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American Krugman Wins Nobel Prize For Economics

This year's Nobel Prize in economics has been awarded to U.S. academic and columnist Paul Krugman, who was lauded by the Royal Swedish Academy of Sciences for his "analysis of trade patterns and location of economic activity."

The selection of a 55-year-old liberal Princeton professor, "New York Times" columnist, and author for his theories on the effects of free trade and urbanization on the global economy comes as the world faces a mounting financial crisis.

The Swedish Academy of Sciences, in announcing its award, said Krugman's theories had opened the door to greater understanding of the globalized economy.

"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," the jury wrote.

Traditional trade theory posits that a country's export products are determined according to its individual characteristics. But Krugman's theories, the jury wrote, clarify "why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products."

His theories, by extension, demonstrate how regions can become divided into high-tech, urbanized "centers" and less developed "peripheries" -- a global trend that has become particularly evident in developing countries.

"Largely, I think what Paul Krugman does is what we call 'positive theory,'" Professor Peter Englund, a member of the economics prize committee, said. "He helps us to understand how the world works, so it's not directly policy-oriented. But with a better understanding of the world, we can also make better calculations of the effects of various policies. So one area would be trade negotiations, where for instance the World Trade Organization now routinely uses models based on Krugman's theories in evaluating different trade liberalization methods."

Few economic laureates gain fame outside their field, but Krugman -- a prolific author and pundit who in addition to his popular opinion column in "The New York Times" is a frequent TV commentator -- is known to many in the United States and beyond.

Krugman, who teaches economics and international affairs at Princeton, is also a vocal critic of the policies of U.S. President George W. Bush.

He has frequently warned against U.S. credit and lending policies, and years before the current financial crisis was already predicting a surge in domestic spending combined with a massive trade deficit could have dire consequences for both the American and global economies.

In a "New York Times" column from August 2005, Krugman wrote: "As I like to say, these days Americans make a living by selling each other houses, paid for with money borrowed from China."

Englund was quick to note that while Krugman has done research on the effect of globalization on financial flows, the Nobel award is not directly tied to the current global crisis.

"It's certainly not selected with the current crisis in mind. That's not the way the prize committee can work," Englund said. "We have a sort of longer time horizon. So we started thinking of this prize long before we saw the crisis coming. It is a prize that helps us to understand globalization, but perhaps more globalization on the real side -- goods and service flows -- whereas the crisis has more to do with financial flows. Although Krugman has done research on these areas as well, that's not what he was awarded the prize for."

The Nobel award includes a prize that is equivalent to about $1.4 million.

The award, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is the last of the six Nobel prizes announced this year, following medicine, physics, chemistry, literature, and peace.

Economics is the only field that was not among the original categories founded by Swedish scholar Alfred Nobel in 1895; it was added by the Swedish central bank only in 1968.

The formal prize ceremonies will be held in Stockholm and Oslo on December 10.

compiled from agency reports