MercoPress. South Atlantic News Agency

Bush critic and trade expert Nobel Prize for Economics

Paul Krugman Ph.D

United States economist Paul Krugman, a well-known critic of the President George Bush administration for policies that he argues led to the current financial crisis, won the 2008 Nobel Prize for economics on Monday.

The committee said the award was for Krugman work that helps explain why some countries dominate international trade. A prominent economist who writes columns for the New York Times, Krugman is a professor of economics and international affairs at Princeton University. Krugman, speaking by telephone to a news conference, said: "I rushed to take a shower so that I could take part in the press conference. I called my wife and my parents. I've not yet managed to get myself a cup of coffee," he said. But lack of caffeine did not stop him offering an ad-hoc diagnosis of how the world economy was faring. "We are now witnessing a crisis that is as severe as the crisis that hit Asia in the 90's. This crisis bears some resemblance to the Great Depression." Praising world leaders' efforts to staunch the financial bleeding, he added: "I'm slightly less terrified today than I was on Friday." Krugman has been heavily critical of Bush's administration, arguing that its zeal for deregulation and loose fiscal policies helped spark the current banking meltdown. The Royal Swedish Academy of Sciences said the prestigious 10 million crown (1.4 million US dollars) award recognised Krugman's formulation of a new theory that addresses what drives worldwide urbanisation. "He has integrated the research fields of international trade and economic geography," the committee said. "Krugman's approach is based on the premise that many goods and services can be produced more cheaply in a long series, a concept generally known as economies of scale," it said. "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". His theory clarifies why trade is dominated by nations that not only have similar conditions but also trade in similar products. 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 was born in 1953 in New York, US. He has a Ph.D. (1977) from Massachusetts Institute of Technology, Cambridge, MA and is currently Professor of Economics and International Affairs at Princeton University, 2000. The Royal Swedish Academy of Sciences, founded in 1739, is an independent organization whose overall objective is to promote the sciences and strengthen their influence in society. The Academy takes special responsibility for the natural sciences and mathematics, but endeavours to promote the exchange of ideas between various disciplines.