At Least One Nobel Prize Make Sense

The recent awarding of the Nobel Prize in Economic Sciences shows that at least one of the Nobel prizes is based on common sense.

The prize was awarded to Elinor Ostrom at Indiana University and Oliver E. Williamson at the University of California, Berkeley for their work on the “tragedy of the commons.” As John Tierney points out, ever since Garrett Hardin’s much flawed 1968 article in Science magazine on the topic, environmental activists have been misusing it to push for regulation of just about everything, from fisheries to population growth. The theory being that problems like air pollution or depletion of the ocean fisheries represent market failures that require government intervention. But these two economists show that this is not the case.

As the prize announcement said, “Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. Likewise, monitoring and enforcement work better when conducted by insiders than by outsiders. These principles are in stark contrast to the common view that monitoring and sanctions are the responsibility of the state and should be conducted by public employees.”

It seems as if people are pretty good at solving their own problems when left alone by the government!

Of course, not everyone agrees. Robert Shiller, a Yale University economist who believes that “animal spirits” trump Reaganism and Thatcherism, said, “This award is part of the merging of the social sciences. Economics has been too isolated and too stuck on the view that markets are efficient and self-regulating. It has derailed our thinking.”

While his attempt to spin the prize award back toward the need for government regulation fails, at least he is right in his comment about the isolation of economics. Ms. Ostrom is a political scientist, not an economist, and another encouraging thing about this award is that “in honoring her, the judges seemed to suggest that economics should be thought of as an interdisciplinary field rather than a pure science governed by mathematics.” In other words, Human Action, rather than mathematical modeling, should be the focus of economic study. We are all individuals motivated by varying incentives, a fact which modern economics almost completely overlooks, and which ruins the application of most econometric models when it comes to public policy.

At a time when it seems that almost everyone is moving toward collectivism, this award should give hope to those of us who still believe in individual freedom.

Also published by the Texas Public Policy Foundation.