Creating a Free Market Economy

May 18, 2009

Sankarshan Acharya
Pro-Prosperity.Com and Citizens for Development

Dear reader,

The paper on optimal governance for prosperity amid stability is now reorganized now to press forward a profound point (i) that the current economic environment is restrictive and inconsistent with the American constitution,and (ii) that a free market economy consistent with the constitution is possible through my Safe Banking Policy

I am very interested in readers' feedback.  There is no math to embroil you.  The math is available in a cited companion paper

Aren’t we interested in creation of an economic environment enshrined in the constitution?

Thanks and regards.


Abstract: This paper presents (i) a rule of governance of banks (called Safe Banking) to foster a free market economy in which no agent can impose prohibitive moral hazard risk on the Country, (ii) a new paradigm to determine optimal rules of governance by which individuals can maximize the utilities of their net worth (prosperity), but not undertake collective actions that cause instability like global depression or warming[1] and (iii) new measures of prosperity of the Country to presage and avert potential financial depressions.  I define the free market economy mandated by the American constitution as one which disallows blackmailing of the taxpayer by agents who take risky bets to generate private benefits if the bets succeed and extort taxpayer bailout when the bets fail. The prevailing economic environment that imposes serious moral hazard restrictions and cost on the Country’s economy is thus inconsistent with the constitution. I define Country as the vast majority of effective producers of globally competitive goods, services and ideas living within a politically bounded nation. This definition underlies a fundamental truth that only the effective producers can make the nation prosperous, secure and stable and that only they can feed and protect the rulers as well as the poor and the laggards. 

[1]Such balancing or tradeoff is the hallmark of economic models that determine optimal choices.