Academic, Economist, Journalist (1953–Present)
Paul Krugman is an American economist who won the 2008 Nobel Prize in Economics for his contributions to New Trade Theory and New Economic Geography. During his career, Krugman has written over 20 books, covering scholarly works, textbooks, and books for the general audience, as well as hundreds of newspaper articles. Krugman is such a prominent advocate of Keynesian economics that the 2008 Keynesian resurgence has come to be known as the “Krugman insurgency.”
Krugman’s most famous work is New Trade Theory. Before Krugman’s research, the most prevalent trade theory was based on comparative advantage and revolved around models proposed by Ricardo, as well as Heckscher and Ohlin. Comparative advantage models assert that countries will export the goods which they can produce at a lower opportunity cost than other countries. But, since the 20th Century, there has been an ever-larger share of trade occurred between countries with similar comparative advantages.
Alternatively, New Trade Theory makes 2 key assumptions: consumers prefer a diverse choice of brands and production favours economies of scale. If consumers prefer diversity then it would explain the survival of different versions of similar cars like BMWs and Mercedes. Additionally, because of economies of scale, the mass production of many car brands can be spread across the world. Krugman’s theory also incorporates the ‘home market effect’, which states that, ceteris paribus, the economy with the larger demand for a good will, at equilibrium, produce a more than proportionate share of that good and be a net exporter of it.
He has also produced world-leading research into currency crisis and liquidity traps. His work on liquidity traps actually revived the topic in economics. Krugman asserted that Japan was stuck in a Keynesian liquidity trap in the 1990s and argued that they should have adopted an aggressive fiscal policy, coupled with an unconventional monetary policy, to combat their lost decade during the 1990s.
“The science fiction world has a lot of people doing seriously imaginative thinking.”
“But the honest truth is that what drives me as an economist is that economics is fun. I think I understand why so many people think that economics is a boring subject, but they are wrong. On the contrary, there is hardly anything I know that is as exciting as finding that the great events that move history, the forces that determine the destiny of empires and the fate of kings, can sometimes be explained, predicted, or even controlled by a few symbols on a printed page. We all want power, we all want success, but the ultimate reward is the simple joy of understanding.”
– Paul Krugman