Editorial Review:
Why do certain ideas gain currency in economics while others fall by the wayside? Paul Krugman argues that the unwillingness of mainstream economists to think about what they could not formalize led them to ignore ideas that turn out, in retrospect, to have been very good ones.
Krugman examines the course of economic geography and development theory to shed light on the nature of economic inquiry. He traces how development theory lost its huge initial influence and virtually disappeared from economic discourse after it became clear that many of the theory's main insights could not be clearly modeled. Economic geography seems to have fared even worse, as economists shied away from grappling with questions about space— such as the size, location, or even existence of cities—because the "terrain was seen as unsuitable for the tools at hand."
Krugman's book, however, is not a call to abandon economic modeling. He concludes with a reminder of why insisting on the use of models may be right, even when these sometimes lead economists to overlook good ideas. He also recaps the discussion of development and economic geography with a commentary on recent developments in those fields and areas where further inquiry looks most promising.
The Ohlin Lectures
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Krugman's "The Self-Organizing Economy", only more technical 2007-10-26
Summarizing this book as '"The Self-Organizing Economy", only a bit more technical, filled with more citations to other economists, more navel-gazey, slightly more philosophical and with less of a focus on complex systems' gets you at least 95% of what you need when deciding whether to read this book. As the next step after "The Self-Organizing Economy", it leaves something to be desired: it overlaps too much to be really satisfying. In fact I think Krugman cut and pasted a lot from "Development, Geography, and Economic Theory" into "The Self-Organizing Economy", including particular graphs and particular lines (e.g., one about his love of "Micromotives and Macrobehavior", and Gertrude Stein's quote about L.A. that "there's no there there"). Which is fine: these are good ideas, and they deserve to be explored in some depth.
In "The Self-Organizing Economy", Krugman explained why he thought that economic geography had died out sometime in the 1960's. Partly, he said, it was that the discipline lacked "microfoundations": it didn't explain high-level behaviors (in this case the existence of cities) from the unguided actions of individual economic actors. Instead it took the existence of cities as given, then derived conclusions about where people and businesses would locate. "The Self-Organizing Economy" painted some cute little models to try to build these microfoundations. Widely dispersed populations turned out in that book to be an unstable equilibrium: we get the microfoundations by assuming a "state of nature" in which everyone is spread out, then show that the state doesn't last. Krugman actually comes to a stronger conclusion from his toy model: cities end up being evenly spaced around the circular landscape. Any closer together and they start eating into each other's markets. Any further apart and they lose the benefits of closeness to customers and suppliers. This unifies a number of traditions in economics that have tried, over the years, to explain why cities exist in the shapes and sizes they do.
"Development" assumes more economic knowledge than did "The Self-Organized Economy", though I could fumble along and get most of what he was saying. Understanding why cities concentrate at all, says Krugman, inevitably means understanding increasing returns to scale. My intuition is ill-formed here at the moment, but I think the idea is that with constant returns to scale, doubling the number of employees in a given factory only doubles your output -- so there's no reason to prefer one large factory to two small ones at two different locations.
Hence understanding cities at all means understanding increasing returns to scale. But, says Krugman, increasing returns to scale is precisely what neoclassical economics doesn't know how to handle. My intuition here is even hazier. Krugman refers a few times to "unexploited economies of scale" causing problems for neoclassical economists, which suggests to me that there's some kind of arbitrage principle at work: in a perfectly competitive economy, the theory probably says somehow that factories would eventually scale up to the point that they're working in a constant-returns regime. Again, my intuition on this is hazy, but that's what the context of Krugman's writing suggests.
So if you're going to model city development, you need to model increasing returns. And if you're going to model increasing returns, you can't be talking about a perfectly competitive market. Apparently you're forced into a monopolistic competition model. These are just the sort of models that economics has always had a hard time understanding, says Krugman.
Krugman spends a good fraction of the book explaining this economic issue, so in a lot of ways "Development" turns into meta-economics: a study of why economics as a discipline behaves the way it does. Economics, says Krugman, ignored city development for so long because it didn't know how to model it; a certain standard of rigor has prevailed in economics since the 1960's, such that anyone who had nice ideas in prose but couldn't express them in mathematics was the proud owner of a dead letter.
So "Development, Geography and Economic Theory" is three things: a collection of toy models, a unification and deepening of some earlier work in economic geography, and a meditation on the value of those very models.
Do economic models matter?  2003-06-06
Paul Krugman is one of the few economists at home both in `high theory' and in public economic discourse. He thinks deeply, and he thinks brilliant thoughts. This little book - based on the Olin Lectures he gave in Stockholm - is proof of what his mind can yield, when it sets out to clarify issues.Development and economic geography, he argues, failed because they did not submit themselves to the discipline of model-building - what might look or even be at first sight downright silly in the end is preferable to the unconscious metaphors of the narrative economic discourse. For all its clarity, Krugman's argument is deeply flawed. Development and economic geography - together with income distribution - belong to the derelict class of economic problems that addresses the question of historical disparities of wealth in the economic tissue. Why have some countries or regions developed and others have staid behind, why are there poor and rich? Was it done by better use of the available resources, or by impoverishment of other nations or persons? A corollary to this question would be: does our quest for efficiency worsen or reduce disparities? Both Adam Smith and Karl Marx addressed this question, but their observations have been largely forgotten. Pareto and welfare economics picked up the thread, only to conclude platidinuously that the only `good' policies are those that benefit all. Should the model-building solutions that Krugman suggests be used in development and geography be any good, they might imply that a `big push' applies not just to economic growth, but also to concentration of income - consumer surplus playing the role of `economies of scale'. Interesting. Just as interesting as the metaphor that - as in the `big bang' theory of star formation - the smallest of initial income irregularities (e.g. first predatory capital accumulation) lead to the agglutination of wealth around capitalists. Which, of course, also implies that it is the 90% of dark (workers) matter that keeps the shiny capitalist `stars' in place in a well-ordered and expanding economy. Toys are useful provided they teach a child the `real thing'. Toy models are not useful when they fail to recognise (let alone address) fundamental issues like that of economic disparity. Models are downright bad when their incautious use leads to blind-sighting in economic policy. Every economist should be made to ponder Kenneth Arrow's Theory of Second Best. Partial optima are bad solutions in the search for an overall optimum.
Can we expect models of income disparity soon? Paul Krugman might devote some of his intellectual powers to construct the simplest of models of income disparity and attempt to integrate it into a growth model - just to disprove (or prove) the widespread intuition that when governments pursue efficiency single-mindedly, the rich get rich and the poor poorer. Can we further expect a `grand unified theory of everything economic' that would bring together both concerns of efficiency and income distribution into a unified model for development? Don't hold your breath. As Koopmans famously proved, one cannot kill two birds with one stone. Until then, however, efficiency models should either be denied the Warrant Of Fitness for circulation in political circles, and/or carry the label: Efficiency may be harmful to income distribution.
Neat little book but too expensive!  2001-07-10
It's a wonderful little piece, but a teeny little book for $40 bucks?! What's more, most of contents are/were actualy available at Krugman's own web site. Someone's sure making a lot of unearned money here off..... If money were no object, though, I'd surely rate this book much higher.
An Excellent critique of high development theory 2000-04-28
This is an excellent critique of high development theory. Although good economists will know the main faults of their disapline, this text elegantly explains why development theory lost its direction. I will not divulge the main ideas, they are well worth the money to find out. - Economists consist of two groups, those that don't know, and those who don't know that they don't know.
Quick and Lucid 2000-04-25
Trade theory and economic geography are two subjects that are as interesting as they are tough to lay out. This book would probably be an utter disaster in anyone but Krugman's hands. This book is not really for anyone unfamiliar with economics, but the majority of it could probably by understood by a reasonably bright high school student with some familiarity in the area. Krugman has a breezy style which runs over all the intriging upshots without becoming bogged down in fetishistic details. Admirably his clear rhetoric is supplemented by by many examples, analogies and "intuition pumps." As far as an introduction to geography and trade go, it is less than thorough, but these are mostly props for Professor Krugman's views on economic theory, which are sensible and unpretentious. He deflates and delineates the worse practices of his profession without resulting to the stock complaints (i.e. that Economists generally think they are physicists -- nonsense!). A good quick book on how to do economics.
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