A Deserving Nobel Prize Winner

With all the hoopla surrounding President Obama's Nobel Peace Prize, we should not lose sight of the other award winners who have actually done something to earn their Prize. In the case of Elinor Ostrom, who won the Nobel Prize for Economics this year, that means proving that normal people are actually better at solving complicated economic problems than politicians and bureaucrats.

Ostrom is the first woman to win the Nobel Prize in Economics, and the 24th American to win that award since 1980. But it's what she did to earn the Prize that's really cool.

The Nobel selection committee had this to say:

"Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes."

In other words, free people work things out. Ostrom has shown that people who have a direct interest in solving problems do a better job than governmental agencies that follow prevailing theories on conflict of interest. Not only do they do a better job of handling disputes, but they produce more successful outcomes.

John Stossel takes a deeper look:

"Ostrom's work concentrates on common-pool resources (CPR) like pastures and fisheries. Policymakers assume that such situations are plagued by free-rider problems, where all individuals have a strong incentive to use the resource to the fullest and no incentive to invest in order to enhance it. Analysts across the political spectrum theorize that only bureaucrats or owners of privatized units can efficiently manage such resources.

Few scholars actually venture into the field to see what people actually do when faced with free-rider problems. Ostrom did. It turns out that free people are not as helpless as the theorists believed...

...Not only is government help often not needed, Ostrom says it usually screws things up because bureaucrats operate in an ivory tower ignorant of the local customs and the specific resource.

Political theorists assume away the problems of political control, but the problems are real. There is no reason to believe that bureaucrats and politicians, no matter how well meaning, are better at solving problems than the people on the spot, who have the strongest incentive to get the solution right. Unlike bureaucrats, they bear the costs of their mistakes."

It just makes sense, doesn't it? When people need to solve a problem, they usually do. But in this era of government-rides-to-the-rescue-again, it's great to see people like Dr. Ostrom (political scientist at Indiana University) rewarded for defending freedom. The 10-million Swedish kronor prize -- about $1.4 million -- that she'll share with University of California professor Oliver Williamson must be pretty sweet too.