>>I dont understand what point you are trying to make with the graph?<<
It was the point Krugman was making. Maybe you just need to study it a bit and think about it.
What do you think he was saying?
Paul Krugman:
Eonomist, columnist, author and intellectual.[2] He is a professor of economics and international affairs at Princeton University, a centenary professor at the London School of Economics, and an op-ed columnist for The New York Times. In 2008, Krugman won the Nobel Memorial Prize in Economic Sciences "for his analysis of trade patterns and location of economic activity".[3][4] Krugman is known in academia for his work in international economics, including trade theory, economic geography, and international finance.
Krugman was born into a Jewish family and grew up on Long Island in New York. He is married to Robin Wells, a fellow professor at Princeton, his second wife. They have no children.[5][6]
Krugman says that his interest in economics began with Isaac Asimov's Foundation novels, in which the social scientists of the future use "psychohistory" to attempt to save civilization. Since "psychohistory" in Asimov's sense of the word does not exist, Krugman turned to economics, which he considered the next best thing.[7]
[edit] Economics career
Krugman earned his B.A. degree in economics from Yale University in 1974 and his Ph.D. degree from the Massachusetts Institute of Technology (MIT) in 1977. From 1982 to 1983, he spent a year working at the Reagan White House as a staff member of the Council of Economic Advisers. He taught at Yale University, MIT, UC Berkeley, the London School of Economics, and Stanford University before joining the faculty of Princeton University in 2000. He is also currently a centenary professor at the London School of Economics, and a member of the Group of Thirty international economic body as well as the Council on Foreign Relations.
When Bill Clinton came into office in 1993, he considered Krugman for a leading post; Krugman was flown out for a meeting in Arkansas. Krugman's outspokenness was reported to be "the main reason the Clinton administration didn't offer him a job."[8] Krugman says he would not have been interested in such a job; he told Newsweek, "I'm temperamentally unsuited for that kind of role. You have to be very good at people skills, biting your tongue when people say silly things."[8] In his New York Times blog, Krugman repeated that statement, saying that he was "temperamentally unsuited to politics".[9]
[edit] Nobel Prize
Krugman was awarded the Nobel Memorial Prize in Economic Sciences, the sole awardee for 2008. This award, created in 1968 by the Swedish central bank in Alfred Nobel’s memory, includes a prize of about $1.4 million and was awarded to Krugman for his work associated with New Trade Theory.[10][11] In the words of the prize committee, "By having integrated economies of scale into explicit general equilibrium models, Paul Krugman has deepened our understanding of the determinants of trade and the location of economic activity."[12]
[edit] Academic contributions
Paul Krugman has done extensive work in international economics, including work on international trade, economic geography, and international finance. According to the Research Papers in Economics project, he is among the 50 most influential economists in the world today.[13] Krugman's International Economics: Theory and Policy, co-authored with Maurice Obstfeld is a standard introductory textbook on international economics. He also writes on economic topics for the general public, sometimes on international economic topics but also on income distribution and public policy.
[edit] International trade theory
As the Nobel Prize Committee explains, Krugman's main contribution is to analyze the impact of economies of scale in international trade. Prior to Krugman's work, trade theory (see David Ricardo and Hecksher-Ohlin model) emphasized trade between countries with very different characteristics, like a poor country exporting agricultural goods to a rich country in exchange for industrial products. However, in the 20th century, an ever larger share of trade occurred between countries with very similar characteristics. For example, the Nobel committee mentions Sweden exporting Volvo cars to Germany while Germany exports BMW cars to Sweden.
Krugman's explanation of trade between similar countries was proposed in a 1979 paper in the Journal of International Economics. He assumes that consumers prefer a diverse choice of brands, and that production favors economies of scale. Consumers' preference for diversity explains the survival of different versions of cars like Volvo and BMW.[14] But because of economies of scale, it is not profitable to spread the production of Volvos all over the world; instead, it is concentrated in a few factories and therefore in a few countries (or maybe just one). This logic explains how each country may specialize in producing a few brands of any given type of product, instead of specializing in different types of products.
Most models of international trade nowadays follow Krugman's lead, incorporating economies of scale in production and a preference for diversity in consumption. This way of modeling trade has come to be called New Trade Theory.
When there are economies of scale in production, it is possible that countries may become 'locked in' to disadvantageous patterns of trade.[15] Nonetheless, trade remains beneficial in general, even between relatively similar countries, because it permits firms to save on costs by producing at a larger, more efficient scale, and because it increases the range of brands available and sharpens the competition between firms.[16] Therefore, Krugman has usually been supportive of free trade and globalization[17], and critical of industrial policy. (He writes on p. xxvi of his book The Great Unraveling that "I still have the angry letter Ralph Nader sent me when I criticized his attacks on globalization.")
On a lighter note, in 1978, Krugman wrote The Theory of Interstellar Trade, a tongue-in-cheek essay on computing interest rates on goods in transit near the speed of light. He says he wrote it to cheer himself up when he was 'an oppressed assistant professor'.[18]
[edit] Economic geography
If trade is largely shaped by economies of scale, as Krugman's trade theory argues, then those economic regions with most production will be more profitable and will therefore attract even more production. That is, Krugman's trade theory implies that instead of spreading out evenly around the world, production will tend to concentrate in a few countries, regions, or cities, which will become densely populated but also have higher levels of income.[19] This forms the basis of Krugman's theory of economic geography, which he began to develop in a 1991 paper in the Journal of Political Economy.[20]
[edit] International finance
Besides his work on international trade, Krugman has also been influential in the field of international finance economics. In 1979 he published a model of currency crises in the Journal of Money, Credit, and Banking showing that fixed exchange rate regimes are unlikely to end smoothly: instead, they end in a sudden speculative attack. Krugman's paper is considered one of the main contributions to the 'first generation' of currency crisis models.[21]
Krugman predicted problems with the fixed exchange rates in East and Southeast Asia, and Thailand's economic policies before the 1997 East Asian financial crisis, and also criticized investors such as Long-Term Capital Management whose profits depended on the maintenance of fixed exchange rates prior to the 1998 Russian financial crisis.[citation needed] He also advocated aggressive fiscal policy to counter Japan's economic depression in the 1990s, arguing that the country was mired in a Keynesian liquidity trap.[22]
[edit] Income distribution
In the 1990s, Krugman increasingly focused on writing books for a general audience on issues he considered important for public policy. In The Age of Diminished Expectations and The Conscience of a Liberal, he especially wrote about the increasing US income inequality in the "New Economy" of the 1990s. He attributes the rise in income inequality partly to changes in technology, but mostly to a change in political atmosphere which has been widely manipulated by Movement Conservatives, as Krugman refers to Neo-Conservative Republicans.
[edit] Other contributions
In the early 1990s, he helped popularize the argument made by Laurence Lau and Alwyn Young, among others, that the growth of economies in East Asia was not the result of new and original economic models, but rather increased capital and labor inputs, which did not result in an increase in total factor productivity. His prediction was that future economic growth in East Asia would slow as it became more difficult to generate economic growth from increasing inputs.[23]
[edit] Author and journalist
Krugman wrote first for Fortune and Slate, later for The Harvard Business Review, Foreign Policy, The Economist, Harper's, and Washington Monthly. Krugman said that to answer what he called Pop Internationalism, "I would have to write essays for non-economists that were clear, effective, and entertaining."[24]
Since January 2000, Krugman has contributed a twice-weekly column to the Op-Ed page of the New York Times, which has made him, in the words of the Washington Monthly, "the most important political columnist in America... he is almost alone in analyzing the most important story in politics in recent years — the seamless melding of corporate, class, and political party interests at which the Bush administration excels."[25] In 2007, he began supplementing his Times column with a blog. In introducing it, he wrote, "Many of the posts will be supplements to my regular columns; I’ll be using this space to present the kind of |
