MICHELE NORRIS, Host:
The Nobel Committee has awarded its annual prize for economics. Now at this point, we usually introduce you to an individual who is well-known in his or her field, but relatively obscure to the general public. Well, not this year. The Nobel Prize for economics goes to the New York Times columnist Paul Krugman, well-known for his biting criticism of the Bush administration. Krugman is also an economics professor at Princeton and his academic work was the basis for the Nobel award. He was honored for his work on international trade. For his efforts, Krugman who is 55, will receive will receive $1.4 million. Paul Krugman joins us now. Congratulations.
D: Thank you.
NORRIS: In your blog today called The Conscience of a Liberal, you note that, a funny thing happened to me this morning, and I'm wondering how you did actually find out about this honor?
D: I was stark naked, about to step in to the shower at 20 minutes to seven and my cell phone rang. I was actually in Washington for a meeting and there we went. Just out of the blue. I actually had no anticipation. I wasn't thinking of the possibility at all. So, it's an awesome surprise.
NORRIS: No idea?
D: No. No hints and frankly, I was aware that some day I might get that call. But I had convinced myself that it would not come for - if it ever did- for quite a while. So, I wasn't at all expecting it.
NORRIS: Now, Mr. Krugman, many people are familiar with your work as a journalist, but perhaps less familiar with your economic theories. The Nobel Committee cited your work on formulating a theory which answers some basic questions about how economies of scale affect international trade. It sounds like in essence you describe how competition works on a global level.
D: Yeah, and with a - prior work on trade until I and others - there are always others who really have some share of this - a substantial share in this case. What we did was we took a view of international trade that said that, really, countries trade with each other because they're different. One country's tropical, another one is temperate, so one produces coffee and the other produces wheat and we said, well that's part of the story but there's also a lot of trade that's taking place because somebody gets a small head start in some industry and that builds into a cumulative advantage because of the various economies of scale, you know, the sort of circular logic that says that you want to do stuff were - stuff like it is already being done and that was a - it sounds pretty simple but actually it wasn't clear in people's minds and so we worked this out. So it is a very different field of globalization and it came at a time when, you know, the world was getting more global. So it has turned out to be very relevant.
NORRIS: It must be interesting, if not a bit daunting, to receive the Nobel Prize in economics at a moment when the world is in this global financial crisis. I mean, people will be looking to you as the guy with all the answers.
D: Well, and one of my - it's cited fairly late in the Nobel story but I did work on financial crises, among other things and - but until, you know, in the past they were always in Jakarta or in Buenos Aires and now, I can go to the epicenter of the crisis on New Jersey Transit. This is stunning. It's shocking but I've been writing about it for the Times so they - I'm in the middle of it anyway as much as anyone who isn't part of the actual governing apparatus can be and we're all scrambling to understand what's happening and come up with answers.
NORRIS: Curious about your view of the current crisis. Who should have seen this coming?
D: I should have. I mean, I saw parts of it. I saw the housing bubble but I berate myself for not understanding the extent to which we've had these sort of financial domino effects. I saw that there would be a burst bubble and there'd be a lot of pain but didn't realize how big the pain would be. Lots of people should have seen it, Alan Greenspan, if there's a villain, it's Alan Greenspan, who was warned about parts of it and brushed aside the warnings. But in general, how in retrospect, how could we have been so blind? We had created a financial system that basically outgrew the defenses that we created back in the 1930s to protect against banking crises. We should have understood that because the system had outgrown those defenses, there was the possibility of another one but very few people saw it coming.
NORRIS: In your column, you applauded the Brits for moving with what you called stunning speed. You can't really use those words to describe the US bailout. Did we waste weeks debating Treasury Secretary Paulson's plan?
D: Yeah. After the fall of Lehman, things fell apart quite quickly, and the Treasury Department came up with this plan which sounded impressive until you started to think about it and then it didn't make sense and we really wasted three weeks on that. And even now, I mean, Britain went from a plan, announced last Wednesday, to actual implementation, actual handing out money to rescue banks this morning. Five days. Here, last I heard, Treasury is still talking about it'll be a few weeks before we start implementing a plan, that's, you know in the current kind of environment, two weeks can be an eternity.
NORRIS: Are we on the right path now?
D: I think so. Although there's still a little obscure about it. I think that what we've done is move around to something very much like the British scheme, although it's not entirely clear that - and the lack of clarity is also a problem. The Europeans, the Continental Europeans have - as of yesterday, they went over to what amounts to a British-style rescue so they're on the right path, I think and maybe we are but, you know, a little more clarity, please.
NORRIS: Well, there's certainly much to talk about on this issue. So please come back and talk to us and soon. Paul Krugman is a professor of economics and international affairs at the Woodrow Wilson School at Princeton University. He's also a columnist for The New York Times and he is the winner of this year's Nobel Prize for economics. Congratulations again.
D: Thank you.
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