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

By William T. White

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 dont 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.

• Language: English
• Publisher: AuthorHouse
• Release date: Sep 5, 2012
• ISBN: 9781477264522

William T. White

The author is retired dean of the College of Business and Professor Emeritus of Economics at the University of Nevada, Las Vegas. He combines more than a half-century of teaching and research in economics with executive experience in a wide variety of executive experience in both private and government organizations He also served twenty-six years in the United States Air Force, retiring as a colonel from the Office of the Secretary of Defense, where he was economist for the European Region. The author holds a bachelors degree in business from the University of Arizona, a masters in business from Columbia University and a doctorate in economics from Georgetown University. He has taught a wide variety of economics courses at the under-graduate and graduate level including Money and Banking, Business Cycles, Economic Statistics and Urban Economics.

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© 2012 by William T. White All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

Published by AuthorHouse 10/22/2012

ISBN: 978-1-4772-6450-8 (sc)

ISBN: 978-1-4772-6449-2 (hc)

ISBN: 978-1-4772-6452-2 (e)

Library of Congress Control Number: 2012915698

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Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Contents

Acknowledgements

Preface

Chapter 1: Introduction

Part I

Chapter 2: On Spending and Income

Chapter 3: Money and Inflation

Chapter 4: Two Defunct Money Models that Survive in

Conservative Economic Thought

Chapter 5: On Budget Balancing

Chapter 6: Immigration: Legal or Illegal, it Benefits

Everyone—Especially Those Already Here

Chapter 7: The Persistence of Stupidity in International Finance

Chapter 8: The Recession Trap and Private

Business Investment Spending

Part II

Chapter 9: Individuals in Their Organizational

Setting—Two Disputes and an Escape

Chapter 10: Some Prior Contributions—1: Planned Economies;

Institutional Economics and the Law and Order Approach

Chapter 11: Some Prior Contributions—2: Catholic Economics

Chapter 12: Utopian Communities as Economic Organization

Chapter 13: Economic Organization,

Communication, and Financial Markets

Part III

Chapter 14: Communications Costs and Microeconomics

Chapter 15: Communications Costs, Economic

Organization and Macroeconomics

Chapter 16: Communications Costs and International Economic

Post Script

Appendix

Endnotes

Acknowledgements

Above all, I am grateful to my wife, Lola, for her support and maintenance of our quiet home and life that were essential to a reexamination of the most fundamental of economic concepts. I am indebted also to those who gave me meaningful experience at the executive and policy level in a wide variety of organizations that were: governmental (Federal, State and Local) and private, military and civilian, religious and secular, large and small, academic and non-academic, profit-making and not-for-profit, and old and new.

I am very grateful also for my conservative economists friends who have taken the time to explain why they believe what they believe and to listen to me telling them why they shouldn’t. I particularly owe Professor Svetozar Pejovic, a friend of more than a half-century and a dyed in the wool conservative economist for all those years. I owe Peg Maher for her computer assistance and her patience as she explain multiple times how to do the things that wrote the book. I also owe her husband, Bill Morgan for listening to me explain why things he, like the rational engineer he is, finds hard to believe. We had fun with the statement that the source of saving is spending.

Preface

This is a book about misunderstandings in economics. It is addressed primarily to Tea Party members, with whom I disagree on many points. But, it is intended as a friendly, and it is hoped persuasive, criticism. Perhaps more importantly, it is a criticism also of mainstream economics.

In the main the book finds fault with monetarist economics, and characterizes many of the misconceptions of current conservative economic thought as remnants of now suspect theory based on the quantity of money. A thesis here is that communications technology and its Schumpetarian innovation have so increased the liquidity of other assets that the quantity of money has both lost its meaning and almost useless as a control variable in the economy.

A second thesis is that economic theory must be revised to recognize that, both in reality and in theory, markets cannot function without supporting economic organization and vice versa. Accordingly, market fundamentalists arguing for a markets-only approach are battling in a losing cause.

After presenting statements and their justifications designed to revise conservative economic thinking, the book turns to correction and amplification of economic theory to incorporate communications costs and the economic organizations that make them manageable. An important collateral benefit is that the resulting theory is a good start on a unified economic theory. That alone justifies the book.

Chapter 1

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 critically important private business investment spending and its current (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 manassumption.)

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.¹

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 likely using contracts to reduce uncertainty along the way.

Part II presents an innovative expansion of economic theory to recognize and integrate economic organization into a newly unified economic theory. The new theory has two specific objectives. First, it must bring into economic theory the economic organizations between the individuals functioning in markets (microeconomics) and the nation-state