The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008
Telephone interview with Paul Krugman recorded immediately after the announcement of the 2008 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 13 October 2008. The interviewer is Adam Smith, Editor-in-Chief of Nobelprize.org.
[Paul Krugman] Hello.
[Adam Smith] Hello. This is Adam Smith from the Nobel Foundation web site in Stockholm. Is that Paul Krugman?
[PK] Yes it is.
[AS] Congratulations on the award. Quite a time to be awarded the Prize for Economic Sciences.
[PK] Yes. I'm a little, in a way I'm feeling that I don't have time for this. It's rather bizarre.
[AS] You're in Washington at the moment for meetings, is that correct?
[PK] Yes, I am. For a Group of Thirty Meeting, which is a group of people I belong to, central bankers and so forth, and we're having a meeting associated with the World Bank/IMF meetings right now. And we're supposed to be hearing from Ben Bernanke and Jean-Claude Trichet this morning, although I suspect that Trichet, who was back in Europe yesterday, won't be there. And I thought that was going to be the exciting thing today.
[AS] A critical time, so, yes. You're very well-known, certainly in the US, as a columnist and a blogger, and a journalist, and yet the award has been made for work that you did in previous decades.
[AS] I wanted to focus on that initially and then talk about the more recent things if I may. So, the Committee cites your new trade theory, which you developed in your papers in 1979 and 1980, and that's essentially describing how trade functions in a world where countries produce and use the same goods. Is that correct?
[PK] Countries produce similar goods. I mean, it's really a story about countries that are not very different in terms of their technology, in terms of their resources, but that nonetheless end up specializing on different goods that may be related but are not quite the same, and do that to take advantage of the advantages of large-scale production. So the crucial thing really is the similarity of the countries. It's an explanation of why countries might trade even if they have the same climate, and the same resources, and the same technology.
[AS] And what does a theoretical underpinning such as the one you developed enable you to do?
[PK] Well, it actually – first and foremost it allows you to think clearly. One can describe – it's kind of an odd thing, but right now I can explain in what sounds like plain English the essentials of the theory. But I could not, in fact, do that before having done the models. It required the math to get to the plain English. So there's first of all that. There's an enormous clarification that takes place. And secondly this kind of thing can be, and has been used, as a basis for empirical work. Once you have the clear statement of how the pieces fit together you can apply it to numbers, you can use it to try to assess the welfare impact of different trade policies, so all of this is necessary. But in the first stage the issue is that of, how do we think about this thing clearly?
[AS] And the second piece of work that was cited was your core-periphery model, which seeks to explain why production is becoming increasingly concentrated in certain places. Do you think that increased urbanization is a necessary consequence of increasing globalization?
[PK] Not necessarily, although it does work in some circumstances. The geography work all has the implication that there are forces both pulling things together and pushing things apart, which you can put some analytics and ultimately some numbers to. So, unfortunately they sound the same: centripetal and centrifugal forces. So there's always a tension. And actually changes in the world tend to affect both of those. But what you do get is some understanding of how we can have gotten to this extremely unequal distribution of population across the surface of the world. That the reason why 80 million people live in a fairly narrow corridor along the East coast of the United States is not that there's something especially favourable about the geography, but it's simply the agglomeration force. It's essentially each of those 80 million people is there because the other 80 million people are also there.
[AS] Yes, yes. Nicely put. Turning to your journalism, do you see that as a natural consequence of your work in academia, this move towards a more, sort of, public outreach of what you do?
[PK] To some extent it was. I mean, I do believe that the task of boiling down an intellectual problem to its essence, which is a lot of what's involved in modelling, and the task of figuring out how to talk about some fairly complex problem in fairly simple natural language, are related. I always felt that what I do when I try to explain, let's say explain the financial crisis in 800 words, and what I do when I try to model the financial crisis in a half-dozen equations, are very much the same kind of effort. That said, I was doing a fair bit of that kind of translation before I went to work for The New York Times, and that continues to be one of the things I do at The Times. I had not anticipated that I would end up in such a politically charged environment, where I feel I need to do more than explain, but it did seem natural. I went from writing little models to writing little articles. It seems like a quite natural transition.
[AS] The physicist Ernest Rutherford I think always said that you shouldn't be doing it if you couldn't explain what you were doing to your tobacconist, so it's the same sort of idea I suppose.
[PK] Yeah, I mean there's Alfred Marshall's thing about, he was arguing that even for professional work, after you'd figured the thing out you should burn the equations, which I think don't believe, but you should be able to explain what's going on if at all possible without the apparatus.
[AS] Yes. You are very politically involved now, or at least you take a political stance on things. Is that also a necessary consequence of trying to explain things?
[PK] I don't know. To some extent. Let's put it this way, I was a very early critic of the Bush administration because I believed they were being dishonest, and the reason I reached that conclusion long before many other people was actually because it seemed obvious to me that they were lying about budget arithmetic. So in some sense my economics training was playing a role there. But, obviously, I've gone somewhat beyond my role as an economist in the column but, hey, economists are people too, and are citizens too, and have political opinions.
[AS] Yes. Okay. And then my last question. The media interest that will surround this award will no doubt focus to a large extent on your work as a columnist and your political views. Any thoughts on that?
[PK] Hard to say. My views as a columnist are less controversial than they were a few years ago. Not because I've changed, but because a lot of, certainly of the United States, has come around to my way of thinking. So, when I was being critical of Bush and he had an 80% approval rating, there might have been an enormous firestorm about all of this, but now that, I'm still critical of Bush but now he has a 22% approval rating, I don't think it's going to be as much of an issue. I think it may surprise some people who know me only as a columnist. But I don't think it's … I'm curious, I don't know how this will play out.
[AS] It will be interesting to watch it over the days ahead. When you come to Stockholm in December to receive your award we have the chance to interview you at greater length, so I look forward to that greatly.
[PK] Great. Okay.
[AS] Thank you very much and congratulations again.
[PK] Thank you.
[AS] Bye bye.