(3 of 3) Without The Optimum Policy, The Econommy Is Unbalanced, and Democracy Fails

[Wesley S Burt <wesburt@xxxxxxxx>]

To: My mentors whose books I have read: Stephen Zarlenga,
Robley E. George, John Bunzl, and Dr. W. Curtiss Priest, forthcoming.

Gentlemen,

In the note copied below, John Gelles eloquently states the common
ground shared by all of my mentors and most of the folks on the
several lists which so kindly distribute my ranting.  But, the systemic
defect of omission in US public policy which became evident  to
Henry Carter Adams in 1887 (Relation Of The State To Industrial Action,
VOL. 1, AER), and continues uncorrected to date, seems to be under
a religious taboo.  H. C. Adams devoted several pages to the topic of
how decreasing, constant, and increasing returns to scale affected
the performance of businesses.  He concluded that a free market
could not properly regulate businesses with "increasing returns to
scale," but he did not extend his analysis to households, which are
the only active element in an industrial economy.

Looking backwards, it seems that our best managed businesses,
since John D. Rockefeller's day, have taken great pains to make
sure that few, if any, of the profit centers in their multinational
corporations were ever burdened with the fixed costs that cause
"increasing returns to scale" in a product line or profit center.  From
1947 to 1955, I thought all of American industry was managed like
the General Electric Company, where I worked, and the Eastern US
Power Grid.  From 1955 to 1985, after working for nine US defence
contractors including Westinghouse, I knew better, but they all used
the same ((direct mfg. cost)/0.70) pricing formula as GE and
Wal-Mart Stores.

Looking at attached Fig8.1 which shows the distribution of earned
income through US households, the century old systemic defect of
omission is obviously the fixed and unavoidable cost of subsistence
and higher education for dependents.  We were lucky to get the
$6,500/year expense of 1-12 education established as a public
expense in the 19th century.  20th century Democrats have given
us exemptions from income taxes, minimum wage laws, and
progressive income tax rates.  20th century Republicans have
given us expansion of the money supply by buying stocks and
bonds from wealthy folks (poor folks don't have many), a SS payroll
tax that negates all of the Democrat's progressive income tax rates,
and a constant push for indirect taxes.

Why is it that a retired mechanical engineer, with only a BS ME and
a 2.5/4.0 grade point average, is the only one on the Internet who dares
to say that correcting our century old defect of omission will reverse
each of the trends that now frighten us?  New money, spent in either
Republican or Democratic fashion will make our condition worse and
further widen the gap between rich and poor, at the expense of the
wide middle class.

Kind regards,

Wes Burt

~~~~~~~~~~~ John Gelles writes in part ~~~~~~~~~~~~~~
From: "John Gelles" <indexed-savings@xxxxxxxxxxxxx>
To: "Wesley S Burt" <wesburt@xxxxxxxx>
Date: Mon, 23 Jun 2003 02:21:04 -0700
Subject: Fw: What to do?  What to call it?

Curtiss rightly asks nations, that would spend (or lend)
fiat (or banknote) money -- to stimulate higher rates of
higher paid employment, (that failed to develop in the
ordinary course of private business activity,)-- to avoid
hyperinflation,  even though old debt would have been
washed out of the business and banking systems.

OK.  All advocates for full employment at high wages
agree on that.  The problem remains that there are times
when employment and wages are too low to keep the
wheels of industry, and solvency of ordinary families,
on track toward the national and individual objectives
of a sane society.

~~~~~~~~~~~~~~~ Snip half of text ~~~~~~~~~~~~~~~~~~

It will make no difference if we classify money to please
Gunnar or any other theorist.  Money is only an overlay
on a successful supply system.  If the supply system is
working well, money to keep demand harnessed to
the system should be thought of as "purchasing power"

-- but it can be imagined as part of an abstract structure
called by any name.

In looking at the general problem Wesley Burt rightly
observes that business, industry, commerce, banks, etc.,
should try to keep things -- like employment, wages, prices,
and living standards -- within reasonable bounds. He fears
that government may intervene and cause results that
go out of bounds.

OK.  But when things are out of bounds, as they are
today, the WAY we get them back in bounds is by
government programs, contracts and federal spending.

Of course we also rely on our central bank to keep
things in bounds if possible. As we know, a tech stock
bubble, Islamic attack, NK WMD's, Asian competition,
Asian bubbles, market neoliberalism and the technology's
rate of change, have all made it impossible for our's or any
central bank to keep things in bounds -- only our Congress
(or democratic lawmakers around the world) can do the job.

And only the President can force our Congress to tackle the
job.  Without Presidential leadership, we will be arguing
-- not wining the war against terror, pollution and want.

For those of you who want the EU, UN, Japan or China to
pitch in now -- go to it. The EU and Japan are ready. China
and the UN are not. American hegemony, empire, leadership,
etc., whatever it is or is called at the moment, may or may
not be ready.  I believe it is.  James Cumes sees the people
of the world as voices to make us all ready.  Of course that
is why we sit and type. We the people are not all egomaniacs.
We are just trying to do our job -- and do it well.

    John G.