one of those rejected by the QJE in 1978. He got a single referee report after 8 months from a referee who agreed these issues were important “but did not feel that our understanding of these issues would be helped by writing down formal models.” The paper was eventually pushed through the Journal of International Economics by its editor Jagdish Bhagwati despite two adverse reports. Krugman had been Bhagwati’s student so it took quite a bit of courage to overule some distinguished referees. Indeed, I met one of those referees a few years ago and they still believe that the paper should not have been published!

It was around this time that a frustrated Krugman wrote his Theory of interstellar trade. Had they been around then, this paper would have won Krugman an Ig-Nobel award and so he could have achieved a rare double. As it was, when he looked at interstellar trade he used none of the tools he developed for terristrial trade. Ironic since you’d think those star ships would involve fixed costs.

Krugman’s paper on “Target Zones and Exchange Rate Dynamics” was also rejected (this time by the JPE) for being of “insufficient general interest.” It took a few more years before coming out in the QJE and by the time had hundreds of citation. Krugman wrote “in fact, I had to add a postscript to the QJE version referring to subsequent literature.”

Here are some of Paul Krugman’s recent achievements.

  • Krugman’s best Slate column as nominated by Slate. This is the best explanation of booms and crashes in macroeconomics that there is. It has a parenting genesis and so I referred to it here.
  • Krugman’s best NYT column as nominated by me. This was on the strange accounting standards that led to our last period of corporate failure.
  • His best line as nominated by me.

Usually, Nobel prize winners spend the week after winning commenting on the economy. I guess this year there will be more than the usual demand. But in Krugman’s case, it is a stage he already occupies.

5 thoughts on “Krugman’s highlights”

  1. There is no Nobel Prize in economics. Alfred Nobel would have been horrified.

    Krugman won the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”, which has only been awarded since 1969. Presumably now there is no limit to the prizes that could now be awarded in memory of Nobel.

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  2. dyork: Look, the Nobel website links to the Sveriges Riksbank Prize, for goodness’ sake, and we all know that Nobel is shorthand. Leave off!

    And on the substance – fabulous. I’ve been a fan of his academic work for ages, but even more his ability to write. My favourite line: “So if you hear someone say something along the lines of “America needs higher productivity so that it can compete in today’s global economy,” never mind who he is, or how plausible he sounds. He might as well be wearing a flashing neon sign that reads I DON’T KNOW WHAT I’M TALKING ABOUT.”

    I’m a bit surprised it was a solo award, though. Pretty unusual recently, isn’t it?

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  3. The baby sitting story is great. What I find most interesting are the suggested solutions. One by economists and one by lawyers.

    If the club had been formed from entrepreneurs there would have been one or more who would have hired some teenagers as surrogate parents and made a profit on the commission but donated the profit to the coop.

    If the club had engineers in it then they would have invested in electronic surveillance systems that would enable a person to supervise several neighbourhood houses at the one time and increase their productivity but “donate” some of the excess to the community and so build up capital for the community instead of relying on borrowings.

    These are different solutions from lawyers who try to regulate and economists who think you can regulate by varying prices. The difference is that doers change the problem by increasing supply. Legal people and economists think they have to stay with a fixed supply.

    In the long term our financial system can be fixed by using the engineers approach. That is, if you have too much money in the system then stop creating new money unless it increases the supply of goods and services. In other words only create new money if it in turn will create more money than the amount invested.

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  4. The so-called Nobel Prize in Economics gives the misleading impression that economics is a science on par with sciences such as physics. But it is clearly not. For example, many technically qualified economists were in charge of centrally planning the Soviet economy using mathematical models, but in spite of their efforts they succeeded only in causing mass starvation. Mises, Hayek and Rothbard pointed out the fundamental knowledge problem that makes the simplifying assumptions of economics moot. But most economists read only the latest textbooks and journals – they treat their discipline as if it were like physics, where books from 50 years ago are outdated. Thus they never read any of the Austrian economists work (www.mises.org) or question the methodological assumptions of economics.

    Krugman is a mathematician, not an economist. He won his Prize for building some theoretical models early in his career, but when it comes to analyzing actual facts, this review (among others) shows he is utterly incompetent.

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