Crisis Indicators: Reducing Risk Without Reducing Growth

We all want to reduce risk. It ensures the probability of marginal benefit over time, but it can also mean ensuring the margin itself in zero-sum with an increased risk of liability-to-the-sum accumulated (increased gamma risk that will likely result in application of government authority).

Increased liability-to-the-sum accumulated (increased probability individuals and organizations can be held liable to a retributive value) is a cumulative risk that indicates crisis. The probable risk that Goldman Sachs would incur a liability to its cumulative benefit, for example, had been steadily accumulating, presenting in the form of high profit with slow growth.

Goldman Sachs is an investment bank. Its job is to form capital ("make markets") to produce growth. Most of what investment banks do, however, in league with hedge funds, is to consolidate industry and markets into economy-of-scale efficiencies touted to increase productivity at lower cost.

What investment banks and hedge funds really do, as was again confirmed with a recessionary trend rivaled only by The Great Depression, is organize the economy to reduce the alpha risk, ensuring the margin of firms in zero-sum. As the economy-of-scale efficiency reduces the alpha risk, the risk of liability increases, along with beta-risk volatility, indicating crisis.

Ensuring the margin in zero-sum virtually eliminates the risk of loss in the form of a constant accumulation of gain over time. It always leads to crisis because expanding the margin does not depend on expanding the pie for distribution, but consolidating it for consumption. The result is both inflation AND unemployment, two attributes that are not supposed to occupy the same space, but are supposed to trade off into inflation OR unemployment.

According to conventional wisdom, business-cycle analysts say recovery from an investment-driven recession takes about five years. The value of the capital formed within that period (inflation and unemployment), and prior, will be cumulatively retributive and liable to the slow growth (the value accumulated). Without a shorter term on the cycle, the liability will be difficult to avoid and, of course, the argument will be made that growth will not occur without increased risk that can only be had by consolidation into an economy of scale.

The recession, then, according to economy-of-scale proponents, produces the means of taking the risk (the consolidation of capital) that effects growth. (The argument is, of course, post hoc because the risk taken by consolidation of capital markets caused The Great Recession.)

Is it possible to reduce risk without reducing growth?

By reducing the gamma risk, it is possible to reduce risk without reducing growth.

Reducing the zero-sum reduction of risk (reducing gamma risk accumulation) is a pro-growth measure. The two variables are coefficient: zero-sum reduction of risk equals the consumption of growth so that the rate of reducing the zero-sum reduction is coefficient to the rate of growth.

When alpha risk is in reduction, the benefit accumulated is slow growth, keeping both inflation and unemployment high. The result is a high-margin whipsaw effect. All but the highest income class is affected by the whipsaw, accumulating the gamma risk.

Health care reform, for example, will support medical costs so that a class of professionals can achieve a sustainable income of reduced alpha risk like insurance and pharmaceuticals operating with an organized economy of scale. Since this will produce a massive accumulation of wealth, and power, that will likely integrate industries and markets within the sector, the risk of general crisis is increased, not reduced, with an economy-of-scale efficiency touted to control the cost.

If the accumulation is by government authority, the liability-to-the-sum accumulated is reduced along with the alpha risk.

Having gained the force and legitimacy of ultimate, legal authority, government "reform" of the health care sector was the ultimate achievement of risk reduction. Replicating that success with financial reform is all but sure with a government authority that favors an economy-of-scale measure of efficiency across all jurisdictional boundaries, both public and private (the Hamiltonian model of political-economy in which power efficiently consolidates into the capable hands of a power elite and guides the wealth of nations toward the general welfare).

Reducing the zero-sum reduction of risk (contrary to the Hamiltonian model--deconsolidating rather than consolidating) reduces the unavoidable gamma risk by distributing it in the form of alpha risk.

Organizing to maximize, rather than minimize, the alpha risk, maximizes growth and reduces systemic risk, reversing the specific indicators of crisis.