I am happy to report that I live in the world’s most globalized city, according to Foreign Policy. Why did they create a “global cities index“?

National governments may shape the broad outlines of globalization, but where does it really play out? Where are globalization’s successes and failures most acute? Where else but the places where most of humanity now chooses to live and work—cities. The world’s biggest, most interconnected cities help set global agendas, weather transnational dangers, and serve as the hubs of global integration. They are the engines of growth for their countries and the gateways to the resources of their regions. In many ways, the story of globalization is the story of urbanization.

I should note that I may have lost out by leaving the UK, home of the world’s best global cultural experience.

HT: Sabrina

Added to my “to read” list: “Organizations and Trade” (pdf) by Pol Antrás and Esteban Rossi-Hansberg.

We survey an emerging literature at the intersection of organizational economics and international trade. We argue that a proper modelling of the organizational aspects of production provides valuable insights on the aggregate workings of the world economy. In reviewing the literature, we describe certain predictions of standard models that are affected or even overturned when organizational decisions are brought into the analysis. We also suggest potentially fruitful areas for future research.

It’s forthcoming in the first edition of the Annual Review of Economics.

Business lobbies are warning against protectionist responses to the credit crisis. But who has been proposing them? I haven’t seen any.

Avinash Dixit states the bloody obvious:

In the last 10 years, Krugman has achieved fame in a much larger arena with his columns in the New York Times. These offer strong views on economics and politics, and they have been harshly critical of the Bush administration on most issues. It is no wonder that they attract adulation from readers who share his views on these matters and hatred from the other side. The former delight in his Nobel Prize, and the latter are shocked and dismayed by it, but both these reactions are mistaken. The prize has nothing to do with the Op Ed columns and would have come to Krugman just the same if he had never written a single one of them. The prize celebrates his achievements in science, not in the policy arena.

Except it’s not so bloody obvious, it seems: “You don’t get the Nobel Prize in Economics for writing newspaper columns (as I’ve been trying to explain to my mother the last couple of days).”

If I took the time to rebut every stupid comment that has been uttered in response to Krugman’s Nobel win, I’d have to quit my job, drop out of grad school, and stop blogging on any other topic. But here’s one I refuse to let pass:

Paul Krugman wrote some interesting essays in international economics theory (he is not noted for using facts), but began to put politics above economics ever since the 1992 presidential campaign –as shown in my 1994 review of his book, Peddling Prosperity.

That’s Cato’s Alan Reynolds.

While Krugman is an economist theorist, not an empiricist, how could one neglect Pop Internationalism, a collection of essays that use a small dollop of facts and basic arithmetic to rebut trade nonsense?

Bonus: A favorable review of the book from Cato’s Bill Nisakanen.

Two good stories on Krugman — one from yesterday and one from 1991.

The Chronicle of Higher Education has a nice article featuring commentary from Don Davis that exemplifies how most trade economists feel about the award:

That political chatter has some of Mr. Krugman’s colleagues worried that the value of his technical work in economics will be obscured.

“This news should surprise no one,” said Donald R. Davis, a professor of economics and international affairs at Columbia University, in an interview on Monday. “People have known for decades that Krugman might well receive the prize. I think there’s really a sense of delight within the profession today.”…

“It’s not that people were entirely unaware that increasing returns to scale could be a cause of trade,” Mr. Davis said. “But Krugman really provided such an elegant model that was able to encapsulate this idea. You could almost say that in the early work on increasing returns, we were working with hieroglyphs. They could communicate information, but they were very inelegant to work with. Krugman gave us an alphabet that you could then use to create great works of literature. Thousands upon thousands of papers have been written based on these models.”

A Critic of the Left and Right

An oft-noted irony of Mr. Krugman’s career is that even though he has emerged as a scourge of the Bush administration, his early popular writing on economics was largely devoted to criticizing his fellow liberals. In books such as Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (W.W. Norton, 1994), Mr. Krugman railed against what he described as sloppy protectionist thinking on the left. (In a widely debated 1996 essay in The American Prospect, the left-liberal economist Robert Kuttner wrote, “The career of Paul Krugman epitomizes, if in extreme form, how the conventions of the economics profession work to block a resurgence of liberal activism.”)

But Mr. Davis said that Mr. Krugman’s outlook had not fundamentally changed. “He’s been very consistent throughout his career,” he said. “He says that markets have a role but that markets aren’t perfect. And when markets fail, government has a role. I think he’s been trying to head off mistaken ideas from both directions.”

The other piece of note is Avinash Dixit’s praise for Krugman upon his winning the J.B. Clark Medal. The full profile is worth reading, but here is a great description of Krugman’s style:

Here is Paul’s typical modus operandi. He spots an important economic issue coming down the pike months or years before anyone else. Then he constructs a little model of it, which offers some new and unexpected insight. Soon the issue reaches general attention, and Krugman’s model is waiting for other economists to catch up. Their reaction is generally a mixture of admiration and irritation. The model is wonderfully clear and simple. But it leaves out so much, and relies on so many special assumptions including specific functional forms, that they don’t think it could possibly do justice to the complexity of the issue. Armies of well-trained economists go to work on it, and extend and generalize it to the point where it would get some respect from rigorous theorists. In this process they do contribute some new ideas and find some new results. But, as a rule, they find something else. Krugman’s special structure was so well chosen that most of its essential insights survive all the extension and generalization. His special assumptions go to the heart of the problem, like a narrow and sharp stiletto. By contrast the followers’ work often resembles thoracic surgery, involving much clumsy breaking of ribs; sometimes it proves to be no more than an autopsy of the issue…

Our expectations about the US economy and the US government’s future economic policies may have been diminished as a result of our observation of recent economic performance and policies. But our expectations about Paul Krugman’s future economic research and writing have been greatly raised by our observation of his record so far. I am sure the Clark Medal is but one milestone of many to come in his career.

Krugman is notoriously parsimonious. Here’s an example from The Spatial Economy:

Oh dear lord, Paul Krugman is a Nobel laureate and people have decided to politicize it, spewing inaccurate and irrelevant complaints. I don’t have time to write this out as a proper essay, but I have to comment.

Forbes has four columns from economists on the subject. Alongside Arvind Panagariya’s low-tech layperson introduction to Krugman (1979, 1980) and Arvind Subramanian’s longer reflection on Krugman’s three research themes (trade, economic geography, currency crises), parsimonious (specific functional forms) style, and transformation into NYT columnist, we have negative reactions from William Anderson and Peter Boettke.

Let me only briefly address Anderson’s column, since it is atrocious. This is perhaps the worst possible summary of Krugman’s (1979, 1980) trade models:

Krugman contends that nations can create comparative advantages by subsidizing certain industries, something the ancients once called Mercantilism.

Hint: Comparative advantage is nowhere to be found in those papers. They’re single-sector models.

The rest of Anderson’s column is the argument that Krugman’s book was a distorted history of 20th century America (probably true, see Ed Glaeser) and misrepresenting Krugman’s take on the Paulson Plan.

On to Boettke. He also misrepresents Krugman:

Krugman became ideological and partisan more than a decade prior to the announcement of his prize. And he has not really written serious academic papers or books in economics during that time span. Krugman more or less abandoned scientific economics when he decided to start writing for a broader audience in the 1990s.

Gee, what’s this on my bookshelf from my graduate level trade course? Why, it’s The Spatial Economy: Cities, Regions, and International Trade by Fujita, Krugman, and Venables. Copyright? 2001. And here’s Krugman sketching out the dollar crisis last summer. And of course, Krugman has been pushing his thoughts on trade and inequality, to the chagrin of some.

Boettke then goes on to discuss new trade theory, disproportionately emphasizing the potential for strategic protectionism, just like Wikipedia does. He then basically says that Krugman’s work was only necessary because economists insist on mathematical formalism.

Libertarians like Pete Boettke and Russ Roberts (whose “least favorite Krugman quote” is a completely benign explanation that the mean doesn’t characterize a distribution) are worried that the prize may validate Krugman’s partisan NYT column. Russ Roberts even says that he has “talked to a number of people who are depressed and angry at Krugman’s prize.” For truly embarrassing responses to the award, head to Marginal Revolution’s comment section.

This is ridiculous. Paul Krugman is a once-in-a-generation trade theorist who irrevocably shaped the field. He is no less an economist because he disagrees with you on normative public policy questions. Shame on those who try to spoil his well-deserved celebration.

Congratulations to Paul Krugman, the very deserving winner of this year’s Nobel prize “for his analysis of trade patterns and location of economic activity.”

International commodities trade is taking a hit as the credit markets freeze:

The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.

Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don’t trust the financial institution named in the buyer’s letter of credit, analysts said.

“There’s all kinds of stuff stacked up on docks right now that can’t be shipped because people can’t get letters of credit,” said Bill Gary, president of Commodity Information Systems in Oklahoma City. “The problem is not demand, and it’s not supply because we have plenty of supply. It’s finding anyone who can come up with the credit to buy.”

Emmanuel watches Battle in Seattle so that you won’t have to.