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Paul Krugman is currently a professor of Economics and International Affairs at the Woodrow Wilson School of Public and
International Affairs at Princeton University, and a Centenary professor at the London School of Economics. He also writes an Op-ed column in non-technical styles for the New York Times. He is the author or editor of 20 books, and he has written over 200 professional journal articles. Krugman has also written a monthly column for Slate from 1996-1999, and Fortune from 1997-1999. Before working at Princeton, Krugman taught at Yale University, UC Berkeley, the London School of Economics, Stanford University and MIT where he received his PhD from. He served as a senior international economist for the President’s Council of Economic Advisors, under President Regan. He is currently a Fellow of the Econometric Society, a research associate of the National Bureau of Economic Research, and a member of the Group of Thirty, a consultative group on international economic and monetary affairs. He has served as a consultant to the Federal Reserve Bank of New York, the World Bank, the IMF, and the United Nations. Krugman received the John Bates Clark Medal in 2001 which is only given every two years to the top economist under the age of 40, in 2008 Krugman was awarded the Nobel Prize in Economics for his work on the New Trade Theory and New Economic Geography.

Krugman lives in Princeton, NJ and is currently married to his second wife Robin Wells, who is also an economist and has co-authors 4 textbooks with Paul, Microeconomics, Macroeconomics, Economics, and Economics: European Edition.

Academic Contributions
Krugman is best known for his academic work explaining the patterns of international trade and economic geography. New Trade Theory (NTT) Krugmans most well known work incorporates economies of scale, building on the Heckscher-Ohlin Model of international trade. The Heckscher-Ohlin model basically states that each country would export the good that it could produce at lower relative cost when there is no trade between countries (autarky). Each country had a comparative advantage in the good that used relatively more intensively its relatively more abundant factors (Land, Labor, and Capital). There are several implications that the HO Model should predict. We should see that most trade is done between developed and undeveloped countries because they are so different. For example one country should make cars while the other makes textiles due to each countries comparative advantage, and then they should trade. Problems occurred with HO Model like the Leontief Paradox. In actuality and contrary to the HO Model, since World War II trade between the developed and developing countries was out paced by trade between developed countries with very similar factors of production. In developing countries, there was not a clear comparative advantage for any country. Many patterns of production and trade seemed matters of chance, and in fact there was a lot of intra-industry trade in very similar products such as automobiles. Which is not at all what the HO Model predicts will happen. Why would countries like France, Sweden, Germany, and Japan all with similar comparative advantages all build similar cars and trade with each other? Key to Krugman’s approach are economies of scale. In his own words “if you increase the amount of stuff you produce, cost don’t rise by the same proportion…double the scale of production, and costs won’t double.” This causes businesses already in the industry to produce extra for relatively little cost and then sell to similar markets as they are currently selling in. This gives consumers what they really want most, more varieties.

Economies of scale can best be explained graphically. At production level Q1S, the unit-labor requirement is given by a1LS. If production were to rise to Q2S, then the unit-labor requirement would fall to a2LS. This means that at the higher level of output, it requires less labor per unit of output than it required at the smaller scale.


It is possible to show that economies of scale in production are equivalent to increasing returns to scale. Increasing returns to scale in production means that an increase in resource usage, by say x%, results in an increase in output by more than x%.

Krugman published his findings in a series of papers in 1979 in the Journal of International Economics which began to explain what would become to be known as New Trade Theory. He explained that production favored economies of scale and that greater varieties of goods would be produced at lower unit prices exist because of intra-industry trade and economies of scale. Krugman explained that economies of scale increase consumption, lower prices, increase variety of goods, increase production, increase trade and reduces conflict, increase more opportunities and ideas.

New Economic Geography
After about 11 years of working on New Trade Theory, the theory began to morph into what is now known as New Economic Geography (NEG). Krugman’s NEG stated that production will not only prefer economies of scale but businesses or industries will concentrate in a few countries, regions, or cities, which will become densely populated and have high levels of income. Examples of this can be agglomeration like Silicon Valley, Motor City Detroit and Wall Street.

Paul Krugman on:

Climate Change
Krugman is on record of saying “we’re facing a clear and present danger to our way of life, perhaps even to civilization itself. How can anyone justify failing to act?” Later in the same article Krugman goes on to state “is it fair to call climate denial a form of treason? Isn’t it politics as usual? Yes, it is — and that’s why it’s unforgivable. Do you remember the days when Bush administration officials claimed that terrorism posed an “existential threat” to America, a threat in whose face normal rules no longer applied? That was hyperbole — but the existential threat from climate change is all too real. Yet the deniers are choosing, willfully, to ignore that threat, placing future generations of Americans in grave danger, simply because it’s in their political interest to pretend that there’s nothing to worry about. If that’s not betrayal, I don’t know what is.”

ts-krugman-190.jpgHealthcare Reform
Krugman believes that we should end the ban of medical discrimination on the basis of medical history. He states that you need healthy people to remain apart of the risk pool, if the healthy people leave the risk pool due to high premiums, even higher premiums will occur, and the death spiral begins.

Financial Reform
Krugman believes it’s more important to regulate what the banks do than to regulate how big they get. Krugman argues that the biggest banks being bailed out was necessary, and sets up a dangerous precedent that the biggest banks will be bailed out in times of crisis. He argues that this will lead to even riskier behavior in the future. Krugman believes that breaking the big banks apart to alleviate the systemic risk will not solve our problems. Krugman says that it was the smaller banks failing in the 1930’s that caused a catastrophe for the wider economy, that would happen again if the government broke up the biggest banks. Krugman states that stricter regulating on banks balance sheets and limits on lending and leverage is what’s needed. Krugman advocates for a type of “Tobin” tax which would place a small tax on every exchange of currency which would discourage the reliance on ultra short run financing.

Social Security
Paul Krugman does not believe social security will be a problem in the future. He believes the social security trust fund that had been over funded for quarter of a century will not be depleted till 2037 and may actually never be depleted with a small rise in income tax.

China Renminbi
In September 2010 Krugman quoted as saying “China is deliberately keeping its currency artificially weak.” He states that consequences of this policy tax are that the Chinese tax imports and subsidize exports, leading to a huge trade surplus. Krugman goes on to say that “in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much needed sales and jobs."

Infrastructure Spending
Krugman believes that public work projects have been a major driver of economic development. He states that “now (October 7, 2010) would be an especially good time to improve our nation’s infrastructure…our roads, our rail lines, our water and sewer systems are antiquated and increasingly inadequate.” He states that we have 1.5 million construction workers sitting idle, while interest rates are great for borrowing.

Liquidity Trap
Paul Krugman believes that 70% of the world’s economies are in a liquidity trap.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008

1. Dixit, Avinash “In Honor of Paul Krugman: Winner of the 1991 John Bates Clark Medal,”
2. Paul R. Krugman,
3. The Official Paul Krugman Web Page,
4. Krugman, Paul “How Much of the World is in a Liquidity Trap,”
5. Krugman, Paul “The End of the Tunnel”
6. Krugman, Paul “China, Japan, America”
7. Krugman, Paul “Financial Reform 101”
8. Krugman, Paul “Japan’s Trap”
9. "Paul Krugman - Diploma". 30 Nov 2010
10. International Trade and Theory,