Ideas@TheCentre
The bankers at least got something right
The Nobel Prize in economics by the Swedish central bank has been controversial since at least 1974 when it was awarded to socialist Gunnar Myrdal jointly with classical liberal Friedrich Hayek.
Ever since, commentators could joke that economics was the only discipline in which two people could share a Nobel Prize for contradicting each other. In truth, it only showed that the award committee can make both great and poor choices. While Hayek’s work continues to inspire economists until the present day, Myrdal’s studies are only useful to show students how failing to analyse development problems leads to absurd predictions.
Among the many recipients of the economics Nobel Prize are both economists who made serious contributions as well as the ones that the Swedish bankers considered politically correct. And there was real embarrassment when the winners of 1997 (Robert Merton and Myron Scholes) received the Prize ‘for a new method to determine the value of derivatives,’ which only one year later led to a loss of $4billion on Wall Street and nearly triggered a recession.
Another oddity of the Nobel Prize in economics is the fact that since its inception in 1969, no woman was deemed worthy of the prize. If we only think of outstanding economists like Anna Schwartz and Anne Krueger, this omission is even more remarkable.
In 2009, the pressure to recognise that women were also people evidently became too strong even for the Swedish central bank. In awarding the Prize to Elinor Ostrom (jointly with Oliver E. Williamson), the bank could also weave into the award a narrative of a post-financial crisis critique of capitalism. After all, Ostrom’s work seems to demonstrate the triumph of cooperation over competition.
But such an interpretation would misunderstand Ostrom’s work. Her excellent empirical research actually shows is that in a world with secure private property rights, efficient outcomes can be achieved without the need for government intervention.
Private cooperation mechanisms can be found in the preservation of deep sea fish. They also appear in the extremely efficient international freight industry where costs were lowered through logistical innovations. Think of the development of standard containers that can be used interchangeably anywhere in the world. This happened not without government intervention but thanks to private cooperation.
Through her work, Ostrom has not only strengthened the case for stronger property rights and less government. She has also given the Swedish central bank the perfect opportunity to pick a truly deserving female Nobel Prize winner.
Emeritus Professor Helen Hughes is a Senior Fellow at CIS.
