Restructuring the Elements of Power

Restructuring the Elements of Power

Big business, bypassing the element of bureacratic power, has stagflated the economy in spite of the Federal Reserve. It is a needless restructuring of power that is not even in the best interest of a power elite.

While trying to avert deflation, the Fed is causing inflation by lowering rates. It is a no-win tradeoff that makes no sense without factoring in a consolidation of power and wealth.

Correcting for this consolidation of power will at first protect a power elite from itself, as a bureaucratized pluralism of power tends to do, and will at least help avoid a prolonged deflationary period.

Whatever independent bureaucratic diffusion of power the Federal Reserve may have had is now secondary to the Exxon-Mobils of the world. It has been co-opted. The price of oil has been used to consolidate the wealth of our nation and leads the direction of our economy. The Federal Reserve is a reactive, not a proactive, element of the power structure.

The first step is to demand taxation where the most value is added for reinvestment in growth (supply) rather than consolidation. The value added (the profit margin) is a market solution that a consolidation of capital tends not to allow. Investment in the added value as a measure of what we want and need, like healthcare and energy, is what gives free markets the force of cost-effectivness, efficiency, and legitimacy. It is the role of government to be sure it is fully operational.

The Treasury has a leading role for strategic, supply-side reinvestments. The legislature identifies the value-added markets and enables it through the Treasury. The Federal Reserve, our nation's prime lender, in its independent, bureaucratic capacity, reacts to the disinflationary effects of added supply, rather than the deflationary effects of consolidating the added value. The result is a pro-growth, downward pressure on rates. Instead of encouraging inflation, like we have now, the Fed is encouraging growth, adding to the supply side.

The self-interest of private equity capital is effectively replaced with the public-interest of promoting the general welfare and the domestic tranquility. Everyone benefits.
A free market mechanism, ensured by operation of government, effects a more even distribution of the value added, spreading both the risks and the tax burden. The result is less need for government and the budget it demands. The value added is allowed to operate to add supply, rather than restrict it, and control inflation. This also allows for a simpler tax code, minimizing the cost of collection and maximizing the revenue available to spread the value added and the risk for sustainable economic growth, innovation, and sufficiency of tax revenues.

The bureaucracy is just as easily operationalized for the general welfare as it is for the administration of a power elite.

More focus needs to be placed on supply-side measures--all the things health care professionals and entrepreneurs do not want to talk about or dismiss as either unprofessional or detrimental to quality, like market forces--a competitive multiplicity in the marketplace. The arguments against market forces here are the same used during the robber-barron era of economic trusts: market competition is wasteful, crude, unsophisticated and diminishes quality and innovation--all of which is just a lot of self-interested nonsense being sold as the general welfare.

Market forces--a competitive multiplicity in the marketplace--is the solution to much of what government agency labors to prevent or eliminate. Reinvestment of value-added revenues that comes from a progressive tax structure would operationalize the efficiency of markets to control costs, and externalities, both public and private in a way that a regulatory bureaucracy can only approximate.

For private capital, Value-added reinvestment is a function of consolidation: buying the competition. This is referred to as growth. However, the effect is to limit supply and discourage economic growth, supporting prices, profits, and the ability to engage in abusive practices without fear of losing market share and being forced out of business. The result is a proliferated demand for government and all the costs associated with it. Profits, the value added, is continuously reinvested in consolidating markets, and while economic growth will occur by creating an incentive for new markets, growth will not occur in strategic markets, like energy and healthcare, to control costs, quality and abusive practices.

The argument that consolidation promotes the proliferation of new markets is false. Investment in new markets is just as likely to occur without a consolidated marketplace.
Value-added reinvestment through means of progressive taxation is a function of optimizing investment in strategic markets and economic growth, controlling costs and abusive practices with less need and cost of government.

Private capital discourages progressive taxation because it can be used to finance the competition (the value-added market solution), which is economic growth and optimally full employment which, again, reduces the need for government, producing growth with low inflation without the need for reactive bureaucratic interventions.

Private capital much prefers to have a proliferation of bureaucratic power than progressive taxation. It creates a revolving door, barriers to market entry, and can be co-opted, all with the force and legitimacy of public authority while, at the same time, consolidation of the marketplace can be blamed on government interventions.

While proliferation of the bureaucracy is a pluralistic diffusion of power, and can be added to the analytical models of power, it operates at first, as it did for 18th Century despots, to protect a power elite from itself. The EPA operates as much to keep the self-interest of a power elte from polluting itself to death as it does to protect and serve in the public interest. The same is true economically. The Federal Reserve operates more to protect private capital from itself, which in turn is called the general welfare.

Economic pluralism is what the health care industry does not want and has the money (the value added) to prevent. The focus is on demand, and if your lifestyle does not meet the prescribed measure of health, well you are not being sufficiently taxed to cover the cost. This could not be more tyrannical!

Restructuring the Elements of Power: Commodities and Currency

A weak dollar strategy helps deflate the economy. Wealth created is consolidated in this phase of the business cycle.

The Fed has been subordinated to energy prices in this cycle. The price of oil has been used to deflate and consolidate wealth. Raising interest rates to control inflation has been the monetarist action in the past that deflates and consolidates, determining prices, including oil.

The function of a central bank is central planning and control. This would be a bureacratic model of power that an economic cartel, like oil, does not care to be subordinated. That's too pluralistic.
A rise in rates would deflate oil prices, and the economy. A weak dollar has caused oil prices to increase. However, the oil industry has been allowed to consolidate, and the data shows a direct correlation with oil prices.

Consolidation has a weak supply-side effect, raising oil prices and subsequently weakening the dollar. The result is an upward push on oil prices, pressuring the Fed to raise rates, to deflate, and further consolidate the economy.

Until the Fed raises rates, strengthening the dollar, the cartel of oil leads, the Fed follows.

Banking on a Weak Dollar Recovery

The Bush administration is banking on a weak dollar recovery.

Contradictions are especially salient with a weak dollar. The Fed is holding back a rise in interest rates because it will end the benefit of the stagflation segment of the cycle. The beneficiary is commodities, owned largely by private equity interests including economic cartels, offical and unofficial (consolidated entities).

The reason why no one talks about consolidation is because that is the key to taking power, totally, and keeping it, and absolute power corrupts absolutely. Understanding it is also key to deconsolidating power, and keeping it. Nothing is a problem till you recognize it to be so.

If you were to try and predict political-economic trends and events, using a pluralist model will not work, a bureaucratic model will not work, but an elitist model of power (a model of consolidated power) will yield the highest predictive utility. The only way to describe and explain the contradictions that currently obtain is with an elitist model. It also describes and explains the benefits, and the beneficiaries, with predictive accuracy.

An accurate prediction of the distribution of the costs and benefits, like tax and income, empirically indicates the utility of the practical model and an analytical model.

The weak dollar magnifies nominal price increases. The benefit is to commodity/currency trageurs--private equity and cartels. When the Fed raises rates to fight inflation, the strengthening dollar will magnify the benefit (an accumulation of dollars), and because it will deflate the economy, prices will fall, including employment costs (the average income), magnifying the benefit even more. It is a completely zero-sum scenario: for each magnified benefit, there is a magnified cost to the average income. Elites are net winners. Non-elites, net losers.

So where is the benefit of the weak dollar for economic growth?

The weak dollar makes U.S. goods and services cheaper. The Bush administration is banking on the weak dollar to reverse a recessionary trend, producing wealth to repeat the cycle. The zero-sum benefit is conserved as the interest rate rises to reduce demand to control inflation. Adding supply is resisted, supporting prices (inflation), and demand is resisted (wages and salaries) at the same time, supporting profits. The resistance to both supply and demand results in stagflation. The cycle is repeated to maintain stagflation--to maintain the zero-sum accumulation of benefit.

The stimulus package functions only to sustain the stagflation benefit up to the point where a recession will stop and reverse on its own as a part of the cycle. The stimulus will appear to be the cause of the reversal, lending a false positive to what is a demand-side, not a supply-side measure that would be detrimental to the benefit of stagflation and the maintenance of pro-profit policy generally.

The weak dollar strategy provides only enough recovery from a recessionary trend to perpetuate the cycle of creating wealth for consolidation.

While a political realignment can interrupt the stagflationary trend, the realignment just becomes the recovery segment of the cycle that creates wealth to be consolidated in the deflationary phase of the cycle. The cycle is maintained to produce a consistent benefit because the key determinant, consolidation, remains intact and operational as a non-issue and the sanctified right to private property.

It is not difficult to change the determining variable as long as the problem is properly recognized and there is the political will to act on it.

When a bureaucratic model and/or a pluralistic model of power gains more predictive utility, progress toward a more democratic, a more free, peaceful and prosperous society is occuring.

The Constitution of the United States is an enforceable legal framework that empowers the political will for progress toward maintaining a pluralistic model of power. A bureaucratic model indicates a mid-point in the progression, sharing properties of the other two models, but it is still possible to move back. Crisis is always the likely value for moving back to a more elitist model, and all the benefit of a consolidation that comes with it; but with a pluralist model in operation, the need for any other model loses its practical utility.

Copyright 2008 by Griffith Lighton