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Pol/Econ Finance
Pol/Econ: NYT Columnist Paul Krugman Wins Nobel Prize in Economics
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Monday, 13 October 2008 Written by Alexander G. Rubio

When Victorian historian Thomas Carlyle called economics "the dismal science", it was probably because he saw it as the bearer of bad tidings. Today it might more rightly be called such for peddling unfounded optimism based on theories with little claim to the name of science. The Nobel Prize in economics is meant to award those who make it, if not less dismal, at least more of a science.

At 1 PM today (Monday October 13th), it was announced that the winner of this year's Nobel Prize in Economics goes to the 55 year old professor of economics and international affairs at Princeton University, and columnist and blogger for The New York Times, Paul Krugman, "for his analysis of trade patterns and location of economic activity".
Patterns of trade and location have always been key issues in the economic debate. What are the effects of free trade and globalization? What are the driving forces behind worldwide urbanization? Paul Krugman has formulated a new theory to answer these questions. He has thereby integrated the previously disparate research fields of international trade and economic geography.

Krugman's approach is based on the premise that many goods and services can be produced more cheaply in long series, a concept generally known as economies of scale. Meanwhile, consumers demand a varied supply of goods. As a result, small-scale production for a local market is replaced by large-scale production for the world market, where firms with similar products compete with one another.

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 – 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.

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".
Krugman is a neo-Keynesian economist, and has clearly marked himself out as a political liberal, or even progressive, and an outspoken critic of the policies of the Bush administration.

In the name of accuracy, the economics prize is not really a Nobel Prize as such. It is in actuallity the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, and was not instituted through Alfred Nobel's bequest, but by Sveriges Riksbank (the Bank of Sweden) in 1969.

It is however awarded by the Royal Swedish Academy of Sciences at the same time as the Nobel Prizes (by the wish of Alfred Nobel though, the Peace Prize is awarded by a committee elected by the Norwegian Parliament), and is today for all intents and purposes considered a Nobel Prize proper.

The formal award ceremony, at which Krugman will receive the prize, and the $1.4 million that go with it, is held Dec. 10 in Stockholm, Sweden.