Government must institute
REWARDS for RESEARCH on SYSTEMIC PRESERVATION of WEALTH
CREATED by and of the CRUCIAL VAST MAJORITY
that invents, innovates and produces globally competitive goods and services
TO AVERT RECURRENCE of GREAT DEPRESSION

March 23, 2013

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

The following memo* of March 18, 2013 argues that the root cause of financial depressions is systemic usurpation of the hard-earned wealth created by and of the crucial vast majority that invents, innovates and produces globally competitive goods and services. The schemes for usurpation are often invented through academic research sponsored and rewarded by the industry.

As a countervailing strategy to avert a recurrence of the Great Depression, the government needs to institute rewards for research on systemic preservation of wealth created by and of the crucial vast majority.

Just visualize a system of governance (as dreamt by the American founding fathers) that induces the crucial vast majority to work as hard as it can to create wealth.  The wealth not only makes the creators prosperous.  It also protects the national currency, security and well-being of those who need to catch up. The created wealth is stored as bank deposits, financial securities, real estate holdings and commodity positions.

Then introduce new rules of law (a second-best system) to bestow privilege on a few agents and guardians of the economy to:

  • observe the asset holdings of the crucial vast majority (through a clearing house and a central bank),
  • borrow the deposited funds and newly created central bank funds,
  • bet against the asset holdings of the crucial vast majority, and
  • facilitate indolent usurpation of the hard-earned wealth.

As the wealth creators see a systemic erosion of their hard-earned wealth, they

  • salvage and save their eroded holdings in government insured funds and securities,
  • remain vigilant about the remaining wealth by diverting time from hard work and
  • consume less to make up their lost wealth.

The response of the crucial vast majority then leads to the following:

  • Business enterprises operate less efficiently and sell less of their produce globally.
  • This leads to a cut back in employment. The downward spiral in the economy ensues.
  • The central bank then lowers the interest rate on deposits to revive the economy.
  • The crucial vast majority then earns lower income on their eroded savings and reduced employment.
  • Lower employment and dwindling incomes result in reduced tax revenues for the government.
  • The central bank then prints money to meet the short fall in government revenues.
  • But the printed money mostly gravitates to the indolent usurpers, which leaves the crucial vast majority on tenterhooks and inefficient, perennially.
  • Printing of money may also raise prices of food and energy which are necessary for survival of the crucial vast majority and those that have turned irreversibly poor due to continual usurpation of their wealth.
  • A few such cycles ultimately land the economy in a great depression which tends to equalize wealth.

By the prevailing mythology, a financial depression is triggered by liquidity shocks foisted on the economy by an invisible hand (god) and it can be reversed by sufficiently lowering the interest rate and/or by printing new money.

The usurpers that survived the panics of the early 1900's were the 13 banking robber barons and their creditors.  They faced a potential voiding of their accumulated credits, which equaled the outstanding debt of the crucial vast majority.  They preemptively averted the loss to their wealth by foisting the Federal Reserve Act of 1913 on a weakened Congress.  The FRB Act would print new money only to repay the creditors of the 13 banks, who formed the Clearing House LLC.

The Great Recession of 2008 was deemed to be worse than the Great Depression by the Federal Reserve Board. To stem the domino of crashing markets in 2008, the US Treasury and the Federal Reserve had to extend an ad hoc government guarantee to all the previously uninsured creditors comprising $3.5 trillion in money markets and $7.8 trillion in bank debts.  The deprived crucial vast majority that props the monetary system is thus made to protect the creditors!  This is quite unstable and unsustainable.  

The schemes of usurpation are thus economically inefficient. They lead to erosion of national competitiveness. They cause social instability. They are also unconstitutional, i.e., contravening the basic constitutional tenet (or ancient Dharma) of not usurping private and public wealth, even surreptitiously.

-----------------------------------------

*Memo


To:       Honorable President Barack Obama

Cc:       Honorable House Speaker John Boehner, Honorable Minority Leader Nancy Pelosi, Honorable Senators Harry Reid, Richard J. Durbin, John McCain, and Jim DeMint

Date:   March 18, 2013

Sub: The Real Malaise Facing the Economy and the Urgency of Its Cure

Your incessant pursuit for enhancing American competitiveness is touching. Last week you were in Argonne to announce a $2 billion grant for research on alternative sources of energy, as the researchers extolled their invention of the lithium ion battery twenty years ago. 

Such pursuits leading to new discoveries are definitely needed.  Discoveries have made USA the greatest nation on earth.  These discoveries have not, however, preserved the prosperity of the crucial vast majority that invents, innovates, creates and generates globally competitive goods and services! 

The scientific advance in railroads rapidly transformed an agrarian America to a modern industrial behemoth in the early 1860’s.  Yet, the crucial vast majority lost massively in the stock market crashes leading to the Civil War.  The early 1900’s saw unprecedented inventions like telephony and television.  Yet, the crucial vast majority lost in the stock market crashes leading to the Great Depression.  The late 1990’s and early 2000’s saw a rapid advance in computing, internet, broadband and gargantuan data transmission through underwater and inland cables to create a virtual globalized world. 

Who have then and now amassed the wealth created by the inventions and productivity of the crucial vast majority and how?  This is answered below.  

  1. The Real Economic Malaise and Urgency of its Cure

 

Thanks to its great leaders, USA has remained a fortress of success due to invention, innovation, perseverance, productivity and hardwork of the crucial vast majority on whom the economy depends. Yet, the economy once again remains seriously vulnerable. 

The current tussle for raising taxes or cutting government expenditure, uncontrollably rising government debt, unsustainably high household and student loans, large unemployment and severe underemployments are mere symptoms of a real underlying malaise: continual decimation of wealth created by and of the crucial vast majority

Political leaders starting from Abraham Lincoln have recognized this malaise and pursued for financial stability of the crucial vast majority (now called middleclass). But they have not yet fathomed how the crucial vast majority suddenly loses almost everything to precipitate economic depressions.     

The cause of the real underlying malaise: the academy-industry instituted system of rewarding those who champion innovations (schemes and shenanigans) for indolent usurpation of private and public wealth. 

This malaise can be cured only if the government institutes rewards–that significantly exceed academy-industry sponsored prizes–for discoveries on systemic preservation of wealth created by and of the crucial vast majority. 

The leaders of both parties are concerned about the crucial vast majority, termed as middleclass.  They should have no hesitation to support government-sponsored rewards for innovation of systems to preserve the hard earned wealth the crucial vast majority.  At most a few million dollars may be needed to institute such rewards, which can preserve trillions of dollars of hard-earned wealth lost continually.  The lost wealth is mostly unrecoverable by the losers because of the vastly negative-sum games of usurpation.  If need be, there should be a public referendum during the next general election on institution of a government-sponsored public system of rewarding innovators of systemic preservation of wealth created by and of the crucial vast majority.  Public referendums could also be made to pick the winners from a list of nominations put on a ballot.   

Your Administration should perhaps seek other diagnoses and solutions of the real malaise affecting the US economy.  This would obviate ascribing of any motive to my diagnosis and solution.  My grandfather taught me a family tradition of giving away as much of my earnings as possible without expecting anything in return.  This is the mantra of Nishkama Karma (selfless deed) scripted in Gita, a document of messages of Lord Krishna.   As someone who is imbibed in and who practices this mantra, I never expect rewards for pursuing for selfless research on preservation of wealth created by and of the crucial vast majority. 

Incidentally, Gita is a philosophical document, according to the Indian courts.  The ancient Indian philosophy of Gita is, however, the mother of the modern constitution.  The main message of Gita is Dharma, which is to not usurp others’ wealth even surreptitiously and to fight against the usurpers.  See how the Americans pursued for independence to preserve Dharma: the founding fathers scripted the modern constitution, upon independence, to protect the right to physical properties and lives (the most valuable properties) of individuals. 

Post-independence, USA lapsed in terms of preserving the wealth created by and of the crucial vast majority. The most revered American president, Abraham Lincoln, was very distraught about it.  Abraham Lincoln won the Civil War, preserved the union and emancipated slavery.  The most crucial cause of the malaise of the economy that he discovered has not been, however, highlighted by the media: the elite universities did not fulfill their education mission for the common people and for the nation.   Lincoln acted decisively to establish the now-famous land-grant universities like U of Illinois, U of California and U of Michigan which became the top centers for global engineering education that made USA the most advanced and powerful nation.   

Neither Lincoln nor any other leader thereafter has fathomed, however, how elite institutions have doggedly pursued for perpetuation of institutionalized rewards for innovators of schemes for indolent usurpation of wealth created by the crucial vast majority and how such usurpations have eventually caused economic depressions.

  1. Systemic Method of Usurpation

 

The mantra of the elite universities is to nurture thought leaders to perpetuate the second-best system (rules) of governance which has now crashed word wide.  The second-best system guarantees first-best status for the designers by subjugating the crucial vast majority to second-best sustenance.  The second-best policy promoting thought leaders have so far remained the latent masters of the developed world.  The second-best system keeps them, their trained industrial honchos and associated political allies super wealthy and powerful. How? 

  1. The masters editorially control professional journals, which are published by industrial honchos who are trained in second-best governance principles at business schools and economics departments that shape curricula based on papers published in these journals. 
  2. The masters have created a system of rating of professional journals based on citation by academic researchers who are always under constant pressure to comply with the norms of publication to avoid being purged from the academy. 
  3. The masters have established a blind system to review papers submitted to journals.  The blind review system does not let the authors know the reviewers.  The reviewers can easily obtain, however, the identity of authors because monitoring of unpublished working papers is easy. This one-sided blind review system thus provides a unique opportunity to established reviewers to cherry-pick (steal) publishable ideas from submitted papers. 
  4. The reviewers in the loop with the masters can script their own papers based on stolen ideas to publish it in a comparable but different journal in the loop.  After they publish papers on the original ideas stolen from blinded authors, the reviewers can reject the original papers.  The authors of the rejected papers will then have no option but to submit their work to different journals.  The new reviewers now raise questions about originality of these papers because similar ideas have been already published elsewhere. 
  5. The blind review system does not give any scope to the authors of rejected papers to establish the truth that their ideas were stolen and published elsewhere by the reviewers in the loop with the masters. 
  6. The masters have deliberately designed such a rigged publication process to purge every talented researcher (let alone untalented ones) whose research challenges the established second-best system and who is not personally subservient to the masters, the second-best policy promoting thought leaders. 
  7. The papers published in journals controlled by the masters thus land up having copious citations of papers written by the masters and their subservient reviewers. 
  8. Copious citations lead to top rating of the journals controlled by elite masters. 
  9. The masters have also ordained every major academic department to consider promotion and tenure based only on papers published in top journals. 
  10. The authors who do not cite enough number of papers already published in top journals or are critical of the established second-best system are routinely purged from major academic departments that have adopted publications in top journals as the overriding norm for promotion and tenure. 
  11. This developed academic system is perfectly designed to have no ‘top’ journal publish independently discovered truths on existence, real-world adaptability and efficacy of a first-best efficient system of governance even if such governance provably attains and preserves national competitiveness and wealth of the crucial vast majority.
  12. Lawmakers are (at least until 2008) swayed by only research published in top journals. Publication of truths about first-best efficient governance in the top journals is, therefore, economically suicidal for the masters and for their trained students leading the industry and government institutions.
  13. The elite masters can perpetuate their second-best system by suppressing truths on first-best efficient governance.  They have immense lure to do so because the second-best system endows nonpareil fame and wealth on them and their trained students who rule the industry and government.  Their endowment stems from unconstitutional usurpation of hard-earned wealth created by the vast majority that perseveres, produces, innovates, creates and serves to prop national security and currency.  The usurped majority cannot sue the masters, industry honchos or the government leaders because the established second-best system (rules) of governance protects all the shenanigans that facilitate usurpation.  The usurped majority has to thus reconcile with their second-best sustenance as acts of ‘god’ (masters).
  14. The enormous quantum of usurped wealth buys politicians and lures second-best policy promoting thought leaders while purging any first-best policy researcher from the academy. 
  15. The masters and their trained honchos then use their bought political and intellectual (academic) power to strengthen their second-best system (laws) to perpetuate the unconstitutional usurpation until the next Great Depression.

 

 

III.       Truth Always Triumphs and Prevails

Despite the dogged efforts of the second-best policy promoting masters to block selfless research on first-best governance, I have succeeded in publishing several crucial papers in journals edited by eminent professors at elite universities, top researchers in financial institutions and central banks and financial honchos.

It seems dissemination of truths about first-best efficient governance has ultimately split the advanced academy for good.  It did not happen by accident. 

First, I saw the second-best system vividly in the 1987 market crash, virtually through my office windows across Wall Street.  A colleague at NYU and I then crafted an unprecedented long-run optimal rule that empowers the principals (citizens) of an economy to foreclose ailing banks optimally. This paper was published in the Journal of Finance, the flagship periodical of the American Finance Association, in 1989. 

The US Congress promptly enacted the optimal foreclosure rule as law.  I then reached the Federal Reserve Board in Washington with a hope to facilitate implementation of the bank foreclosure law.  But I was subjected to vetting second-best shenanigans which effectively transgressed the foreclosure law via multi-tier leveraging of bank holding company structure.   Instead of vetting, I exposed these shenanigans (despite anger of top regulators and industry leaders) and then wrote formal research papers on first-best efficient rules of governance which no financial institution could obfuscate. 

Pursuing research on first-best governance is suicidal for one’s career and economic survival, under the current second-best system of governance.  This meant that I could be unemployed (and I was warned) for discovering systems to preserve the wealth of the crucial vast majority.  It also meant that no one would dare to replicate or copy my ideas on first-best governance because doing so would make them too unemployed.  In fact, the possibility of a purge from the academy led me to build a small farm to cultivate food to continue my quest for new knowledge.

Only the mantra of Nishkama Karma could lead to a discovery of the first-best system of governance. My tryst with the academy is elaborated in a compendium paper, entitled, “Constitutional Capitalism for First-best Governance, obtained in general equilibrium based on rational microeconomic analysis devoid of parochial dogmas, politics or prejudice,” with the feedback from top academic journals, available at http://www.pro-prosperity.com/Constitutional%20Capitalism.html

After discovering that top second-best policy promoters were collusively blocking my research on first-best efficient governance, I translated my mathematical models of general equilibrium to plain English, published them in journals not controlled by the masters and submitted my first-best policy results directly to the U.S. Congress by challenging that vested interests would not allow enactment of these policies until taxpayers lost trillions of dollars.   The masters, however, briefed the US Congress that the financial system was safe and invincible.

After the second-best system crashed in 2008, the masters testified before the Financial Crisis Inquiry Commission appointed by the US Congress that no one had seen the crisis coming and, so, it was an act of god.  I submitted a rejoinder to the FCIC by substantiating through facts how the masters were lying.  The FCIC rejected the masters’ testimony that the financial catastrophe of 2008 was an act of god.  Instead, the FCIC report concluded that the masters failed and their failure caused a manmade (avoidable) crisis.

Historically, no epistemic truth that is profoundly significant for humanity and that is discovered and disseminated selflessly has been suppressed.  Such truths have ultimately triumphed and prevailed.   Even the members of the US Congress or Indian Parliament-trained by the masters of second-best system and dependent on private election funds generated through usurpation protected by this system for their own political power and wealth-ultimately take the side of epistemic truths which have been discovered and disseminated selflessly. 

The government will ultimately be impelled to institute rewards for systemic innovations for preservation of hard-earned wealth of the crucial vast majority.  This is the epistemic truth about the cure of the underlying economic malaise.

Please feel free to share this memo with anyone who you deem can help accomplish the goal.

With profound regards,
SankarshanAcharya  
Founder, Citizens for Development & Pro-Prosperity.Com
http://pro-prosperity.com/About.html
http://pro-prosperity.com/Pro-Prosperity-ranking.pdf


Incidentally, scientists have recently discovered that after popping in eastern Africa, humans traveled eastwards via Yemen to settle and culture in India before emigrating to northern Asia and Europe.  This confirms previous theories that India was the cradle of human civilization.  This kindled my interest about how Indians never used the term ‘god’–unlike the rest of the world–to describe Almighty.  I found that ‘god’ originates from German word ‘got.’  Germans are known as Aryans who pioneered a culture for social coexistence in India.  The family name of Krishna was ‘Gowd,’ which was perhaps mispronounced as ‘got’ by the Aryans who emigrated to Germany.  The German term ‘got’ then became ‘god’ in English.  Some people believe that even Jesus adopted the title ‘Christ’ for ‘Krishna,’ but I have to do more research.   

Acharya, S. (2012), “Constitutional Capitalism (First-best Efficient Governance),” a compendium available at http://pro-prosperity.com/Pro-Prosperity-ranking.pdf 

Incidentally, I had received an admission offer from the Wharton School of the University of Pennsylvania in 1983, but chose to join the Northwestern University’s Kellogg Business School.  After joining Kellogg, I found that some other Indian student had abandoned his doctoral studies at Wharton to join Northwestern.  Wharton is a prestigious school, but it is one among many such schools. Most business schools then did not consider GRE for doctoral admission and I could not afford to apply to many universities.  My son did not accept offers of admission from a top Ivy League university and other elite private universities because he liked the University of Illinois–Urbana-Champaign to study Electrical and Computer Engineering. 

An earlier version of my book “Prosperity: Optimal Governance..” was accepted in 2003 by the Cambridge University Press economics editor, but he ultimately regretted because the university administrator did not want to have this book in his collection.  The editor was nice enough to stay in touch with me even after such an event.  But, after the 2008 financial crisis, I wrote him how the stamp of CUP could have persuaded the US Congress to enact first-best efficient rules written in the book and how that could have saved millions of jobs and trillions of dollars of hard-earned wealth.  This did not evoke any response from the CUP editor.  But the Cambridge University Computer center hacked my computer with throttle speed and set a rule to delete all the email correspondence from my Outlook email server in early 2009.  I could not reboot my PC after the hacking.  But, providentially, I the recovery program retrieved the data from the hard drive before crashing.  I promptly reported the hacking to the FBI, US Congress and President.  The US Congress passed an anti-PC-hacking law later in 2009.  I know the second-best policy promoting professors in elite universities who routinely have rejected my research on first-best efficient governance without reviews or with flimsy alibis.

Acharya, S. (2012), “Constitutional Capitalism [First-best Efficient Governance],” a compendium paper available at http://pro-prosperity.com/Constitutional%20Capitalism.html ; Acharya, S. (2013), “Constitutional System of Money and Finance,” published by the Journal of Financial Transformation, available at http://pro-prosperity.com/Research/Constitutional-Monetary-Finance-System.pdf and Acharya, S. (2012), “No-subsidy Mantra of Governance to Attain the Most Competitively Efficient Economy,” published by the Journal of Governance and Regulation, available at http://pro-prosperity.com/Research/Governance-and-Most-Efficient-Competitive-Economy.pdf The published version of these papers are available on request from the author or the journal. 

The subversion is precisely described through numerical examples and plain English in my paper, “Safe Banking,” published in 2003 in the Journal of American Academy of Business, which I sent with a memo on dated March 31, 2003 to the United States Congress and which is available on the internet at http://pro-prosperity.com/Research/Safe%20Banking.pdf This results presented in this paper stem from a mathematical model of general equilibrium, which was first mimeographed at the Board of Governors of the Federal Reserve System in 1991 and revised as of 2013 with a title, “Arbitrage Pricing of Total Risk of Assets and First-best Governance of Financial Markets,” available at http://pro-prosperity.com/Research/moralhazardliberty.pdf  

Memo to the United States Congress (dated March 31, 2003) is available on the internet at http://pro-prosperity.com/Global%20Economy%20Chatterbox/Warning-USCongress-In-2003-On-Home-Mortgage-Debacle.html

Acharya, S. (2012), “Triumph of Ancient Indian Philosophy and Modern Constitution,” available at http://pro-prosperity.com/Triumph%20of%20Ancient%20Indian%20Philosophy%20and%20Modern%20Constitution.pdf and Acharya, S. (2012), “A Unifying Philosophy of Governance (Universal Religion and God),” published in the Journal of Governance and Regulation, and available on the internet at http://pro-prosperity.com/Triumph%20of%20Ancient%20Indian%20Philosophy%20and%20Modern%20Constitution.pdf