Nobel Politics

I find it slightly depressing that this year’s Nobel prize in economics went to Paul Krugman. There is no doubt that he did Nobel-quality work back in the 1970s and 1980s. And at first I thought that complaints that the prize was politically motivated were just sour grapes.

But two things about this year’s award suggests otherwise. First, although other economists — particularly Avinash Dixit and Elhanan Helpman — also did laudable work in the same field for which Krugman won his prize (international trade), the 2008 award was given solely to Krugman. As Tyler Cowan points out, solo Nobel prizes are exceptional in the economics field. Second is the timing: most people (including Krugman, who called it a “total surprise“) thought he would get the prize in the future, but not in the middle of political campaign in which Krugman is particularly outspoken.

On one hand, the Antiplanner much appreciates Krugman for understanding that the housing bubble was caused by land-use regulation. On the other hand, the Antiplanner has questioned Krugman’s analysis of Clinton’s vs. Obama’s health-care plans.
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Krugman’s win called special attention to his New York Times column today crediting British prime minister Gordon Brown with “saving the world financial system” and lambasting Henry Paulson for proposing a much more timid plan. What’s the difference between the two plans? Paulson called for buying bonds from banks; Brown called for buying stock from banks. Either way, the government gives money to the banks. The main difference is that the British plan is more “socialistic” in that it gives the government partial ownership in the banks. Frankly, I don’t see that this difference is all that important; either way, the plans consist of giving taxpayers’ money to the banks. Either way, the governments may end up making or losing money depending on how much they can eventually make by selling the bonds or shares of stock. (If you think the difference is more than superficial, don’t worry: the new Treasury plan calls for buying shares as well as bonds.)

While economist William Anderson’s comments are just a bit extreme, there is no doubt that Krugman was quick to lead the Democratic bandwagon blaming the current financial crisis on Republican deregulation. In fact, the seeds of the crisis were sown by Democrats during the Clinton administration. While the Bush administration paid lip service to laissez faire, it was as faithful to that policy as it was to Bush’s promise that he would not engage in “nation building.”

As Amity Shlaes and others have pointed out, the big danger is that the government will make the same mistakes it made in the Great Depression: raising taxes and imposing anti-trade tariffs. A slightly smaller danger is that Congress will pass a New Deal-like stimulus package that spends hundreds of billions of dollars on inane “infrastructure” projects in the name of creating jobs — which will only prolong the recession as such spending crowds out investments in more productive activities. Unfortunately, Krugman’s prize will only make these outcomes more likely.