The Royal Swedish Academy of Sciences has decided to award the 2008 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel to Professor Paul Robin Krugman (born 1953).

Krugman belongs to a generation of “activist” economists, such as Larry Summers, Glen Hubbard, and Ben Bernanke: scholars who held or hold senior positions in various American administrations. As opposed to them, Krugman is more of an intellectual: he constructs mathematical models of real-life economic phenomena and writes and publishes profusely in the media. He is a cherished teacher and author of a textbook on international economics.

When asked why he was never offered a high-ranking job, he answered: “I’m temperamentally unsuited for that kind of role. You have to be very good at people skills, biting your tongue when people say silly things.”

His main contributions to the discipline deal with international economics. Currency crises, he postulated, are the inevitable and rational outcomes of misguided government policies. Consumers appreciate diversity and variety of goods and services.

And, most famously:

Economies of scale in manufacturing provide countries with a comparative advantage in international trade that is every bit as important as the comparative advantage gained from technological advances and from access to resources (natural endowments, labor, or capital). This “New Trade Theory” made his name and won him the coveted Nobel Prize.

New Trade theory also forms the foundation of the discipline of “New Economic Geography”. In the words of the prize committee, Krugman’s work helps explain “(w)hy do increasing numbers of people flock to large cities, while rural areas become depopulated? (W)hat goods are produced where … (What are) the forces whereby labor and capital become located in certain places and not others.”

New Economic Geography teaches us that workers in countries with large populations enjoy higher real wages. This is because the costs of producing goods are lower due to economies of scale. Prices are cheaper and diversity of good higher. This state of enhanced welfare attracts immigrants which makes production even cheaper. Firms invest in such countries, as they balance benefits from economies of scale against transportation costs.

Krugman is a great prognosticator: he predicted literally every major currency crisis in the past 10 years. He has an intuitive grasp of policy options. Thus, he understood early on that the “Asian Miracle” of the 1980s was merely the result of massive capital and labor infusions. He was among the first to foresee the gravity and scope of the current fiasco in the global financial system. He strongly believes in globalization and free trade, but is among the foremost critics of the corrupt confluence of multinationals with “cooked” books, special-interest groups, and political parties.

Krugman made no bones about his anti-Bush stance. He blamed the administration for all conceivable economic ills: from the widening income inequality in the United States to the unsustainable public sector deficits. The venerable (but conservative) magazine “The Economist” criticized him harshly:

“A glance through his past columns reveals a growing tendency to attribute all the world’s ills to George Bush …Even his economics is sometimes stretched…Overall, the effect is to give lay readers the illusion that Mr Krugman’s perfectly respectable personal political beliefs can somehow be derived empirically from economic theory.”

It is a good sign, therefore, that he is equally decried by Obama supporters. Being attacked by both sides literally guarantees his place as an honest and objective - and prescient - observer of our particularly turbulent times. Krugman is my favorite political-economic columnist precisely because he cannot be safely claimed by any party.

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Will someone please put Sarah Palin out of her agony? Is it too much to ask that she come to realize that she wants, in that wonderful phrase in American politics, “to spend more time with her family“? Having stayed in purdah for weeks, she finally agreed to a third interview. CBS’s Katie Couric questioned her in her trademark sympathetic style. It didn’t help. When asked how living in the state closest to Russia gave her foreign-policy experience, Palin responded thus:

“It’s very important when you consider even national-security issues with Russia as Putin rears his head and comes into the airspace of the United States of America. Where—where do they go? It’s Alaska. It’s just right over the border. It is from Alaska that we send those out to make sure that an eye is being kept on this very powerful nation, Russia, because they are right there. They are right next to—to our state.”

There is, of course, the sheer absurdity of the premise. Two weeks ago I flew to Tokyo, crossing over the North Pole. Does that make me an expert on Santa Claus? (Thanks, Jon Stewart.) But even beyond that, read the rest of her response. “It is from Alaska that we send out those …” What does this mean? This is not an isolated example. Palin has been given a set of talking points by campaign advisers, simple ideological mantras that she repeats and repeats as long as she can. (”We mustn’t blink.“) But if forced off those rehearsed lines, what she has to say is often, quite frankly, gibberish.

Couric asked her a smart question about the proposed $700 billion bailout of the American financial sector. It was designed to see if Palin understood that the problem in this crisis is that credit and liquidity in the financial system has dried up, and that that’s why, in the estimation of Treasury Secretary Hank Paulson and Fed chairman Ben Bernanke, the government needs to step in to buy up Wall Street’s most toxic liabilities. Here’s the entire exchange:

COURIC: Why isn’t it better, Governor Palin, to spend $700 billion helping middle-class families who are struggling with health care, housing, gas and groceries; allow them to spend more and put more money into the economy instead of helping these big financial institutions that played a role in creating this mess?

PALIN: That’s why I say I, like every American I’m speaking with, were ill about this position that we have been put in where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the health-care reform that is needed to help shore up our economy, helping the—it’s got to be all about job creation, too, shoring up our economy and putting it back on the right track. So health-care reform and reducing taxes and reining in spending has got to accompany tax reductions and tax relief for Americans. And trade, we’ve got to see trade as opportunity, not as a competitive, scary thing. But one in five jobs being created in the trade sector today, we’ve got to look at that as more opportunity. All those things under the umbrella of job creation. This bailout is a part of that.

CNN’s Jack Cafferty: Sarah Palin Is NOT Qualified

This is nonsense—a vapid emptying out of every catchphrase about economics that came into her head. Some commentators, like CNN’s Campbell Brown, have argued that it’s sexist to keep Sarah Palin under wraps, as if she were a delicate flower who might wilt under the bright lights of the modern media. But the more Palin talks, the more we see that it may not be sexism but common sense that’s causing the McCain campaign to treat her like a time bomb.

Can we now admit the obvious? Sarah Palin is utterly unqualified to be vice president. She is a feisty, charismatic politician who has done some good things in Alaska. But she has never spent a day thinking about any important national or international issue, and this is a hell of a time to start. The next administration is going to face a set of challenges unlike any in recent memory. There is an ongoing military operation in Iraq that still costs $10 billion a month, a war against the Taliban in Afghanistan and Pakistan that is not going well and is not easily fixed. Iran, Russia and Venezuela present tough strategic challenges.

Domestically, the bailout and reform of the financial industry will take years and hundreds of billions of dollars. Health-care costs, unless curtailed, will bankrupt the federal government. Social Security, immigration, collapsing infrastructure and education are all going to get much worse if they are not handled soon.

And the American government is stretched to the limit. Between the Bush tax cuts, homeland-security needs, Iraq, Afghanistan and the bailout, the budget is looking bleak. Plus, within a few years, the retirement of the baby boomers begins with its massive and rising costs (in the trillions).

Obviously these are very serious challenges and constraints. In these times, for John McCain to have chosen this person to be his running mate is fundamentally irresponsible. McCain says that he always puts country first. In this important case, it is simply not true.

URL: http://www.newsweek.com/id/161204
From the magazine issue dated Oct 6, 2008

[Enlarge] About The Author: Farid Zakaria is Newsweek’s International editor and PostGlobal co-moderator. Fareed Zakaria was named editor of Newsweek International in October 2000, overseeing all Newsweek’s editions abroad. The magazine reaches an audience of 24 million worldwide. He also writes a regular column for Newsweek, which also appears in Newsweek International and fortnightly in the Washington Post. Starting this year, Fareed has been hosting a new foreign affairs show on CNN Worldwide — Fareed Zakaria GPS, an hour-long program that takes a comprehensive look at foreign affairs and the policies shaping our world. Every week they bring you an in-depth interview with a world leader, as well as a panel of international analysts who examine the major global developments of the week. As always, Fareed’s emphasis is on new ideas and innovative approaches to solving the world’s toughest problems. Fareed Zakaria GPS airs each Sunday, at 1pm, on CNN.

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