Bush critic wins 2008 Nobel for economics

Britain unveiled a plan last week to bolster ailing banks, and on Monday it waded in with 37 billion pounds ($64 billion) of capital, a move that could make the state the banks' main owner.

Readers of Krugman's blog posted hundreds of comments congratulating him as an accessible voice of common sense.

"Sometimes it feels as though you are the only sane person in America," said a writer who identified himself as Martin Gruner Larsen.

Krugman said he was encouraged by recent steps to address the crisis and said it was vital there should be a combination of capital injection and guarantees for banks.

Commenting on policy proposals from the two U.S. presidential candidates, he said: "It would be kind of nice if we did have a sophisticated government, but that may change."

Asked about accountability for the crisis, Krugman said the financial system had outgrown the regulatory system.

"There is a lot of grotesque greed under this crisis but greed isn't illegal," he said.

The Royal Swedish Academy of Sciences said the prestigious 10 million crown ($1.4 million) award recognized Krugman's formulation of a new theory that addresses what drives worldwide urbanization.

"He has thereby integrated the previously disparate research fields of international trade and economic geography," the committee said. "Krugman's approach is based on the premise that many goods and services can be produced more cheaply in a long series, a concept generally known as economies of scale."

Krugman's theory clarifies why trade is dominated by countries that not only have similar conditions but also trade in similar products.

(Writing by Anna Ringstrom; Editing by Charles Dick and Philip Barbara)