Wednesday, February 4, 2009

Revoke Krugman's Nobel Prize!

Yes, I know, not only has no Nobel Prize ever been revoked for anything, but they certainly do not do so for idiotic statements made by winners after they have won. However, as the first winner of the prize for international trade in 31 years, I find it appalling that Paul Krugman has come out for the "buy American" provision in the fiscal stimulus package now under consideration in the US Senate, a provision not supported by President Obama, and roundly denounced by pretty much everybody outside the US, a provision that would violate promises made in November in Washington not to engage in protectionist actions for "at least a year," with at its worst the nightmare possibility of a rerun of the trade war of the 1930s following the US Smoot-Hawley tariff that exacerbated the Great Depression. While some may dismiss such a possibility now, the standing of the US in the world on economic policy may have never been worse, given the role of the collapse of our sub-prime market in the current troubles, and with world merchandise trade dropping at an annualized rate of nearly 45% in November. This is not the time to be playing with such irresponsible fire.

I did agree that Krugman was deserving of the prize as the person who applied an innovative idea to both trade and to regional economics (aka "economic geography"), as the last winner for trade did also, Bertil Ohlin. However, I was unhappy that it was not shared, and this unhappiness appears to be spreading, with a recent posting at voxeu by Jota Ishikawa on the matter. He named a number of others, but had the two I think most deserved to share it upfront. One is Avinash Dixit, given that the model that Krugman applied is the Dixit-Stiglitz model of industrial organization. The other is Masahisa Fujita, who was the first to apply the Dixit-Stiglitz model to urban and regional economics in a not widely read journal, Regional Science and Urban Economics in 1988, three years before Krugman's paper in 1991 in the Journal of Political Economy the Nobel committee recognized (and in which Krugman failed to cite Fujita). Frankly, in this area Fujita's work has been far more innovative and of far higher intellectual quality than that of Krugman, and I also note that nobody east of India has ever received the prize.

I close by also whining again that Krugman has long gotten away with seriously misrepresenting the state of affairs in economic geography and urban and regional economics, claiming that until he came along the discussion of agglomeration was all verbal and non-rigorous. He has to this day never admitted the existence of or cited the work of such individuals as Peter Allen, Roger White, Gunter Haag, or Wolfgang Weidlich, who were doing mathematically rigorous such models, some of them with close resemblance to later work of Krugman's, thoughout the 1980s, even before Fujita's work, who is an economist. These people were even easier to ignore as they are mostly physicists with an occasional geographer thrown in (White) and published their work in such places as Environment and Planning A, Geographical Analysis, and the Journal of Regional Science, easy to ignore for a publicity hound like Krugman, and easy for a sloppy Nobel Committee to miss that clearly did not do its homework very well.


Anonymous said...

Uh, you have to go back to Krugman's blog post of 2/2, in which he clarified that he was NOT pro-protectionism. Here is what he said:

"More on protectionism (wonkish)
First of all: my piece was NOT an endorsement of protectionism — it was an explanation that there is an economic case for it, but also that there is a strong political economy case (which I consider dominant) against acting on that economic case. It was, in short, an attempt to be intellectually honest."


Anonymous said...

I agree with Griff. Moreover, that is just what Krugman said in his original piece. I quote: "The right argument [against his protectionist analysis], I think, is in terms of political economy. Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again.
But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program."

There appears to me to be a major difference between Krugman's version: "there is a short-run case for protectionism" and yours: "Paul Krugman has come out for the 'buy American' provision." I see nothing intellectually inconsistent in maintaining that there is a good argument for protectionism but we shouldn't do it because there are better arguments against it.

TheTrucker said...

It looks to me as though being against the "Buy American" provisions of the stimulus bill is economically perverse.

Why not discuss the issue instead of calling people names and talking about impugning their economic views as "they should take back his award". I see no justification for current free trade if the objective of political economy is the prosperity of the American middle class. Anyone that would like to actually deal with the real world of the 21st century as opposed to parroting Ricardo is encouraged to do so. The reality is that free trade helps the owners of the means of production to the detriment of the American Middle class. According to Smith's definition of political economy free trade is economically perverse.

"Political economy, considered as a branch of the science of statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign." Adam Smith

Political economy is a sovereign function. We should not concern ourselves with helping the Chinese. Or the multinational corporations.
"It says right here in the Republican manual from Cato and also in the one from Heritage that we should simply screech 'Comparative Advantage' over and over again as autistically as possible."

Anonymous said...

Goddammit, your academic objections to Krugman's solo prize are noted. And noted again. And again. And (if I recall correctly the number of posts you've devoted to it) again.

But you are being deliberately obtuse about Krugman's blog post, or you didn't read it.

Anonymous said...

Man, if those prizes should be revoked then Krugman would be way down the list... Way behind Friedman and a host of other ideologues...

von Hayek should not have got it in the first place, as he got it for his work on "Austrian" Business Cycle Theory -- which had been refuted by Sraffa and Kaldor in the 1930s!

Talking of which, there should be a list of people who should have got the prize. People like Joan Robinson and Nicholas Kaldor (who refuted two actual winners, Friedman and von Hayek).

but, then, the so-called Nobel Prize in economics has always been driven by ideology rather than actual merit...

An Anarchist FAQ

Shane Taylor said...

Martin Wolf agrees with Barkley:

[N]othing can surpass the folly of the Buy America provision in the draft US stimulus package. This is an invitation to retaliation. For a country that must export its way out of its slump, this is mad. For one that made an open global economy the keystone of its foreign policy for two generations, it is vandalism.

Theodore M. Seeber said...

Export our way out of the slump?!?!?!? Have you free traitors been paying ANY attention for the last 40 years?!?!?

The United States hasn't been a net exporter since the early 1960s, and no amount of "avoid protectionism" cool aid drinking is going to change that. EVERY other country in the world practices protectionism to some extent- China with their pegged currencies, European Union with their export-only VAT refunds, the third world with their general local corruption.

It's high time America started realizing the truth- that we are no longer an exporting nation, and if we're going to avoid the mess England has made of themselves by being financial-industry-only, we're going to need some SMART protectionism- and the first thing we need to do is shut down the World Treason Organization.

ProGrowthLiberal said...

Paul did not say he was not endorsing trade protection. We do know Brad DeLong's position - he is against it. And Brad has a post up on the Senate's watered down version of Buy America. Brad is of the opinion that these revised provisions effectively end any protectionism in the stimulus billl, which appears to be what President Obama wanted to see. So maybe - just maybe - we can all relax. Yes - I'm not a big fan of the Buy America provisions either.

Jack said...

I'm a bit surprised at your vehemence in regards to Krugman's minimally protectionist statements and, more so, his Nobel prize. It seems very unlike your usual style.
I've been reading here, at AngryBear and previously at MaxSpeak, for the past two years or so. Let me tell you to a person not schooled in economics, but schooled none the less, statements like, "who were doing mathematically rigorous such models, some of them with close resemblance to later work of Krugman's," seem virtually oxymoronic. It's not the use of mathematics that makes a field scientific. That's only the measurement aspect of the task. And the creation of predictive models would be better left to theoretical physicists. At least they acknowledge up front the theoretical character of their ravings. They even come close to proving something once in a while.

There is nothing scientific about the field of economics. There's certainly lots of serious intellectualization of major economic issues, but there seems to be little agreement amongst economists in regards to any of these issues. I think the best example of this problem in recent times is the phenomenon of Milton Friedman, who was probably as destructive to some economies as he is revered by some economists.

If economics as a field of study were more scientific it would put a greater emphasis on the peer review process in regards to the publication of research studies and new ideas. If that were the case your complaints about Krugman being Johnnie-come-lately to the ideas for which he won the prize would not now be an issue. His fellow "scientists" should have pointed out the similarity of his work to that of the works of others
at the time of their first publication. That alone would have recognized the contributions of those others and, at the same time, lent additional credence to Krugman's ideas.

Anonymous said...

I just came from reading Nick Rowe's blog. They are discussing the difference between Krugman's fixed rates model and Rowe's adjustable rates model when it comes to protectionism. Bob, I don't know who Bob is but he is interesting, made this point about China.

I'd like to say I'm clear on it, but I'm not. If he is right, it's important to me because I always thought the Chinese people's high savings rate was basically a matter of psychology. It could be both, but which takes precedence?

Bob's comment:

"Nick - the high national savings rate is a result of the low exchange rate mechanism, not vice-versa. I think that's the important bit that your analysis is missing. That's how they are manipulating the real exchange rate in the long run.

"Savings glut is a bit of a misnomer. It is not as if there are millions of Chinese grandpas stuffing away tons of money in their bank account. It's more like a forced savings scheme via the currency control system. The heavy currency controls, and forced savings being dumped into treasuries are necessary for China to fight the "invisible hand" that would force the changes you mentioned above. I don't think you realize the massive scope of what China does to keep its currency undervalued, and the lengths it goes to to counter the forces that would naturally push it up even in a fixed regime as you pointed out. they are very actively arm-wrestling the invisible hand.

"My understanding of the Chinese system, gleaned partially from a conversation with Dean Baker last year, and partially from Brad is as follows:

1) you buy a pair of shoes that were made in China for $100 USD
2) In order to get to the factory, the money has to go through the government currency service.
3) The government keeps all the dollars, and gives the factory owner an amount of RMB that is actually worth considerably less in real terms than the $100 USD
4) In order to keep peg-related inflation within China under control, and keep the real exchange rate as low as possible, the government has to reinvest in US dollar assets like treasuries. On top of that there are very strict currency controls to avoid free exchange of the Chinese currency for any other currency. The exchange rate for RMB in the black market is better than what you get from the government.

"So although people call it a savings glut, it is more like forced savings, or a government skim off of the purchasing power of everyone who works in their export industries. As you noted, there are all sorts of natural forces that should push this back towards a normal equilibrium in the long run, but China has figured out a very clever system to counteract almost all of those effects. The byproduct of that system is ever increasing purchases of treasuries, hence "high national savings". But they are forced savings, taken through the government controlled exchange service in order to keep the RMB and with it the purchasing power of Chinese workers as low as possible. The Chinese cheap labour "comparative advantage" mainly results from the government skimming off their purchasing power, and lending it back to America via treasuries."

Now I have to go back and post some questions for Bob. I was so excited to share, I ran his comment over here before trying to get some clarification from him. said...

Anonymous(es) and Alan,

I suppose that when Paul Krugman labels a column or posting as "wonkish," that means it should be ignored as actually saying anything about policy. So, yes, he offered caveats that "buy local" policies should not be pushed on "political economic grounds." But why bring up a completely unrealistic example if it might feed into the clearly intense desire on the parts of many (see the more fervently pro-protectionist comments here)? His argument holds only under either of two highly unrealistic cases: the first being that the US alone does a fiscal stimulus with a buy local provision and the rest of the world does nothing, or that everybody does so, and the fact that they are putting in buy local provisions leads them to make their fiscal stimuli bigger than they would otherwise, and there are no other trade restrictions done. But, we have already been hearing from official sources that there will be other retaliation if the US passes this. This is the reality.

Ted Seeber,

That the US is not a net exporter does not mean therefore that it is "not an exporter." We have never had such a high percentage of our GDP be in the form of exports, and those are now declining, and that decline is helping to drag our economy down, a decline not offset by increased buying of import competing domestic output due to the decline in imports. People are just not buying, here or abroad, imports or domestic production. If when we try to stimulate domestically, our exports continue to decline, or worse yet, start declining even more rapidly due to foreigners retaliating against us for some stupid buy local provisions we put in place, this will make it all that much harder to get the economy to stop declining and start growing again. Just what do you think happened in the Great Depression anyway, and are you and trucker as out of it to think that this situation is all that much different from that one? Get real.


Obama has made it clear that he does not support these provisions. It remains unclear what the heck is going to come out of the Congress, if anything.


My reactions come from Krugman's own words, although he has tended to use the term "modeling," which is generally assumed to mean at least "mathematical," although not necessarily always totally rigorous. He also adds the important proviso of "acceptable to the mainstream," which was arguably not the case for some of the stuff done by all those physicists and geographers. Indeed, in a sense that is what PK got it for, as well as being more of a publicist for all this, much better than the arguably too mathematical and obscure Fujita, although Dixit is neither of those. Anyway, here is PK himself from his _Development, Geography, and Economic Theory_, 1995, p. 33.

"In the previous lecture I described the history of thought in development economics as being like the history of European mapmaking in Africa: the rich if unreliable insights of the early explorers, the development theorists of the 1940s and 1950s, were eventually ruled inadmissable as evidence because those insights could not be clearly modeled. Still nobody forgot that the continent had an interior; development economics as a subject remained an acknowledged area of importance, even if much of its distinctive content got lost.
The history of economic geography - of the study of the location of economic activity - is more like the story of geological thought about the shapes and location of continents and mountain ranges. The location of production is an obvious feature of the economic world..[childhood reminiscences] ... And yet there is almost no spatial analysis in mainstream economics. It is almost 40 years since Walter Isard attacked economic analysis for taking place in a 'wonderland of no spatial dimensions,' yet his plea for spatial economics has gone virtually unanswered."

I note that in this little book, Krugman did cite the 1988 paper by Fujita. But Allen, White, Haag, Weidlich, and some others? They did not and do not exist anywhere in the oeuvre of Paul Krugman, despite all their analytical models.


I think exchange rate policy is a big fat zero in regard to Chinese savings, although capital controls and so on are. Probably more important is the high rate of growth, with consumption tending in high growth economies to catch up with a slow lag.

reason said...

PK was CLEARLY arguing for an international approach to the problem and was pointing all the POSSIBILITY of beggar thy neighbour protectionist policies being attractive to individual countries.

Theodore M. Seeber said...

My response to and the rest of the free traders is this:

If to get $1 in exports you need $10 in imports, then all the exports in the world will NEVER help your economy *at all*.

I guess what it really comes down to is this: if you believe the fake GDP expansion is the only way to "grow" out of debt, then going into debt to other countries is the way to go. But if you believe GNH is a better indicator of how a country is doing, then protectionism is obvious.

All those exports do is feed more money where it doesn't belong: into the financial industry. ONLY by autarky and self-sufficiency can we put a significant portion of our population back to work. said...


Sure, everybody does a buy local provision, with this being all coordinated and balanced and not getting out of hand, with nobody getting at all upset over the US leading the way in violating the international agreement made in November, especially given that they are already shrieking loudly over this, very loudly, even if most Americans are not paying attention, as usual. Please.


Where did you get your numbers from? And the problem may be that in trying to cut back $1 of imports we might lose $3 of exports. Do not kid yourself.

And, what is GNH, please, and why would the expansion due to the fiscal stimulus be "fake"? Nobody will be counting any imports that happen as part of it, so please do not tell us that such a measured expansion is "fake" because of imports.