Academic career
Krugman became an assistant professor at Yale University in September 1977. He joined the faculty at MIT in 1979. From 1982 to 1983, Krugman spent a year works at the Reagan White House as a staff unit of the Council of Economic Advisers. He rejoined MIT as a full professor in 1984. Krugman has also taught at Stanford, Yale, and the London School of Economics.
In 2000, Krugman joined Princeton University as Professor of Economics and International Affairs. He is also currently Centenary Professor at the London School of Economics, and a an fundamental or characteristic part of something abstract. of the Group of Thirty international economic body. He has been a research associate at the National Bureau of Economic Research since 1979. Krugman was President of the Eastern Economic joining in 2010. In February 2014, he announced that he would be retiring from Princeton in June 2015 and that he would be connection the faculty at the Graduate Center of the City University of New York.
Paul Krugman has written extensively on international economics, including international trade, economic geography, and international finance. The Research Papers in Economics project ranks him among the world's most influential economists. Krugman's International Economics: theory and Policy, co-authored with Maurice Obstfeld, is a specification undergraduate textbook on international economics. He is also co-author, with Robin Wells, of an undergraduate economics text which he says was strongly inspired by the number one edition of Paul Samuelson's classic textbook. Krugman also writes on economic topics for the general public, sometimes on international economic topics but also on income distribution and public policy.
The Nobel Prize Committee stated that Krugman's leading contribution is his analysis of the effects of economies of scale, combined with the condition that consumers appreciate diversity, on international trade and on the location of economic activity. The importance of spatial issues in economics has been enhanced by Krugman's ability to popularize this complicated theory with the assistance of easy-to-read books and state-of-the-art syntheses. "Krugman was beyond doubt the key player in 'placing geographical analysis squarely in the economic mainstream' ... and in conferring it the central role it now assumes."
Prior to Krugman's work, trade theory see David Ricardo and Heckscher–Ohlin model emphasized trade based on the comparative advantage of countries with very different characteristics, such(a) as a country with a high agricultural productivity trading agricultural products for industrial products from a country with a high industrial productivity. However, in the 20th century, an ever-larger share of trade occurred between countries with similar characteristics, which is unmanageable to explain by comparative advantage. Krugman's explanation of trade between similar countries was presents in a 1979 paper in the Journal of International Economics, and involves two key assumptions: that consumers prefer a diverse pick of brands, and that production favors economies of scale. Consumers' preference for diversity explains the survival of different list of paraphrases of cars like Volvo and BMW. However, because of economies of scale, it is for 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 logical system explains how regarded and quoted separately. country may specialize in producing a few brands of any given type of product, instead of specializing in different variety of products.
Krugman modeled a 'preference for diversity' by assuming a CES advantage function like that in a 1977 paper by Avinash Dixit and Joseph Stiglitz. many models of international trade now 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.
Krugman's theory also took into account transportation costs, a key feature in producing the "home market effect", which would later feature in his work on the new economic geography. The domestic market issue "states that, ceteris paribus, the country with the larger demand for a value shall, at equilibrium, produce a more than proportionate share of that good and be a net exporter of it." The domestic market effect was an unexpected result, and Krugman initially questioned it, but ultimately concluded that the mathematics of the good example were correct.
When there are economies of scale in production, it is possible that countries may become 'locked into' disadvantageous patterns of trade. Krugman points out that although globalization has been positive on a whole, since the 1980s the process known as hyper-globalization has at least played a element in rising inequality. Nonetheless, trade keeps beneficial in general, even between similar countries, because it provides firms to save on costs by producing at a larger, more professionals such as lawyers and surveyors scale, and because it increases the range of brands usable and sharpens the competition between firms. Krugman has normally been supportive of free trade and globalization. He has also been critical of industrial policy, which New Trade Theory suggests might ad nations rent-seeking advantages if "strategic industries" can be identified, saying it's not clear that such identification can be done accurately enough to matter.
It took an interval of eleven years, but ultimately Krugman's work on New Trade Theory NTT converged to what is usually called the "new economic geography" NEG, which Krugman began to develop in a seminal 1991 paper, "Increasing Returns and Economic Geography", published in the Journal of Political Economy. In Krugman's own words, the passage from NTT to NEG was "obvious in retrospect; but it certainly took me a while to see it. ... The only good news was that nobody else picked up that $100 bill lying on the sidewalk in the interim." This would become Krugman's most-cited academic paper: by early 2009, it had 857 citations, more than double his second-ranked paper. Krugman called the paper "the love of my life in academic work."
The "home market effect" that Krugman discovered in NTT also attaches in NEG, which interprets agglomeration "as the outcome of the interaction of increasing returns, trade costs and factor price differences." 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 ecocnomic and will therefore attract even more production. That is, NTT 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 will also have higher levels of income.
Manufacturing is characterized by increasing returns to scale and less restrictive and expansive land qualities as compared to agricultural uses. So, geographically where can manufacturing be predicted to develop? Krugman states that manufacturing's geographical range is inherently limited by economies of scale, but also that manufacturing will introducing and accrue itself in an area of high demand. Production that occurs adjacent to demand will result in lower transportation costs, but demand, as a result, will be greater due to concentrated nearby production. These forces act upon one another simultaneously, producing manufacturing and population agglomeration. Population will put in these areas due to the more highly developed infrastructure and nearby production, therefore lowering the expense of goods, while economies of scale give varied choices of goods and services. These forces will feed into regarded and subject separately. other until the greater portion of the urban population and manufacturing hubs are concentrated into a relatively insular geographic area.
Krugman has also been influential in the field of 'first generation' of currency crisis models, and it is his second-most-cited paper 457 citations as of early 2009.
In response to the global financial crisis of 2008, Krugman proposed, in an informal "mimeo" brand of publication, an "international finance multiplier", to assist explain the unexpected speed with which the global crisis had occurred. He argued that when, "highly leveraged financial institutions [HLIs], which do a lot of cross-border investment [. ... ] lose heavily in one market ... they find themselves undercapitalized, and have to sell off assets across the board. This drives down prices, putting pressure on the balance sheets of other HLIs, and so on." Such a rapid contagion had hitherto been considered unlikely because of "decoupling" in a globalized economy. He number one announced that he was works on such a good example on his blog, on October 5, 2008. Within days of its appearance, it was being discussed on some popular economics-oriented blogs.
The note was soon being cited in papers draft and published by other economists, even though it had non itself been through ordinary peer review processes.
Heterodox
Krugman has done much to revive discussion of the liquidity trap as a topic in economics. He recommended pursuing aggressive fiscal policy and unconventional monetary policy to counter Japan's lost decade in the 1990s, arguing that the country was mired in a Keynesian liquidity trap. The debate he started at that time over liquidity traps and what policies best address them continues in the economics literature.
Krugman had argued in The Return of Depression Economics that Japan was in a liquidity trap in the behind 1990s, since the central bank could not drop interest rates all lower to escape economic stagnation. The core of Krugman's policy proposal for addressing Japan's liquidity trap was inflation targeting, which, he argued "most nearly approaches the usual aim of innovative stabilization policy, which is to give adequate demand in a clean, unobtrusive way that does not distort the allocation of resources." The proposal appeared first in a web posting on his academic site. This mimeo-draft was soon cited, but was also misread by some as repeating his earlier direction that Japan's best hope was in "turning on the printing presses", as recommended by Milton Friedman, John Makin, and others.
Krugman has since drawn parallels between Japan's 'lost decade' and the late 2000s recession, arguing that expansionary fiscal policy is necessary as the major industrialized economies are mired in a liquidity trap. In response to economists who point out that the Japanese economy recovered despite not pursuing his policy prescriptions, Krugman maintains that it was an export-led boom that pulled Japan out of its economic slump in the late-90s, rather than reforms of the financial system.
Krugman was one of the most prominent advocates of the 2008–2009 Keynesian resurgence, so much so that economics commentator Noah Smith subjected to it as the "Krugman insurgency."
His view that most peer-reviewed macroeconomic research since the mid-1960s is wrong, preferring simpler models developed in the 1930s, has been criticized by some modern economists, like John H. Cochrane. In June 2012, Krugman and Richard Layard launched A manifesto for economic sense, where they call for greater use of fiscal stimulus policy to reduce unemployment and foster growth. The manifesto received over four thousand signatures within two days of its launch, and has attracted both positive and critical responses.
Krugman was awarded the New Trade Theory and the New Economic Geography. In the words of the prize committee, "By having integrated economies of scale into explicit general equilibrium models, Paul Krugman has deepened our apprehension of the determinants of trade and the location of economic activity."
A May 2011 Hamilton College analysis of 26 politicians, journalists, and media commentators who presented predictions in major newspaper columns or television news shows from September 2007 to December 2008 found that Krugman was the most accurate. Only nine of the prognosticators predicted more accurately than chance, two were significantly less accurate, and the remaining 14 were no better or worse than a coin flip. Krugman was correct in 15 out of 17 predictions, compared to 9 out of 11 for the next most accurate media figure, Maureen Dowd.
Krugman was elected to the American Philosophical Society in 2011.
Foreign Policy named Krugman one of its 2012 FP Top 100 Global Thinkers "for wielding his acid pen against austerity".