Self-sufficiency (No-Subsidy) Mantra and Government Funding of Elections

Needed to Attain Economic Efficiency and Competitiveness

September 19, 2011

Dr. Sankarshan Acharya
Pro-Prosperity.Com and Citizens for Development

This was the letter sent to the US President and Congressional Leaders and Indian Leaders on September 17, 2011, after sending the paper on Governance Needed to Attain the Most Efficiently Competitive Economy on September 9, 2011.

USA Responds: http://www.whitehouse.gov/videos/2011/September/091911_AmericanJobsAct.mp4

Text of President Obama's Speech on September 19, 2011

India Responds: http://pro-prosperity.com/Stop%20Private%20Funds%20in%20Elections.html

Distributed on September 17, 2011:Self-Sufficiency is the Only Feasible Norm available to set Commonly Agreed Rule of Governance Necessary to Attain the Most Efficiently Competitive Economy

The theorem on attaining the most efficiently competitive economy crucially depends on the existence of a norm to determine commonly agreed rules.

A norm for determining a commonly agreed rule is to make the government transfer (subsidy) to a group (e.g., a company or body of individuals) less than the surplus generated by the group.  The surplus is defined as the output minus consumption of the group.  This norm attains self-sufficiency of every group through generation of more surplus than any government subsidy received as incentives or seed money to work and produce. 

The only other alternative to the self-sufficiency norm is to grant net-subsidies (transfer exceeding surplus) to some groups.  But this will not be agreed to by the groups excluded from the net-subsidy schemes.  Net-subsidies for all groups are not feasible. Granting net-subsidies to some groups may be feasible, but will not be a commonly agreed. 

Individuals will need to have a common agreement for the self-sufficiency norm if they wish to have a civilized coexistence through governance run with commonly agreed rules.  They can then achieve the most efficiently competitive economy. 

A society that cannot reach a common agreement for the self-sufficiency norm, because of too many net-subsidy seekers, will become unstable and chaotic.  A government can be founded with rules to satisfy some groups, but it will eventually become chaotic and unstable because many of these rules will likely contradict each other and, certainly, impose enormous burden on those who generate net surplus by those who usurp net subsidy.  Any governmental attempt to satisfy every individual or group is impossible and hence futile.  Such societies will not attain the most efficiently competitive economies.

The system of governance characterized by the theorem will obviously not satisfy everyone.  But it is the unique, practically implementable system of governance which can achieve the most efficiently competitive economy needed for civil coexistence and survival, if not for prosperity amid stability of a society.  

Governance defined in the theorem induces every group to produce as much as possible and to generate as much surplus as it can.  But whenever a group seeks government subsidies (transfers), the surplus generated by the group minus the transfer must remain positive, under the self-sufficiency norm needed to make the economy the most efficiently competitive.  This economy will always generate a positive total surplus to avoid trade imbalance, which is an indicator of competitiveness.  The nation will be self-sufficient. 

The current political rivalry in the US involving subsidies (like government transfers made to Social Security, Medicare, Medicaid or Banking Firms) can be easily resolved through this theorem if there is an agreement about making the economy the most efficiently competitive.  Economies, which desire to boost consumption but unable to generate surplus, can do so only by exploiting their natural resources or selling off national assets.

The self-sufficiency norm would be equivalent to President John F. Kennedy’s call to “ask not what your country can do for you, but what you can do for your country,” if country means the public exchequer comprising collected tax revenues and newly minted/borrowed funds. [Self-sufficiency was Mahatma Gandhi's mantra for freedom.] A shrinking public exchequer (rising budget deficits) indicates that the country is drifting away from the most efficiently competitive state of the economy.  Such drift increases the burden on the net-surplus generators by the net-subsidy takers, which amounts to color-blind latent slavery that is antithetic to what President Abraham Lincoln had wished to accomplish in USA.

The theorem on attaining the most efficiently competitive economy is likely to excite Hayek in his grave to declare victory, but freeze Keynes.   The Keynesian monetary infusions worked for seventy years since the war-ravaged world accepted the currency minted by the victor (USA) to supply net-surplus to net-subsidy recipients in USA.  But adherence to the Keynesian philosophy has retrogressed the American economy away from its most efficiently competitive status.  Will Keynes rise from his grave to tell if this is what he wished after the British Empire collapsed? 

I welcome the Keynesians to defend their philosophy to disprove my theorem and to suggest a practical way out of the quagmire facing the American economy, other than (what I see) having no net-subsidy from the public exchequer to schemes like Social Security, Medicare, Medicaid, Military, etc.  Distributing the social security contributions with the accumulated interest, calculated like the IRS levies interests on tax deficiency, to every individual will be consistent with the self-sufficiency norm.  More critically, all unconstitutional and inefficient rules (especially those governing the banks and financial markets) that transfer net-subsidies from the public exchequer should be repealed forthwith to revert the economy towards the most efficiently competitive state.   As a compensation for losses suffered due to such rules (and to boost the economy), the government should initiate a zero net-subsidy program to refinance all non-delinquent highly rated home mortgage loans through Fannie, Freddie and Federal Reserve.   Doing so will facilitate elimination of the tax subsidy on home mortgage interest.  

With profound regards,

Sankarshan Acharya
SankarshanAcharya
Center for Constitutional Capitalism


The contents of this memo are included in the paper distributed recently: Acharya, S. (September 9, 2011), “Governance Needed to Attain the Most Efficiently Competitive Economy.” Updates of this paper are available at http://pro-prosperity.com/Research/Governmance-and-Most-Efficient-Competitive-Economy.pdf . To avoid confusion over semantics, the paper has replaced term “commonly preferred rule” with “commonly agreed rule.”

See Nasar, S. (September 13, 2011, Bloomberg News) “How to Prevent Economic Crises,” http://www.bloomberg.com/news/2011-09-13/hayek-keynes-and-preventing-economic-crises-commentary-by-sylvia-nasar.html

See Acharya, S. (December 2010), “An Economically Efficient Constitutional Governance,” http://pro-prosperity.com/Research/moralhazardliberty.pdf, and Acharya, S. (September 2010), “Constitutional System of Money and Finance,” http://pro-prosperity.com/Research/Constitutional-Monetary-Finance-System.pdf

I had made this suggestion in memos sent in 2008.