The False Efficiency-of-Scale Argument: The General Case

Being too big to fail provides optimal efficiencies of scale. It also provides accumulation of errors and distortions, costs and abuses, on a massive scale, that cannot fail.

It is critical to understand that an organizational model that is scaled too big for failure creates risk of equally large size. Since it cannot fail, it is immune to the risk. If you are not the beneficiary of that risk, then you are "at risk" to the reward. Your savings, your home, your income is at risk of being consolidated into capital that is supposed to finance your savings, your house, and your income. It is intended to sacrifice the benefit to you for "the general welfare" which is seeing to the welfare of the rich in priority. It is a zero sum.

Being organized "too big to fail" causes risk, it does not take the risk. No. The risk is caused to consolidate assets in the form of legitimate market risk that is not at all legitimately ontological. The risk, rather, is created by an organized teleology just for the purpose of failure. It is intended to effect a reward by causing a detriment through organized means.

Being "too big to fail" effectively creates a "detrimental reliance" which is considered by law to be an abusive relationship typically associated with theft by scheme and the product of a criminal intent. The organization is the cause, the failure is the effect. The result is a profit without risk, or an illegitimate zero-sum game.

On a macro-economic scale, instead of forming the capital necessary to create jobs, being too big to fail has formed massive systemic risk and created massive unemployment.

Massive capital has been formed. So, where are the jobs?

Unfortunately, if you need a job, unemployment is the capital amassed. It has been converted and consolidated into private property. The property will not again be capital until it is used to expand the pie (what currency derivatives and credit default swaps will not do). It is a massive failure of the system, managed to a consolidated, too-big-to-fail level of incompetence (to the gamma-risk limit of power).

While the system has failed, the parts that comprise the system failure are too big to fail, and the system stubbornly persists in error.

Organizing firms so big that they cannot fail is to organize for failure, not success. It allows for the system to persist in error by managing, rather than preventing, the systemic risk. The system is then driven to a level of managerial incompetence. It is dysfuntionally organized with the "peter principle."

A free-market pluralism technically avoids the organizational problem of the "peter principle." Instead of allowing the pursuit of power to support an accumulation of errors, pluralistic organizational technologies provide a self-corrective, empirical ontology that awards power based on the merits and not an accumulation and consolidation of power itself based solely on the ability to game the system. It will resist the pursuit of power without the qualification--the merits--for having it, like a practical moral intelligence.

A free-market pluralism ensures the means of gaining power is not an end in itself, so it must be ensured in priority. Managing markets after the dirty deeds have been done ensures markets fail and produce the success of consolidating power by defeating the meritorious mechanism of free-markets.

Regulated markets with firms too big to fail do not produce a free-market effect. They do, however, give dirty deeds the legitimacy of public process and the force of public authority.

Today's organizational techniques and financial instruments become the clever innovations of tomorrow that evades the letter of the law, or deliberately encounters the ignorance of a like-minded regulatory authority.

Rather than resisting the incentive for dirty deeds, a regulatory regime that does not ensure operation of a free-market mechanism in priority supports the incentive to produce outcomes that elicit a populist sentiment. The trick then, of course, is to give the outcome legitimacy despite the negative sentiment.

Allowing firms to "grow" too big to fail because it is economically efficient supports the probability the negative effects will occur. What is to be prevented by popular demand (like having to sell your assets at a loss because you lost your job while big bankers reap record profits and salaries by investing in derivatives rather than economic growth--i.e., consolidation of industry, markets, and the wealth) will innovatively occur as unintended, ontological crises.

The argument for needed change then takes this form: it does not matter what we do, the crises that continuously consolidates wealth and power will (ontologically) occur. It is a law of nature. It is the result of natural processes that cannot be avoided; and since crises cyclically occurs no matter what, the argument that it is futile to try (a la Ayn Rand and Friedrich Nietzsche) is empirical truth.

The ontological argument for the consolidation of wealth and power is a conservative argument that is generally accepted across the ideological spectrum. It is an argument of the general case: organized consolidation (an economy of scale) is a gamma risk that can only be managed, not ontologically avoided, or prevented.

We should be quick to test this hypothesis by ensuring a free-market pluralism in priority. It will be interesting to see who objects and why.

A pluralistic ontology prevents the accumulation of power into the pursuit of a criminal intent. It is a pursuit that has been described as "crony capitalism" or "robber-barronism" in which power is accumulated from the privation, rather than the provision, of others. (The current health care debate, for example, includes insurers admitting they are so non-free-market organized that they can deny access and raise prices all they want without, by definition, market sanction. The power to sanction is the exclusive domain of the firm too big to fail the marketplace.)

Capitalism is organized to prevent economic growth in the name of expanding it.

Through an efficiency of scale, the ever-larger "growth" of a consolidating corporate body intends to defeat free-market economics (the incentive for growth) for a tyrannical effect that commands the free-market measure of success--the profit margin (but without growth). The lack of economic growth is expressed as an efficiency of scale that prevents failure and ensures success by empirical proof of the profit margin.

The corporate body must include government, and its regulatory authority, so that it does not act to produce a free-market effect by popular demand. The tyrannical, non-free-market effect (the false free-market measure of success by being too big to fail) then has the force and legitimacy of democratic, government authority (state capitalism).

It is time to reject the organized model of a too-big-to-fail efficiency. It is time to reject the false ontology that legitimizes the consolidation of wealth and power and accept a true economic, ontological scale of efficiency.

We should reject the traditional, conceptual ontology that forms the elitist model of economic efficiency in which economies of scale are the statement of the general case.