Krugman on Krugman and What he won the Prize for…

This is from the New York Times:

“OK, so what was the “old” trade theory? It’s what you probably learned if you took intro economics. Countries are different – they have different levels of productivity in particular industries, they have different resources, and those differences drive trade. Tropical countries grow and export bananas, temperate countries grow and export wheat. Countries with highly educated workers export high-tech goods, countries with less educated workers export shirts and pajamas.

The answer is that there are many goods that aren’t like wheat or bananas, but are instead like wide-bodied jet aircraft. There are only a few places in which wide-bodied jets are produced, because of the enormous economies of scale – you only want a couple of factories worldwide. Those factories have to be somewhere, and those countries that get the factories export jets, while everyone else imports them.

But who gets the aircraft factories, or the factory producing a specialized kind of machine tool, or the plant producing a particular model of car that selected consumers all over the world want? The answer of new trade theory – and it was a tremendously liberating answer – is that it doesn’t matter. There are many economies-of-scale goods; everyone gets some of them; and the details, which may be largely a story of historical accident, aren’t important.”

So sure Krugman did some things that helped economics but the point is that he veered off a long time ago. He now doesn’t stick to the rules of the laws of economics and even at one point didn’t understand the broken window fallacy that you learn in Econ 101.

Here is the rest of his article and the stuff he did on geography.

~PCCapitalist

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Published in: on October 19, 2008 at 5:24 pm  Leave a Comment  
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