This small book is about the slow recovery from the recent recession. In its Part I it addresses the Tea Party and other economic conservatives and sets forth thirty statements they don't want to believe, but must come to believe if they are ever to stop blocking private and government investment spending that will speed our economic recovery. But economic conservatives are not alone in their need to make changes. Economic theory needs to recognize more expansively and more rigorously that getting things done in an economy and especially in a sick economy requires a combination of free markets and economic organization, not free-markets alone. Part II of this book essentially provides the basic postulates of a theory of economic organization. Core principles of economic organizations are: that they exist to economize on the communications costs of markets; that above all truth and open information (transparency) are essential to the communication that supports economic cooperation; that economic organizations exist to serve individuals, not the other way around. This book joins the many other publications that have found Wall Street and all the other major financial markets wanting in respect to both first principles. The third part of this book sets forth specific examples of the changes needed in three major parts of current mainstream economics: Microeconomics; Macroeconomics; and International Economics.

Economics Lessons for the Tea Party, Most Conservatives and Some Economists

By William T. White

AuthorHouse

Copyright © 2012 William T. White
All right reserved.
ISBN: 978-1-4772-6450-8

Contents

Aknowledgements.............................................................................................................................viiPreface.....................................................................................................................................ixChapter 1: Introduction.....................................................................................................................1Chapter 2: On Spending and Income...........................................................................................................9Chapter 3: Money and Inflation..............................................................................................................17Chapter 4: Two Defunct Money Models that Survive in Conservative Economic Thought...........................................................23Chapter 5: On Budget Balancing..............................................................................................................27Chapter 6: Immigration: Legal or Illegal, it Benefits Everyone—Especially Those Already Here..........................................29Chapter 7: The Persistence of Stupidity in International Finance............................................................................33Chapter 8: The Recession Trap and Private Business Investment Spending......................................................................37Chapter 9: Individuals in Their Organizational Setting—Two Disputes and an Escape.....................................................47Chapter 10: Some Prior Contributions—1: Planned Economies; Institutional Economics and the Law and Order Approach.....................51Chapter 11: Some Prior Contributions—2: Catholic Economics............................................................................55Chapter 12: Utopian Communities as Economic Organization....................................................................................61Chapter 13: Economic Organization, Communication, and Financial Markets.....................................................................67Chapter 14: Communications Costs and Microeconomics.........................................................................................75Chapter 15: Communications Costs, Economic Organization and Macroeconomics..................................................................79Chapter 16: Communications Costs and International Economic.................................................................................91Post Script.................................................................................................................................95Appendix....................................................................................................................................97Index.......................................................................................................................................99(Endnotes)..................................................................................................................................101

Chapter One

Introduction

This book has three parts. Part I sets forth a number of statements that contradict articulated conservative views. The defenses of the statements in Part I are based primarily on modified Keynesian income theory and, to a lesser extent on classical/neoclassical economics. Taken together, these constitute "mainstream" economics as it has developed and prevailed over the last half-century and more, both as an academic discipline and in national economic policy of most economically developed nations.

There is one exception in the defenses. Neither Keynesian income theory nor the classical/neoclassical capital theory adequately treats criticallyimportantprivatebusinessinvestmentspendinganditscurrent (2009 +) weak responsiveness to monetarist attempts to speed recovery from the current recession. The needed corrections and expansions in economics are basic and require a whole new approach to societal economic cooperation among self-serving individuals (functioning under the "economic man" assumption.)

The missing element in economic theory is consistent recognition that economic organizations, including economic elements of government, complement as well as compete with, free markets. They do so by reducing the costs of the communication that enables, shapes and ultimately limits economic cooperation.

Part II presents suggested new economic theory of economic organization. It ends by showing that aggressive and rational combination of economic organization and its component contracting combined optimally with free markets can bring private business investment spending to a level that not only can eliminate the recession but also prevent an unneeded expansion of national government control of the economy, surely an objective of economic conservatives.

Unfortunately, Tea-Party members and their followers have reacted to "stimulus" government spending as an abandonment of free-markets in favor of national government management of the economy. For policy, they have retreated to an over-simplified homespun belief in austerity, severe spending cuts and government budgets balanced at all costs. Yet, such measures have been known since the Great Depression of the 1930's to be counterproductive and more likely to turn a recession into a depression than to end a recession in a timely manner. Perhaps more importantly, market fundamentalists have advocated a return to a free-markets-only economy, which has never existed and cannot exist, as even the most avid market-fundamentalists, including Milton Friedman, have acknowledged.

In the real world, as in a rational economic theory, individuals are best served by a combination of markets and economic organizations. Even Tea Party members and their supporters must recognize that we live in a pluralistic society, using economic organizations to produce most of our goods and services and provide most of our employment. The specific role of economic organizations is to reduce the communications costs of economic cooperation, primarily by extending market results over time or other dimensions to spread and make manageable their market costs.

It is important to recognize that the economic organization components of economic cooperation need not always be at the nation-state government level, or even governmental at all. The thousands-upon-thousands of economic organizations of a modern complex economy are mostly private not governmental. They are born and die apace, to serve the individuals who create and sustain them when they are needed and allow them to die when they are not needed. The markets-only approach is a classic case of "throwing out the baby with the bath water."

Economic theory has long lacked adequate recognition of the role of economic organization in economic coordination. The chair of a department of economics does not hold an auction market each morning to determine which of all the economists in the world will teach the 10:30 section of Econ. 101. The chief executive officer of a major manufacturing company does not use markets to determine his suppliers for the day. Instead, both will use economic organization to extend in time or some other dimension of expansion the results of expensive research and bargaining in markets. They will do so sufficiently to justify their marketing costs, very...