The Booby Prize

Economic illiteracy is a state religion these days. Any economic idiocy you can think of (and some you can't) is at this moment being advanced by some politician, journalist, or academic. To recognize this, the Institute will award the new Oskar Lange Prize each month to some purveyor of economic malarkey.

Lange (1904-1965), an embarrassingly wrong Polish economist, studied at Harvard and Berkeley on Rockefeller Foundation grants, taught economics, and was a high official of the post-war Communist government in Poland. He was also an opponent of Ludwig von Mises's.

In 1920, in his famous article on "Economic Calculation in the Socialist Commonwealth," Mises raised an issue that socialists had never considered: without private property and the price system it generates, how can planners know whether resources are being used efficiently? They could not, said Mises, because "socialism is the abolition of rational economy."

This wasn't the first economic challenge to socialism, but it was the most sophisticated. And it is still unique in the history of thought, for Mises argued that only a free market can allocate resources rationally. "Every step that takes us away from private ownership of the means of production . . . also takes us away from rational economics."

After much study, Lange responded with another famous article. In it, after noting that Mises had "induced the socialists to look for a more satisfactory solution of the problem," Lange said he had found the answer, and he was almost universally believed until 1989. That answer was: planners could order managers to make up prices based on cost of production.

Lange suggested contemptuously that a "statue of Professor Mises ought to occupy an honorable place in the great hall of the Ministry of Socialization of the Central Planning Board of a socialist state" in "recognition of the great service rendered by him" to socialism.

"What these neosocialists suggest is really paradoxical," answered Mises. "They want to abolish private control of the means of production, market exchange, market prices, and competition. But at the same time they want to organize the socialist utopia in such a way that people could act as if these things were still present. They want people to play market as children play war, railroad, or school. They do not comprehend how such childish play differs from the real thing it tries to imitate."

Mises was famous for sticking to principle. "Intransigence," his enemies called it. Although always a socialist, Lange zigged and zagged according to the winds of prevailing opinion. As the New Palgrave Dictionary of Economics puts it rather charitably, "the substance" of Lange's views was "often influenced by tactical considerations."

In this great tradition, our first Lange laureate is Robert Kuttner, economics editor for the New Republic, columnist for Business Week, and author of The End of Laissez-Faire (New York: Knopf, 1991).

Kuttner could get our booby prize for a number of dubious achievements, but The End of Laissez-Faire stands out.

As you might gather from the title, Kuttner's book is a paean to big government, and not just domestically. "One cannot advocate an interventionist policy domestically without coming to terms with the porous character of the economy globally," he writes. To "reclaim the ability of the democratic polity to counterbalance the forces of the private market, there are only two possibilities. Either the nation-state reclaims a measure of sovereignty from private market actors, by limiting the cross-national flow of capital goods, or it pools sovereignty in supranational agencies that set common rules. I argue that elements of both approaches are necessary."

In the U.S., Kuttner wants more socialized jobs, charity, education, medicine, and investment, plus all-round planning. "Americans," he says, "need to get over their antipathy to planning for civilian and commercial purposes." His ideal is the total economic planning of World War II and Roosevelt's fascist National Recovery Act, which was later declared unconstitutional. It was, he says, a praiseworthy "partnership between business and government."

Internationally, Kuttner wants to bring to life "Keynes's 1944 vision" of a "true world central bank," which requires "the ceding of a substantial degree of monetary sovereignty, which in turn would mean giving up a good deal of policymaking sovereignty as well."

He also advocates "a common set of global rules – trade, finance, national-security export controls, environmental regulation, labor standards, to mention just a few," enforced "through international regulatory institutions."

In a nutshell (appropriately enough), Kuttner wants a combination of Mussolini and Marx, of fascism and socialism, plus the abolition of American independence in a new world order. What a guy.

In a decent society, Robert Kuttner would be giving impassioned speeches in Central Park to no one in particular. Instead, he is a celebrated and influential intellectual.

To his list of honors we add the first Lange Prize. Soon he will receive his certificate, decorated with straitjackets, sliced bologna, and flying loons. For future months, lease send me your nominations. I do not expect any shortage. We live, for Lange Prize purposes, in a target-rich environment.