Paul Krugman wins the Nobel economics prize

Whereas U.S. Treasury Secretary Henry Paulson at first rejected giving financial institutions more money in return for a share of ownership, the British government "went straight to the heart of the problem ... with stunning speed," he wrote.

"And whaddya know," Krugman continued, "Mr. Paulson _ after arguably wasting several precious weeks _ has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities."

The Royal Swedish Academy of Sciences praised Krugman for formulating a new theory to answer questions about free trade and said his theory had inspired an enormous field of research.

"What are the effects of free trade and globalization? What are the driving forces behind worldwide urbanization? Paul Krugman has formulated a new theory to answer these questions," the academy said in its citation.

"He has thereby integrated the previously disparate research fields of international trade and economic geography," it said.

The award, known as the Nobel Memorial Prize in Economic Sciences, is the last of the six Nobel prizes announced this year and is not one of the original Nobels. It was created in 1968 by the Swedish central bank in Alfred Nobel's memory.

Besides his work as an economist at Princeton University in New Jersey, where he has been since 2000, Krugman has written for publications including Foreign Affairs, the Harvard Business Review and Scientific American.

He graduated with a bachelor's degree from Yale in 1974 and received a Ph.D. from MIT in 1977. Besides teaching at Yale and MIT, he also taught at Stanford.

Krugman said winning the Nobel award won't change his approach to research and writing.

"The prize will enhance visibility," he said, "but I hope it does not lead me into going to a lot of purely celebratory events, aside from the Nobel presentation itself."

Showing a sense of humor, Krugman's New York Times blog had an entry early Monday that read "A funny thing happened to me this morning...." with a link to the Nobel announcement.

Krugman's work on new trade theory also garnered him the John Bates Clark medal from the American Economic Association in 1991. That prize is given every two years to an economist under the age of 40.

The Nobel citation said Krugman's approach is based on the premise that many goods and services can be produced at less cost in long series, a concept known as economies of scale. His research showed the effects of that on trade patterns and on the location of economic activity.

"Trade theory, like much of economics, used to be discussed in the context of perfect competition: thousands of farmers and thousands of customers meeting in a market," with supply and demand governing prices, said Avinash Dixit, a Princeton professor and economist who specializes in trade theory. 

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