He wrote only yesterday in support of Gordon Brown’s plan for part-nationalisation of banks and earlier criticised US Treasury Secretary Henry Paulson’s $700 billion bailout plan. Why buy up the banks’ bad debt with taxpayer money and let them continue business as usual when the government could take a stake in them and protect public interest, he asked.
And now America plans to follow the British example and partly nationalise the banks, Krugman wrote in the New York Times yesterday:
Mr. Paulson … now plans to buy equity stakes rather than bad mortgage securities.
So long, deregulation. Hello, government that cares. The Nobel Prize for Krugman couldn’t be more timely.
He is against growing inequality in the world — and he is right. Or he wouldn’t have won the Nobel Prize. He says:
“My generation grew up in a nation of strong democratic values and broadly shared prosperity. But both those values and that shared prosperity have been slipping away.
"We can reverse that trend. Political and economic reform turned the oligarchic America of the Gilded Age, a place of vast inequality, bigotry, and corruption, into the imperfect but far better society of the postwar era. The challenge now is to do again what the New Deal did: to create institutions that will support and sustain a decent society."
A decent society is what he wants. Who says economists are concerned only with GDP, growth rates, balance of trade? Krugman’s concern for a decent society shows economics is not just a dismal science.
He will continue his New York Times column and still expects to be rapped by critics just like the 2001 Nobel Prize winning economist Joseph Stiglitz, he told the Times:
“I think we’ve learned this when we see Joe Stiglitz writing. I haven’t noticed him getting an easy time. People just say, ‘Sure, he’s a great Nobel laureate and he’s very smart, but he still doesn’t know what he’s talking about in this situation.’ I’m sure I’ll get the same thing.”
The New York Times columnist and Princeton University professor is being honoured for his vision. The Royal Swedish Academy of Sciences notes his pioneering studies on international trade and economic geography:
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".