The Best-Predicted Event in Economics in 35 Years: Paul Krugman's Nobel Prize

I wish to add my heart-felt approval to many others, regarding the awarding of the Nobel Prize in Economics to Paul Krugman. For those readers of the New York Times who can only think of him as a columnist, let me assure you that long before he ever wrote a newspaper opinion piece, Krugman had become the leading international economist of my generation. I leave it to others to explain the work on trade theory that earned the ultimate accolade. I will only say that (together with Elhanan Helpman) Krugman took traditional trade theory – which ever since David Ricardo had assumed perfect competition, constant returns to scale, and unchanging technology – and made it more realistic by assuming imperfect competition, increasing returns to scale, and endogenous technology.

Paul was my classmate in graduate school at MIT in the mid-1970s. In 1974 I departed my idyllic undergraduate institution for life in the big city (academically speaking). My college mentor had given me some final words of advice: not to waste much time worrying about how a position near the top of my undergraduate class would translate to the MIT Economics Department, where all the students had been at the top of their class. He said, "My impression is that within a few months of starting the graduate program, the students sort out for themselves who is the top student, the second student, and so on, and then they don’t worry about it from then on." As it turned out, it only took two weeks for us to figure out that Paul was the star of the class. This was clear, not so much from grades on problem sets, but from the intense discussion among classmates that is the core of a good graduate program.

When it came time to write a class skit at the annual MIT Christmas party, we did a parody of the Wizard of Oz. There was no question who should play the Wizard, who was a parody of Paul Samuelson: our own Paul. Here are some of his lines, from 34 years ago:

"Though I made a lot of money
No one thought my jokes were funny
'Til I won the Nobel Prize..."

"So you see you can be winners
even though you are just beginners
When you win your Nobel Prize."

Congratulations, Paul. We always knew you would do it!

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