Nobel Memorial Prize in economic science, Paul Krugman

The winner of this year’s Nobel Memorial Prize in economic science, Paul Krugman, is at 55 relatively young by Nobel standards. Less than a fifth of the more than 60 awards given thus far in the area have gone to scholars in their 50s. Although the award for economics is almost always controversial, there are enough reasons the Nobel committee can offer to justify its decision to once again depart from its normal practice of recognising older economists for contributions made early in their careers. To start with, though emerging from the mainstream neoclassical tradition, Professor Krugman did not shy away from questioning and dropping many of its ‘ideal’ assumptions, thereby reintroducing an element of realism into a subject many complained was losing touch with reality. Secondly, he used relatively simple models to draw conclusions that went contrary to misplaced mainstream beliefs. His analysis of trade patterns, cited by the prize committee, began from the observation that much of global trade did not take place between countries with dissimilar endowments of factors like capital and labour, as mainstream theory expected; it took place between countries with similar factor endowments and often involved different varieties of products from within the same industry. Professor Krugman explained these features by relaxing the mainstream assumptions of perfect competition and constant returns to scale. Thirdly, his interest in real world trends and issues has encouraged him to engage in policy debates, where too he has challenged many prevailing beliefs among policy makers. Finally, he has sought to educate those outside academic institutions and policy circles about the arguments that underpinned thinking on contemporary economic development and on economic policy, encouraging them to participate in debates over economic policy. This he has done through his books for a popular audience (such as the much-quoted The Age of Diminished Expectations), his column in The New York Times, and his blog. His popular writing has shown that he is not just an economist of standing but also a writer of good and engaging prose and a gifted journalist.

There will no doubt be many who will question the Nobel committee’s wisdom in making this award. Some say that his models are too simple; that his conclusions stretch his analysis too far; and that he is too engaged for an academic. The Nobel committee for economic science, which has a track record of bias in favour of conservatism and the mainstream tradition, chose to ignore such criticism. Possibly because in the middle of a global financial crisis that has challenged the neoliberal tradition that mainstream economics spawned, it is better to err in favour of the heterodox.