Reorganizing the Risk

The first measure to be achieved is to disabuse the efficiency of avoiding the alpha risk and consolidating it, reorganizing it, into a gamma risk to be re-authored, reallocated, by elite, government authority.

Consolidation occurs to achieve an economy-of-scale efficiency to "minimize risk" and maximize capital for investment, but the real risk being avoided is the free market. The marketplace is then organized to support a bad intent, all manner of vice, that a free-market system would not otherwise tolerate.

At this point of the business cycle, for example, as the accumulation of wealth presents as a recessionary trend, the accumulated risk on that value (the gamma risk) also presents a retributive value.

Managing the retributive value is taking the form of limiting liability. The incentive to, for example, overleverage capital for a capital gain that receives favorable tax reduction while shorting economic growth at the same time fully indicates the deliberate, knowing intent to gain capital at the expense of growth. While the beneficiaries argue the gain is legitimately ontological (without mal-intent, but the product of systemic opportunity--incentives--and the legal right to pursue self-interest), the people whose debt now exceeds their assets (negative equity) and a depreciating prospect of adequate income (a lack of economic growth), the system is ostensibly organized to support a mal-intent.

Without a free-market mechanism ensured in priority, instead of minimizing it (minimizing the inherent, systemic risk to capital--the declining rate of profit), we spend a lot of time arguing about how to systematically re-organize for virtue instead of vice (minimizing the risk of moral hazards or perverse incentives). We spend most our time determining whether there is a criminal intent so that "doing the wrong thing" is a function of avoiding prosecution (whether you can get away with it or not)...something that a real free-market system prosecutes in priority by allowing for maximum exercise of taste and preferences (democracy).

Ponzi schemes, like the Madoff scandal, for example. The "good faith of a reasonable person" is not a persuasive defense of Madoff victims to the alpha risk. Returns were clearly "too good to be true." Investors, however, considered the return to be a function of wealth and privilege, not a moral hazard. The incentive to perpetrate the crime and participate in the return was not considered a moral hazard until Madoff was prosecuted; and instead of fully, and simply, considering the source of the incentive to engage in this "unreasonable" behavior, we are fully engaged in discovering the extent of the liability and the validity of the losses. The result will be legislative measures to strengthen regulatory authority that is limited to prosecuting the effect rather than minimizing the probability (the sanctity) of its occurrence (the perverse incentive). If it is not practically immoral until the perpetrator is caught and prosecuted, then getting caught and prosecuted is what is effectively immoral. A criminal intent (making a profit without producing real wealth...what we are experiencing on a macro scale) is encouraged in priority if we do not ensure a free-market mechanics before anything else.

A criminal intent is not likely to survive a free-market system in priority. What we have now, however, with right-wing support, are firms too big to fail operating to get away with all manner of fraud and abuse with the burden of proof, and the right thing to do, being on the consumer in posteriori.

Reorganizing the risk requires a transposition of philosophical priorities.

Political and economic discussion is always dominated with ethical measurements that are translated into public policy programs. These form a structured environment that provides incentives. The structure (a corporate body for example) becomes the culpable component with the measure of liability--who makes and takes the risk--being reduced to a discussion of practical philosophical values that describes and explains the cost and benefit of organizing risk in any particular way.

Technically, what is at the very fundament of reorganizing the risk is a practical philosophy that determines the way incentives are structured and the legitimate distribution of rewards and deprivations.

The question, of course, is how to measure the success of a practical philosophy imbued with normative values.

The solution posited is to ensure a pluralistic ontology that provides the highest probability for economic growth and the least possible need for teleological processes to determine the legitimacy of distributive value verified with empirically evaluative measures.

Ensuring a free-market transforms a large, complex organizational structure, like our economy, and a problem like providing health care, from being too big and complex to be solved to everyone's legitimate satisfaction into an easily verifiable hypothesis.

The market tests and retests hypotheses, micro and macro. The result is an empirical process of continuous improvement with a distributive verification of legitimate, non-retributive value that minimizes the need for government authority; compared to what we have now with an ostensibly strong demand for an authoritarian regime to manage the organization of risk.

The free market tests and retests valuations until it gets it right--until the retributive value is reduced to a level of risk tolerance that defines the peaceful and prosperous, legitimate limitations of power, which forms the substance at the philosophical fundament.