Internalizing the Risk

When alpha risk is externalized and accumulated into a gamma-risk ontology (managed by government authority, like bailing out the financial system to avert collapse), the value of the risk is highly uncertain.

Extreme beta volatility results from the more uncertain value of the risk.

What is the risk discount or premium of any particular firm in any particular sector going forward?

The present value (based on expected future value) is uncertain because the risk is externalized and accumulated into a gamma-risk, economy-of-scale proportion.

By consolidating risk in the public domain, systemic, gamma-risk management is subject to political sentiment and regulatory arbitrage. Despite the effort assumed to reduce the beta, the value of the risk is nevertheless unstable, which provides fertile ground to arbitrage the risk (the derivatives market).

The source of the instability is not the public sector, it is the private sector. The public sector is the problem post hoc, empowered with the popular demand for economic stability the private sector does not provide because it is allowed to externalize the risk.

Rather than being a post-hoc extension of the problem, if the public sector were to respond with reform that internalizes the risk, the problem will be solved.

Instead, risk is stabilized with pro-cyclical value. The beta is transformed into a gamma-risk ontology, rather than alpha-risk. The gamma ontology algorythmically provides both the value of certainty and the appearance of legitimate process at the same time.

The risk appears to be an unstoppable, cyclical ontology. The best we can do, then, according to economy-of-scale proponents, is externalize and consolidate risk into "the systemic risk." Government authority is then empowered to manage the externalized risk into the stability of an expected value (what we have now).

It is necessary to be "big" in order to protect productive capacity (economic growth) from all that external risk. Small firms are at a disadvantage to management of external risk (the operation of government authority).

An ontology of externailzed risk is created that rigs the market to favor firms that are too big to fail and externalize the risk.

Not only are small firms that create jobs put at a disadvantage, but the mechanism that internalizes risk--free-market economics--is de-operationalized.

The bailout subsidized beta risk, so we have more of it, which accumulates into a gamma-risk ontology. The result is a risk "tautology" that recycles risk from beta to gamma, falsely argued to be a free-market ontology.

If there was a free-market ontology in operation, the risk would be internalized alpha risk. Firms would be allowed to fail without "fear" (the risk) of systemic failure.

In a free-market system, the corrupt always operate with the fear of failure. In order to succeed with abusive, corrupt and otherwise unproductive practices that result in a zero-sum game, it is necessary to externalize the risk. The effect is a tautology of risk in the guise of an unavoidable, natural ontology that supports "The Iron Law of Oligarchy."

Government that is constitutionally empowered to ensure the general welfare does not operate to support oligarchs, as Alexander Hamilton contended it should. It allows everyone to assume the risk of life, liberty and the pursuit of happiness without being enslaved to tyrants who operate without fear of failure with the force and legitimacy of government authority (the gamma risk ontology).

Sovereign authority does not have to operate for consolidation of power and the accumulation of risk. It can be for deconsolidation of power and the disaggregation of risk.

An alpha risk ontology can be established and conserved with the force and legitimacy of sovereign (gamma risk) authority, endowed by Nature, forming a power structure in which aspiring elites operate only by the will of the non-elite. We then achieve the ideal, republican form of government Thomas Jefferson envisioned, allowing for a natural ontology that neither operates despite free will, or assumes the value of a more competent elite, but authentically empowers free will right down to each and every individual with value that is all but uncertain.

The sooner we start internalizing the risk, the sooner we realize the value of freedom and responsibility, rendering what appears to be an improbable ontology, like "the meek shall inheret the earth," the empirical value of a testable hypothesis, rather than the mere muse of moral sentiment.

Internalizing the risk, ensuring the ontology of alpha risk in priority, will smooth the risk volatility and provide the certainty needed for pro-growth investment. Risk will then be valued more on growth (pluralistic expansion) than the value of consolidation (economy-of-scale contraction).

With the more certain value of internalized risk, the small business is more likely to assume the risk for economic expansion.