Tuesday, October 13, 2009

On the Nobel Prize for Economics

The Nobel Prize for economics is an interesting one, in a lot of cases it's been given to people who have got things very very wrong, such as the chaps who went on to form Long Term Capital management (which was a disaster). It's no wonder that there are some who would like to see the back of this particular prize.

This year though, I'm really pleased about the choices of Elinor Ostrom and Oliver Williamson. As far as Williamson goes, I'll admit to not actually read any of his work but he's often been cited in a good number of the economics books I've read so I know a little about his work. Ostrom on the other hand is a bit of a mystery to me although I find this post by Paul Romer quite reassuring. Also interesting is the opinion of Stephen Dubner at Freakonomics, who points out that Ostrom is a political scientist rather than an economist by trade and suggests that this might ruffle a few feathers.

What I like about both winners is that both have an institutional view of economics (indeed Oliver Williamson coined the term New Institutional Economics). This view takes a far closer look at the structures and institutions within our political economy and what behaviors they encourage through the various incentives they provide (including, but not limited to the market). Williamson puts it well here:

the problem of economic organization is properly posed not as markets or hierarchies but rather as markets and hierarchies.
There are several things that appeal to me about this economic viewpoint, though it doesn't reject the market entirely it rejects the primacy of the market. It realises both the limits and the benefits of the mechanisms of the market and accepts the need for governing structures where the market is not up to the job. Finally, it's a viewpoint that seems to understand the importance of politics, the need for political representation and the importantance of democracy in shaping our political economy.

1 comment:

Lisa said...

Congratulations to both.