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Paul Krugman, a Nobel and some observations

Yesterday, Paul Krugman was awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2008. Or, in shorter terms, the Nobel Prize in Economics. Many people may only know him for his column in the New York Times or his blog for the same, but he is actually a very well respected economist.

Tyler Cowen, economist at George Mason University, who is not one to agree often with Krugman shares his thoughts on his contributions. Alex Tabarrok discusses Krugman’s New Trade Theory. Harvard economist Edward Glaeser discusses the hard-core research underlying the aware. Krugman himself writes about what shaped him, and I found this little morsel from his first stint in Washington sums it all up:

Washington was first thrilling, then disillusioning. It is the capital of the world, and for a young person it is wonderful to think that you can really have an effect on decisions of global importance. I can still recite from memory the long list of prohibitions on the front page of each classified document (“Secret/No foreign nationals/No contractors/Proprietary information/Origin controlled”). Some people get addicted to that thrill, and will do anything to stay near the center.

After a little while, however, I began to notice how policy decisions are really made. The fact is that most senior officials have no idea what they are talking about: discussion at high-level meetings is startlingly primitive. (For example, the distinction between nominal and real interest rates tends to be regarded as a complex and useless bit of academic nitpicking). Furthermore, many powerful people prefer to take advice from those who make them feel comfortable rather than from those who will force them to think hard. That is, those who really manage to influence policy are usually the best courtiers, not the best analysts. I like to think that I am a good analyst, but I am certainly a very bad courtier. And so I was not tempted to stay on in Washington.

I wonder then, about the circulating rumors in DC of Krugman taking a very senior role in a potential Obama administration. By senior, I mean either Treasury Secretary or Federal Reserve Chairman. I wonder more if Sen Obama might distance himself from the near-Versailles level of courtesan behavior that the last eight years have witnessed. Should Sen Obama win, and such sycophantic behavior become less common, I think that Mr Krugman’s unique gift for merging theory and practice in plain words would be a strong stabilizing element in Washington and on the world stage.