Substitution of the Value

Assessing the value of assets requires identifying the substitution of value derived from varying sources. For example, announcement of the Obama administration for a moratorium on mountaintop removal will, if enacted as administrative law (the bureaucratic model), reveals the subsidy (the substitution of value) that gives the profits of coal companies more value than the "actual" cost imparts to the benefit. The asset of coal reserves are thus overvalued, and the rate of substitution (Pareto Optimality) is diminished. The measure of cost/benefit efficiency is rendered an inaccurate technical valuation. The subsidy trades, or substitutes, the value of coal assets for the value of alternative energy assets.

The normative value of recognizing the "real" value of the subsitution effectively reassesses the value of the assets. The subsidy is then recognized as a "market distortion" that will be an incentive to innovate the technology to remove the coal asset to recapture the subsidy (the value-added benefit that had substituted the value-subtracted cost to produce a net inefficiency that was determined to be an asset and not a liability, determining the total assessment of the value). The result is a reassessment of market value and the "natural" incentive to minimize the cost and maximize the benefit, or to optimize the economic value to everyone's benefit. The benefit is rendered more indivisible and the marginal profit more accurately measures the marginal utility.

The subsidy is normatively "bad" because it does not allow for the incentive to attribute the value of the profit margin (the measure of marginal utility) to the value of the possible alternatives: it did not allow for a competitive multiplicity of the marketplace (a pluralistic model). Instead, the subsidy is aquired, and the substitution of value maintained, by access to political process (an elitist model), and the value ultimately retributed to its source--the value of possible free-market alternatives--by administrative law (a bureaucratic model). The value is assessed by operation of a bureaucratic model of power and political economy.

Looking at the Bernanke/Geitner plan for recapitalizing the banking system, Geitner's declaration of needing the authority to seize the assets of a failing company that is too big to fail, including non-bank firms, is a declaration of bureaucratic power that counters, or technically corrects for, the critique that the market has been rigged into a tyranny of corporate power. It is substituting for the positive effect (the optimal efficiency) that would obtain if bureaucratic power were applied to ensure in priority a free-market economics in which the economy is pluralistically not dependant on the success or failure of any one small firm, but instead is dependant on a few interlocked firms that are too big to fail and, thus, dependant on bureaucratic power to survive.

Combining the elements of elitism and pluralism, the Bernanke/Geitner plan operationalizes a legitimacy of outcome (of power) that combines the value of market efficiency (pluralism) with the absolute arbitrary value of government (elitism). The synthesis, while being an ad hoc organizational measure to allow what is a failure to succeed, is the organizational technology that can be utilized to effectively ensure free-market efficiencies and the fair and accurate valuation of assets and liabilities that is, in this case, clearly lacking and critically needed.

To incentivize, or optimize the marginal utility like a free-market would, the subsidy, the substitute, of the latest plan to lure private capital to support what is too big to fail but not too big to be government controlled (absolute arbitraty value) is, predictably, entirely at the expense (the risk) of public capital and is, predictably, consistent with the bureaucratic model of power and political economy (see the article, "Restructuring the Elements of Power" at griffithlighton.blogspot.com).

We see, then, the contradiction to be reconciled, or to be practically applied into what central bankers call "a process of resolution." While the public dollar is imparted less value than the private sector dollar, arbitration of the value is by public authority. The absolute value of public authority is substituted for the efficiency value of free-market economics, and the subsidy (and the sub-optimization) occurs.

The distribution, or retributing, of the accumulated value (the subsidy) is a necessary condition for economic recovery and growth. Without retributing the value, the means of accumulating the value (the subsidy) is not possible. It is a necessary condition of the capital, and the more value retributed without depreciating the value of the dollar (by recapitalizing from the accumulated benefit rather than monetizing the debt with a regressive tax burden--a subsidized valuation), the more profitable firms can be and the more economic expansion that can occur.