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<<<The point remains that no serious news entity would print the partisan hack drivel that KRUGMAN is famous for without a huge disclaimer and accompanying rebuttal by a sane person>>>
Paul Krugman was raised in a suburb of New York City where he attended the local public high school. His undergraduate studies were at Yale College where he received a B.A. in economics in 1974, only taking a few more than the minimum number of courses required for the economics major, otherwise enjoying the breadth of what is called in the US a ‘liberal arts education’. In particular Krugman’s undergraduate education included a significant number of history courses outside of his major. In his junior year Krugman attended a seminar co-taught by Tjalling Koopmans and William Nordhaus. For that seminar he wrote a paper and produced estimates of long-run elasticities for gasoline that caught the attention of Nordhaus who offered him a part-time job as an undergraduate research assistant. Nordhaus, who himself had earned his Ph.D. at MIT, is perhaps now most widely known as the co-author taken on by Paul Samuelson of MIT for revisions of the latter’s classic textbook Economics.
Thanks to Nordhaus Paul Krugman was to discover something he later described as the MIT style:
There are several different ways of doing good economics. You can try to prove deep theorems... Or you can do detailed, nitty-gritty empirical work .... But what has always appealed to me, ever since I saw [William]Nordhaus practice it on energy, is the MIT style: small models applied to real problems, blending real-world observation and a little mathematics to cut through to the core of an issue.
This sounds so easy. I think it is worth noting that it was not book learning, nor time in the formal classroom but it was close-hand observation of a master at work that made the difference. Not the mass production of students, rather individual mentoring is what counts.
Paul Krugman was awarded a prestigious National Science Foundation graduate fellowship in economics that allowed him to pursue his graduate education in economics at any program that would accept him. De facto the award of a NSF graduate fellowship in economics meant that a student could study in any US graduate program that he or she desired. As Nordhaus’s protege, it was obvious that Krugman would go on to M.I.T. which at that time had the greatest number of NSF graduate fellows in economics of any graduate program in the US.
Paul Krugman began his graduate studies at the M.I.T. economics department in September 1974. Incidentally he was a member of cohort that turns out to have produced a current member of the President’s Council of Economic Advisers, a former Mexican Minister of Finance, the former head of the Portuguese Central Bank, the current editor of the European Economic Review, as well as co-authors of macroeconomics texts that have been assigned here over the past few years.
In one his major fields of concentration Krugman attended lectures on international trade theory by Jagdish Bhagwati, saving a new case of ‘immizerizing growth’ to surprise his teacher on the final exam for the course. A particularly important appointment for the M.I.T. department at this time (as well as for Paul Krugman’s development) was the professor who had been hired in 1975 to succeed Charles Kindleberger for teaching the graduate sequence of courses on international finance, Rudiger Dornbusch, who together with Stanley Fischer, was to put a stamp on an entire cohort of new macroeconomics Ph.D.’s. To complete the record Paul Krugman also learned his statistics and econometrics from the young Jerry Hausman and duality theory from yet unpublished lecture notes by the young Hal Varian. Robert Hall and Robert Solow were there for his training in empirical macroeconomics and dynamic macroeconomics, respectively.
Krugman’s first taste of serious policy economics occurred one summer as one of a select group of MIT graduate students who went to work in the Central Bank of Portugal on a project headed by Professor Richard Eckaus.
In 1977 Krugman completed his the Ph.D. requirements after only three years, a time which is a full year faster than what in Germany would be called the Regelstudienzeit for the Ph.D. program.
Krugman’s first major professional paper was written while he was still a graduate student though it was not included in his dissertation (Essays on flexible exchange rates¸ Cambridge, Mass., M.I.T., Diss., 1977), in part because his adviser, Professor Dornbusch, did not appreciate its message upon reading the first draft. Teaching one’s own teachers requires great patience and persistence. But good teachers will ultimately get the message. The idea for that paper was developed during a two month internship at the Federal Reserve, when Krugman realized lessons from speculative attacks on commodity stockpiles were applicable to currency crises as well. ("A model of balance of payments crises," Journal of Money, Credit and Banking (1979).)
Paul Krugman returned to his alma mater for his first academic job as Assistant Professor where he taught from 1977 to 1980. It was during these years as a junior faculty member at Yale that Krugman was to achieve his first fundamental breakthrough. The young Paul Krugman appeared to have felt considerable anxiety during his first semester as an assistant professor—he has described himself as drifting without a vision—and before you find yourself feeling pity for the poor young Krugman, keep in mind that what we perceive as real-time is slow motion for him. His visionless period amounted to less than half a year on the job, going away upon his discovering an important new key to the understanding of international trade: the importance of increasing returns and imperfect competition. Krugman attributes his first contact with such models to a graduate course he had taken Robert Solow in 1976. It was immediately after a conversation in January 1978 with Dornbusch, who agreed that such an application of imperfect competition theory might be potentially fruitful in an international trade model, that Krugman first saw how the parts would ultimately fall into place. An important missing component of the argument was later completed in spring of 1979. Finally, it was at a July seminar organized by the National Bureau of Economic Research in international economics that Krugman presented his ideas to the leading researchers in the field. A copy of that NBER working paper (No. 356, June 1979) is in fact in our library, complete with the copies of Krugman’s own hand drawn curves! Definitely not Power Point graphics. Krugman later wrote "I still think, with all of the things that I have done since, that the hour and a half in which I presented that paper was the best 90 minutes of my life." Without the slightest exaggeration, based on that performance and the following three papers, Paul Krugman had joined the ranks of the leading international trade theorists of the twentieth century.
"Increasing returns, monopolistic competition, and international trade," Journal of International Economics (1979);
"Scale economies, product differentiation, and the pattern of trade," American Economic Review (1980);
"Intraindustry specialization and the gains from trade,' Journal of Political Economy (1981).
What was the fundamental contribution? Essentially Paul Krugman reached into Adam Smith’s tool box, using the idea that the division of labor lowers the costs of production to explain apparent puzzling contradictions between the logical results of conventional trade theory and existing trade patterns actually observed. Krugman provided us with the modeling technique to enable the international trade theorist to go beyond the convenient simplification of assuming perfect competition and the absence of scale economies. Up to that time international trade was seen as driven by differences between countries, different relative cost advantages (Ricardo) or different factor endowments (Heckscher-Ohlin). So why do we observe a vast volume of trade between apparently similar economies? Through the lens of monopolistic competition theory one is able to see why a vast expansion of postwar trade had taken place between countries with similar factor endowments and without a grand distributive struggle between ‘winning’ and ‘losing’ factors of production. From considering the implications of one particular market structure for the theory of international trade, it was then a natural step to consider the implications of other market structures (such as oligopoly) on patterns of trade and international trade policy.
In 1980 Paul Krugman returned to MIT at the rank of Associate Professor. During the summer of 1982, Krugman was asked by then Chairman of Ronald Reagan’s Council of Economic Advisers, Professor Martin Feldstein of Harvard University to serve as the senior staff economist for international economics. Krugman took a leave of absence for the academic year 1982/83 to work in the Old Executive Office Building located next to the White House. One of the ironies of the Reagan administration in those years was its staff of senior economists that included democrat ‘whiz-kids’ such as Paul Krugman, Gregory Mankiw and Lawrence Summers.
The year in Washington, DC was a formative experience for Krugman in two important respects. It was valuable first-hand experience about the true nature of the economic policy process: primitive and/or incorrect understanding of basic economics on the part of senior policy officials who prefer comfortable advice to contrary opinion requiring a second thought. Besides having lost whatever illusion he might have had about the ability of better arguments to win an internal policy debate, Krugman discovered a talent that would prove immensely useful later: he possessed the ability to write understandable policy prose, a facility that gives him a claim to majority authorship of the collectively written Annual Report of the Council of Economic Advisers for 1983.
Upon his return to MIT for the fall semester 1983, Krugman began an intense collaboration with a visiting professor at MIT, Elhanan Helpman of Tel-Aviv University. Together these two economists produced a work that managed to provide a synthesis of what had already become known as the "new trade theory", i.e., the merger of industrial organization and trade theory. That book, Market Structure and Foreign Trade, became the standard reference for this new stream of international trade theory.
In the second half of the 1980s, Krugman's work moved into a variety of more applied international policy questions. While his earlier work had focussed on big questions like "why is there international trade", Paul Krugman started to apply that MIT style he first learned from Nordhaus to such policy concerns as Third World debt reduction, the working of the EMS, the apparent trend toward trading blocs. Krugman’s model of exchange rate target zones, "Target zones and exchange rate dynamics," Quarterly Journal of Economics (1991), was one of his most influential works to come out of his increased policy concerns.
The year 1990 marked a watershed in Krugman’s career. Up to that point his voice was a voice heard and recognized in the classroom or in the seminar hall. He had achieved academic stardom in international economics but was not yet the Krugman who is not only cited, but avidly read and quoted throughout the profession. His book The Age of Diminished Expectations (actually written in 1989) broke ground as a briefing book on contemporary economic issues. After a few years, the book made the transition from ‘cult classic’ to a staple in undergraduate economics education in the US. I well recall seeing that book for the first time in a bookstore, reading his famous classification of three kinds of economics writing: "Greek letter, up-and-down, and airport."
The first is the way professional economists communicate with each other, the second is the stuff of the nightly business report "the stock market went up in active trading" and the third are paperbacks that fill airport bookstores and predict either the collapse of civilization as we know it or the dawning of the economic age of Aquarius. Paul Krugman was willing to forsake the use of greek letters and still try to get the story right. He could, he did, and he entertained. I tested that book in the classroom and I can report that my Houston students wrote much better essays on the final examinations than ever before. Like Mark Twain’s Huckleberry Finn this was a book that had as much to say to readers of very different levels of sophistication. And so, a classroom classic was born.
However before the virtues of that wonderful book were to become widely appreciated throughout the profession (word of mouth is effective but relatively slow), Krugman was awarded the John Bates Clark Medal of the American Economic Association in 1991. That award is bestowed every second year to an outstanding economist under the age of 40. Paul Samuelson, Milton Friedman, James Tobin, Kenneth Arrow, Lawrence Klein, Robert Solow and Gary Becker are tough acts to follow, though the choice of our honored guest can hardly have been a difficult one.
During the 1992 Presidential campaign Paul Krugman became as close to a household word as any economist ever becomes largely as a result of one important theme in Diminished Expectations, viz., that economic inequality had increased during the Reagan years. He was involved in a very public feud with the editors of the Wall Street Journal over the issue. There was even considerable speculation at the time that he would be a serious candidate for a senior economic position in a future Clinton administration. As Krugman has noted himself, his is not the personality of the courtier and he will play nobody’s court fool.
For the development of economics it is probably a most fortunate turn of events that Mr. Krugman did not go to Washington again. The early 1990s for him was filled with work on the subject of Economic Geography, the subject of Paul Krugman’s second fundamental breakthrough. Having harnessed the power of increasing returns and market structure, he moved on to use external economies and the accidents of history in explaining the locational dimension of economic activity, e.g. Geography and Trade, MIT Press, 1991.
In 1994 Paul Krugman moved in order to accept a professorship at Stanford. This move turned out to be only temporary, M.I.T. was apparently Krugman’s true scientific home after all and in August 1996 he returned where he now is the Ford International Professor of Economics.
In addition to his research in both real and monetary aspects of international economic affairs, Krugman is the author along with Maurice Obstfeld of one of the leading textbooks in international economics (International Economics: Theory and Policy).
The substance of two recent books by Paul Krugman Peddling Prosperity and Pop Internationalism (the latter about to be published in German translation published by Campus Verlag) represents the critical side of Paul Krugman’s popular writings. Not only does Krugman find it important to argue economic issues properly, he has been waging a one-man war to dispose of the claims and arguments of those who pronounce and are taken very seriously on economics matters but who have more or less disregarded the cumulative gain in knowledge that represents what progress that has indeed taken place in the economic science. The polemical Krugman does not attack straw men or straw women , but living ‘policy entrepreneurs’, government ministers and the ideological charlatans to his left and right. He is not afraid of linking names with ‘silliness’ the ultimate crime when improperly done. Krugman neither asks for nor does he grant any mercy. Proper disposal of bad economics is a job that would seem as glamorous as the job of pushing a broom behind the elephants in a circus parade. But one also easily overlooks the role of modern sewage systems in making modern urban life possible.
Krugman’s reputation outside of the profession is now as one of the greatest popularizers of economics in the best sense of the word, as one who provides the nonspecialist a taste of some of the best analysis of current economic affairs. He writes two columns on current economics: one is runs under the title ‘Dismal Science’ and may be read on the Microsoft Online magazine Slate and the other is published more conventionally on paper in the leading business magazine Fortune. I would like to find the reader who could resist an article entitled "Viagra and the Wealth of Nations".
Krugman at age 45 has managed three successful careers: that of the innovative theorist, that of the insightful policy analyst, and that of the educator/popularizer of modern economics. There is no sign that diminishing returns have set in any of these dimensions.
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