You’ve read by now that prominent economist, NYT columnist, and fierce Bush administration critic Paul Krugman was recently awarded the 2008 Nobel Prize for Economics (possibly to the detriment of Jagdish Bhagwati & Avinash Dixit)

Mr. Krugman received the award for his work on international trade and economic geography. In particular, the prize committee lauded his work for “having shown the effects of economies of scale on trade patterns and on the location of economic activity.”

He has developed models that explain observed patterns of trade between countries, as well as what goods are produced where and why. Traditional trade theory assumes that countries are different and will exchange different kinds of goods; Mr. Krugman

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p>Although most of Krugman’s groundbreaking work was in trade theory, and despite the Rise of India being one of the biggest trade stories of the last decade, I wasn’t able to dig up too many comments from him about the Desh. The exceptions, however, are pretty interesting…

Today, Paul Krugman won the “Nobel prize” in Economics. At the same moment, Jagdish Bhagwati and Avinash Dixit probably lost their best chance of getting one.

Bhagwati

You see, Bhagwati and Dixit are the scholars whose work immediately preceded Krugman’s, the ones who made Krugman’s (admittedly important) contributions possible. (The NYT has a nice summary of his scholarly accomplishments)

Bhagwati was Krugman’s teacher mentor at MIT, a scholar whose name was regularly mentioned as a likely winner of the Nobel prize in his own right. Bhagwati’s mentor was Robert Solow, who also received the Nobel in Economics in 1987. In other words, the Nobel skipped a generation in the scholarly lineage, something that must really sting.

Krugman’s main scholarly contributions have been in the area of trade theory, making him the first scholar to receive a Nobel for scholarship on International Trade in 30 years. Trade is also what Bhagwati’s scholarship is best known for, a contribution that the Swedes chose not to recognize.

Here’s a painfully embarrassing story of how Krugman’s scholarship on International Trade came to overshadow Bhagwati’s, even at an occasion celebrating Bhagwati’s contributions:

Some years ago I was at a Festschrift conference for Jagdish Bhagwati at Columbia–Paul’s teacher at MIT and himself a frequently mentioned name in connection with the Nobel prize. One of the speakers was Paul Samuelson. Now the usual drill on such occasions is to toast the man of the moment with a combination of wit and eloquence. I don’t recall if Samuelson even mentioned Bhagwati. What I recall is that Samuelson spent his whole time on a detailed exegesis of Paul’s work on trade. I should have known then that if the Nobel committee were to give another prize in international trade, it would go to Krugman. [Link]

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Finally. An actual reason to care about your rep in the NRI community.

It seems banks are sprouting up in the US that cater specifically to Indians, according to this Hindustan Times article, which says a dozen such already exist. Indians sans credit history who might be viewed unfavorably at the big banks – where sub-prime angst runs thicker than unclarified butter – turn to these Amma and Appa joints to be properly judged.

Sushil Patel, son of Chan Patel (founder, president, chairman and CEO of the State Bank of Texas) explains:

“Ethnic banks avoid bad loans as they take decisions based on factors like culture, background, social status. They are able to judge a person’s character better than regular American banks, who don’t know their clients as well. We are able to check the guy’s character because of the close-knit Indian community in the US.”

Hmm. So the aggressive pursuit of social standing produces real results these days, not just the downfall of budding young novelists.

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Hey folks – been on the road the past few weeks so haven’t had a chance to post. But, I did like this nugget from Tyler Cowen on one of the reasons Microcredit works –

If you don’t pay up, your associate has to. The reality is that the person left holding the bag — who knows you well — will come seize your TV set or in some cases the process is a bit less pleasant. Part of the efficiency of microfinance is simply the separation of the lending and the “thug” functions.

I’m a Microcredit fan overall but like Cowen, instead of seeing it as a whole new way of doing business, I see it as an interesting alternative to traditional charity for a very underserved margin. However, even at this margin, many of the old rules of capitalism still apply. So I look forward to the day when Microcredit as well as its borrowers grow up, credit becomes more formal, and hopefully the “thug function” becomes the final reserve of the state.

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The grandaddy of welfare economists, Amartya Sen, chimes in with his view on the causes of the Food Price Kerfuffle in an NYT OpEd. Sen identifies 3 factors behind the global rise in food prices (and no, none of ’em are “Americans need to go on a diet“)

(1) Short term (supply shocks) –

The recent rise in food prices has largely been caused by temporary problems like drought in Australia, Ukraine and elsewhere.

(2) Longer term (new wealth = increased demand; the argument that got dubya in so much trouble with the Indian Press & Politicians) –

The rapid economic expansion in countries like China, India and Vietnam tends to sharply increase the demand for food.

(3) Politics (US Ethanol mandate) –

Misdirected government policy plays a part here, too. In 2005, the United States Congress began to require widespread use of ethanol in motor fuels. This law combined with a subsidy for this use has created a flourishing corn market in the United States, but has also diverted agricultural resources from food to fuel. This makes it even harder for the hungry stomachs to compete.

Sen & I generally agree about these causes but differ on the solutions… probably reflecting our different political proclivities. True to his intellectual roots, Sen tends to recommend intervention on the consumption / demand side (“find effective policies to deal with the consequences of extremely asymmetric expansion of the global economy”). That type of attack could be things like food vouchers for the extremely poor, potentially rations for the rich, and other forms of direct welfare, for ex.

By contrast, I tend to focus on the production / supply side. That’s more stuff like finding ways to replicate Brazil’s food production miracle in other countries and bring down prices via the market so even the extremely poor can afford food.

In either case, it’s a good OpEd and makes a bunch of interesting points (his summation of his Nobel Prize winning theory on the Bengal famine, for ex., is particularly concise and readable).

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Last week’s Economist had an interesting blurb on the disagreements within the Microloan community around Compartamos bank in Mexico –

SINCE CompartamosBanco, a Mexican lender to the poor, went public a year or so ago, a rift has been growing in the booming microfinance industry. To supporters of traditional charitable microfinance–providing loans and other financial services to help lift people out of extreme poverty–the Compartamos initial public offering has come to symbolise an aggressive move by capitalists to profit from the poor. To its backers, on the other hand, the success of Compartamos, despite the recent lacklustre performance of its shares, symbolises how the profit motive can help lift many more people out of poverty than charity alone could ever do.

In an earlier Sepia Mutiny piece, I noted that while nearly all parties heap praise on the specific mechanisms of microcredit, there is some interesting dissonance around the narrative and goals of the system –

While I’m a huge fan of microloans in general, I fear that for many, the lesson drawn is that micro-loans somehow subvert “traditional” capitalism (whatever that may be). It’s a flame that Yunus certainly fans and that many, but clearly not all, boosters latch onto…instead of reenginering capitalism to help the poor, microloans are far more profoundly reengineering charity to help the poor help themselves. Why point out this seemingly semantic difference? It’s about identifying the long term goal and the moral high ground…. Microloans are ideally a new on-ramp helping these individuals participate in the virtues of Global Capitalism (and eventually graduate into traditional banking) rather than some sort of bypass.

And sure enough, the High Priest of Microloans, Mohammed Yunus, is one such critic who seeks the “bypass from capitalism”….

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