I will be writing a lot more about this, but the Swedes just made perhaps the worst decision in the history of the prize today in naming Paul Krugman the 2008 award winner. It is not that Krugman's work is entirely without merit, but it always had major problems with it. Right now I have to get over my shock and horror and write a commissioned piece on this. But today I would say is a sad day for economics, not a day to be celebrated. Mises supposedly said during his dying days that he hoped for another Hayek, as I am picking up my jaw from the floor I am hoping for another Samuelson or Arrow to get the award rather the hackonomics that was just honored.
Addendum: My Forbes online column can be found here.
I already mentioned in the comments section Alex's first-rate summary of Krugman's contributions to New Trade Theory --- Alex does about as good a job as anyone could in explaining the contribution and its benefits to our understanding. It is a model of charitable interpretation of a theorist. The consequences of Alex's interpretation focus on another side of the "appreciative theory" of how markets work. But I think we have to remember that Krugman gets via monopolistic competition and the welfare implications for theory that implies. This leads us down the road where the absence of public choice considerations produces a more optimistic view of how government can promote the desired ends than is warranted in theory let alone real practice.
Russ Roberts at Cafe Hayek has an assessment that is closer to mine, though Russ focuses on Krugman's popular statements and how they reflect an abandonment of the economic way of thinking.
Bob Higgs at the Independent Institute reacts to the Krugman prize.