Demand-Side Economics: Unemployment Compensation and Counter-Cyclical Measures

According to classical economic theory, when demand meets supply, equilibrium is achieved.

Intervention distorts an equilibriated marketplace in which buyers and sellers have freely agreed on price, quantity and quality. Without intervention, the risk, and the aversion to the risk (the motive to act), is alpha, and has a stable current value (a stable beta and gamma risk valuation).

The current debate over extension of unemployment compensation insurance, and other counter-cyclical measures, versus deficit spending derives from the classical fundament of modern economic theory. Pure theory has a practical application for determining the current valuation of the risk.

At this point of the business cycle, demand is in decline. Accumulation of income into the upper two quintiles of income class has caused a demand deficiency. Without a distribution, the recovery continues to get resistance as the accumulated income holds out for favorable tax policy.

Restoring the missing demand (the accumulated income) restores equilibrium, reversing the recessionary trend. The intervention required is operationalized with the party system, accomplished largely along ideological lines with the Democratic faction initiating the reversal with Republican opposition. At this point, given the strength of the accumulation, Democrats are looking to strengthen the progressiveness of the tax code.

While in order to resist inflation it is necessary to target the accumulation, it is not a sufficient measure; and in order to achieve the classical Republican alternative--the efficient market theory--it is necessary to deconsolidate the means of accumulation, but that is not on the party agenda. Deconsolidation is strongly resisted by both factions, considered to be inefficient if not inconsequential.

If left alone, Republicans argue in opposition to demand-side (counter-cyclical) intervention, markets efficiently self-correct, achieving equilibrium. The Democratic faction, however, seeks to avoid the risk assumed without intervention--deflation and the increased probability of deconsolidating the means of consolidating the value of assumed risk.

Classically, when you move off the farm and join industrial society, you assume the risk of cyclical trending. Of course, starving in the city or on the farm is not much of a choice; and though, classically, a person could not reasonably expect to be paid for unemployment, progressively, neo-classically, you can.

Neo-classically, the current value of assumed risk (the risk of doing business in the marketplace) has the expected value of market intervention. Valuation of the risk becomes so complex that there is a tendency to consolidate the risk so it is assumed gamma.

The recent bailout of the financial system, and now extending unemployment compensation, represents the value of newly assumed risk. It consolidates into the empirical value of the budget deficit and the accumulation of debt in a gamma-risk proportion (the expected value of the risk).

If the value is expected, it is predictable. It is manageable, predictably more, or less, cyclical or counter-cyclical.

The marketplace has become so political, risk is largley assumed in the political form. Americans assume the risk in the form of a democratic-republic with the current (useable) value of the risk predictably determined to inflex between those two dimensions.

While each dimension has a particular quality associated with the present value of the risk, the empirical valuation of the risk is largely maintained in the current, aggregate value. The aggregate value is "ruled" (measured) to produce an expected future value that stabilizes the current value despite its cyclical presence (the Hamiltonian model). The value is more, or less, Democratic or Republican at any particular time, but in the aggregate, the current value of the risk is maintained in a classical proportion of expected accumulated value.

The more value accumulated, the more risk accumulated. When the economy disequilibriates with the assumption of accumulated risk, its value must be politically trended and cyclically derived or it will naturally trend to equilibrium in a free-market fashion. Equilibrium, then, is to be avoided because it will present as a crisis, unwinding the derived value of the risk. "The risk" will re-present with a current value in the form of a correction.

In the current case, demand is in decline. It has been consolidated into the highest income classes through supply-side (Republican) economic policy (increasing supply by reducing demand). Thus, the political-economic trend for demand-side (Democratic) economic policy (increasing demand to reduce supply). The former is deflationary. The latter is inflationary. Stagflation, however, is the compromise measure, binomially derived, cyclically presented, with a conservative (republican) bias.

A conservative bias literally "governs" the trending. It is Hamiltonian. It gives value to the debt, based on the certainty its "currency" (the useful value of the risk) will not default.

Demand-side trending (the stagflationary tendency) supports the value of the accumulated risk with what suggests to be a free-market mechanism, correcting toward equilibrium, giving current value to the risk without failure (without default). This is what Republicans mean when they aptly describe the Democrat's financial reform as a measure to support "too big to fail."

Republican opposition suggests they support a free-market solution that affords the benefit of failure... and they do, with abandon. Failure would consolidate the marketplace even further (making markets more efficient, they argue). The risk of failure is "ruled" (measured) so that when it does occur, it increases the gamma-risk proportion (see the recently enacted measures for financial reform and economic stabilization). In either case, Democrat or Republican, the free market is all but abandoned.

Since, however, the free market cannot be abandoned because it provides the legitimacy for the value accumulated, the risk it presents always has current value but is cyclically trended either democratic or republican in the gamma form of the risk.

The gamma risk--the risk that cannot be avoided--is the accumulation of value in a politically manageable proportion, deciding who wins and loses (the value of the risk) by operation of public authority. Its value is not only predictable, it is determinable. It is the object of command and control--what the free market is not.

Currently, due to cyclical trending that has deflated market value and consolidated assets, middle-class income is being directly subjected to the objective of consolidating the risk (thus, the Tea Party). Though its subjection is being directly applied to the detrimental consolidation of its value (recession and unemployment), it is acculturated to perceive it as market risk despite being clearly managed in consolidated, gamma form.

If the risk is assumed ontological (lacking motive, or purpose, as in natural processes), the sum is likely to be perceived as legitimately actuated and accrued. The risk, and the reward, has to at least look like it is ontologically assumed.

With a natural tendency to pluralism, the Tea Party emerged representing a middle class, populist sentiment, detecting a deliberate zero-sum detriment. It is critical for the mainstream party to capture or divide this sentiment as either progressive or conservative, and re-present the risk it poses to be managed in the form of an economy of scale. Since an economy of scale is considered to be an advantage (avoiding ontological risk, rendering independent wealth to which the middle class aspires), the Tea Party will be co-opted, and the risk ideologically conserved in a gamma (binomial) proportion.

The perception of "the risk" and its legitimate current value is absolutely critical for maintaining its consolidation and ensuring the probability it will produce an accumulation of future value. It critically avoids, by ideological inflection, deconsolidation (the crisis of "too big to fail" actually failing, or being subjected to the declining rate of profit, both of which consolidation of "the risk" avoids).

As long as the risk of failure is consolidated into an economy-of-scale efficiency, deconsolidation has the perceived risk of failure. It is a false assumption inherent to economy-of-scale modeling. It not only leads to bad economic policy, but inherently inaccurate financial risk analyses.

Marginal tax cuts and integration of financial markets are the most recent examples of faulty modeling, expanding debt with the income to support it being accumulated in the upper income class. The operational model falsely assumed expansion of the money supply (overleveraging to capitalize on the marginal tax cuts) and integration of financial markets (achieving a too-big-to-fail economy of scale) would reduce risk and make markets more efficient.

Financial reform, subsequently, has not changed this model, but has affirmed it. Policy that now favors a more demand-side dimension assumes it will supply the accumulated capital with demand, causing investment, but it will supply the demand for accumulated capital required by law to operate in a proportion that is too big to fail.

Proponents of the efficient markets theory that favor an economy of scale contend that a more pluralistic practical modeling leads to unemployment. However, a sure measure of mergers and acquisitions is reduction in force. Similarly, our recent financial crisis was analytically flawed, ideologically motivated to conserve the current value of the risk in a Hamiltonian fashion. Subsequent measures, we will find, are similarly flawed, actuating the value of the risk to cycle in the gamma dimension.

While the current policy trend is counter-cyclical, for example, it is to counter a strong deflationary trend in this particular case, not to counter cyclical trending generally.

There are two principle reasons to not change the analytical model: admitting that a pluralistic model is not in operation, and because it produces volatility. The two operate cross-effectively: the more error produced, the more value created to be accumulated through both short and long-term cyclical processes. Without the proper model, value tends to appear unexpectedly and is easily attributed to an exculpatory risk ontology suggesting free-market mechanics when the risk-to-reward is really organized to be too big to fail.

Deconsolidation of the risk is where "too big to fail" actually fails. Ideologically, however, it is impeded with an associative model of failure in the gamma proportion that results in crises. Providing for the unemployed is a moral hazard, for example, and not for the well-off because we fear the risk of failure.

Ironically, it is the fundamental risk--the fear--of failure that makes the pluralism of a free and deconsolidated marketplace the moral imperative and the model of success.

The classical statement of the general case is that "redistribution" of the wealth is a moral hazard--something to be feared because it will redefine the risk, causing uncertainty that resists "reinvestment" of the wealth. Despite, for example, that a distribution from the accumulation is what is needed to pull us out of recession (i.e., the accumulation caused the recession), that redistribution of income is to be feared if it does not recycle into an accumulation (the risk valued in the form of debt--Hamiltonianism). We will not be productive if we are not in debt, and we will not be productive if we do not face the risk of unemployment.

If we cannot prosper without debt, and we cannot be productive without unemployment...what exactly should we be afraid of?

We are so convinced that deconsolidation of the risk will result in a crisis, it is ideologically prohibitive. (Never mind, of course, that crisis is what we've got.) Not only does ideology culture the expectation of a crisis, and the expectation of its distributive value, but impedes equilibriating into the stability of free-market value.

Remember that the Democratic authors of financial reform were sure to admit that it will not prevent crises and it will not replevin the value consolidated. We can fully expect crises to occur with "the risk" of redistributive (and accumulated retributive) value fully expected (your assets being debt-consolidated and resold back to you at a profit in the legitmate form of a cyclical, free market, economic trend).

What the Democratic faction of the party does promise is a largely unconfirmable hypothesis accurately described as "change we can believe in." Much like the argument that the current crisis would be much worse without the bailout, Democrats argue the financial reform signed into law will prevent cyclical crises of less severity. The critical, evaluative measure is largely speculative--it begs the question--but the current value of "the risk" is essentially conserved, to be sure, with counter-cyclical measures characteristic of the Democratic faction of the party.

Fighting deflation without a distribution from the accumulation (essentially a debtor financed recovery) is stagflationary, which accounts for the support we see in equities on low volume, technically indicating a short macro-economic interest despite the government effort to counter the cyclical, deflationary trend.

(Growth is currently at a slow pace, not seen since 1946, indicating that the stimulus, as I predicted while it was being made, is a sausage that feeds the beast but starves The People. In order to deflect from a proper cause-effect relationship, elite analysts tend to focus on reversing the housing market as a pro-growth catalyst. It is incorrect to pin recovery on reversing the housing market. A debtor financed recovery supports the deflationary trend being countered, creating a panoply of false signals and misguided expectations to be arbitraged and consolidated into the current value of accumulated risk. A double dip will be the result.)

For investors, counter-cyclical measures indicate resistance to a deflationary trend (hording cash); but in the current case, as the Fed chairman points out, it is not a clear point of inflection.

Chairman Bernanke warns that the current trend is "unpredictable."

Uncertainty is good for traders and bad for investors, and the Fed is indicating--signaling--resistance to the counter-cyclical trend despite an overt "open market" signal of a low interest rate that supposedly counters the current cyclical trend with pro-growth investment. The risk is gamma, nevertheless--it is so consolidated that counter-cyclical measures will quickly absorb its value into the gamma proportion. The value accumulated is likely to be traded rather than invested in that proportion, indexing a volatility suggesting crisis derived from a lack of investment. The gamma risk then presents as a net short interest that had existed in the dark, but financial reform is supposed to bring it to light.

With financial reform, the risk will be more visibly unavoidable. Despite reform, interfering with the distributive benefit of recurrent crises (cyclical presentation of the risk in crisis proportion) is a moral hazard--it is, according to elite analysts, the risk to be avoided.

The gamma risk does not have to present in crisis proportion according to the rules of Ivy-League economists supported by super-rich donors. Monetarism can be as easily used to deconsolidate the risk as to consolidate it, allowing for correction without crisis.

Consider Bernanke's decision to bail out big financial institutions. It was based on the experience of The Great Depression in which banks were allowed to fail. Bernanke supposedly averted the latest crisis of a declining rate of profit (deflationary trending) by bailing out firms that, according to free-market standards, should be allowed to fail.

Bernanke's decision, ironically, supports failure (the future value of the risk) by resisting it. (The irony is where the arbitraged value is.) His technical authroity to act did not end with the mission to conserve the institutions responsible for capital formation and economic liquidity (their social value conserved in the public interest), but also provided public funding that has paid both the TARP funds and big executive compensation.

Wage earners that pay a payroll tax in addition to the income tax have to consider they are paying the malefactors to benefit at the detriment of wage earners--planning the use of capital for economic disequilibrium, arbitraged into a net short for a capital gain distributed to the upper-two quintiles of income class. Where, with positive empirical evidence that does not fallaciously beg the question with speculative commentary, is the Fed acting in the public interest?

According to this apparent practical model of conserving disequilibrium, the social benefit trickles down. The evidence clearly supports the Hamiltonian model. Elite analysts, however, will not use that model to assess the current value of the risk because it overtly confirms an elitist hypothesis that indicts the wisdom of any popular consent. At the same time, falsely inducing a pluralistic, free-market model renders a future value of the risk that is all but certain to any financial interest other than those that the Fed is lending to at virtually no interest, who then buy treasuries at 3% to repay the TARP funds. It is the Enron model, and will account for volatility despite the certain value of the risk.

We know what the risk is of using the Enron model. To anyone that is not sending the signals, the signals are false--it is not a free market. So, if you want the signals to be of predictive value, you must reject the free-market model and accept an elitist model.

The practical model, despite the current Democratic trend, is decidedly supply side. Unemployment compensation will be quickly consolidated into the upper quintile, supporting the recessionary trend. The TARP, and associated executive compensation, is being monetized into a budget deficit and added to the "public" debt along with unemployment compensation. Without a highly progressive tax code (eliminating the payroll tax!), the debt will be largely paid by the least able to pay, fitting the Hamiltonian model supporting the recessionary trend to date.

Reversing the current deflationary trend requires a policy reversal that is not a false supply-side or demand-side economics that keeps our economy in a state of general disequilibrium, producing value when arbitraged into a correction. That corrected (arbitrated) value, consolidated into non-market gamma risk, is then translated into a current democratic or republican valuation of that risk. It is a circular (cyclical) process that gives current (purposefully useful) consolidated value to "the risk" while appearing to be driven by a process for the purpose of deriving the consent of the governed.

When the distributive detriment of the consolidated value is realized, however, the false consent realizes its true retributive value. That value is managed with the disequilibriating, political-economic process, cyclically transforming "the risk" into value that usefully avoids the retributive value of the risk (the "current" and stable value of "the risk" conforming to the Hamiltonian model).

Currently, to authenticate the value of the risk abstracted from the political process, the "tea party" movement has emerged with the historic consolidation of income (the strong deflationary trend) and accumulation of its retributive-risk valuation. The alternative movement has the pluralistic function of arbitrating the risk into empirical value, verifiably derived from the cyclical abstracton being currently applied as counter-cyclical trending with only the most specious hypotheses and utilitarian casuistry.

(Ideologues who have accumulated value at risk are quick to contend that applying the scientific method to politics always begs the question. The objection is really that political questions are subjected to testable hypotheses, resisting the sophistry and casuistry that recycles an accumulation of errors. Alternatively, ideologues who want to feel powerful by dictating tastes and preferences in the marketplace argue righteous application of the scientific method in the public interest, but are then unwilling to embrace the empirical value of the marketplace as a measure of liberal philosophy constitutionally empowered with the freedom to choose.)

That citizens are ideologically frustrated is not hard to understand, giving practical value to a non-ideological alternative that is the persistent presence of fundamental risk. It is risk that cannot be avoided, only accumulated in the gamma dimension, forming the current value of the risk.

For example, we often see an empirical valuation of risk technically presented in the abstract. Like when building a bridge, if it collapses, the reality of the model is no longer empirically abstract--it is an empirically confirmed failure. If the failed model continues to be used--if it remains current--the risk has been transformed into certain failure. Like the modelers of financial reform have said, "crisis will happen." Empirically, however, it only pretends to be an unavoidable, and exculpatory, risk.

Rather than science "dictating" public policy, which is illiberal, the method is an ethic of thinking, turning political-economic arguments into empirically verifiable measures that, unlike ideology, transforms belief into knowlege.)

Current public policy appears to be demand-side, but we know by recent experience it will not have a potent counter-cyclical effect. It is really a pro-cyclical policy in a neo-classical environment, allowing for infinite accumulation of debt whose value is arbitraged into correction without the risk of a depression.

Financial reform is also pro-cyclical but anti-depression, allowing for arbitrage that recursively accumulates and distributes the value of the risk without economic growth.

While unemployment compensation will not be considered a moral hazard any more than huge executive salaries paid to arbitrage that value into a net short, the debt will accrue in proportion to the accumulated benefit--a simple economic calculus that cuts through the dense complexity of general equilibrium theory and the complex modeling derived to accumulate value without assumption of the risk.

The risk is recursively assumed in a neo-classical environment. Theories that espouse the utility of phasing into a supply or demand-side dimension are practical tools for misdirecting the assumption of the risk alienated from the accumulated benefit.

Recursion of the risk is a gaming phenomenon. It is the subject of quantitative analytics with an exculpatory objective, disguising the accumulation of wealth and the exercise of power as the reward that comes with taking the risk. It rewards the value of the risk that is never really taken without the corrective feedback of a free-market process ensured to prevent the necessity of its arbitration in an accumulated proportion.

Legitimately confirmed by the consent of the governed in the first order, instead of soliciting the consent of government in the second (like the way healthcare and financial reform was represented, soliciting a disconfirmation), the ruling class represents the ruled rather than presents the rule, supplying the demand instead of demanding the supply.

The People can take control of value stored in consolidated form by democratic-republican means, but a false pluralism presented by a false point of political inflection (binomial realignment) prevents it from happening.

After the supply-side policies of the republican faction, it appears necessary to accept the demand-side politics of the democratic faction. It is a false choice, recursively applied with a continuously disconfirmed hypothesis, impeding the positive test of political hypotheses a democratic-republic otherwise provides.

There are so many different schools of economic thought that can be invoked to narrate a legitimate distribution of the risk and value of the reward at any particular time, the cognitive process for the evaluation of policies and programs is undisciplined and prone to pseudo-scientific methods of analysis. The critique is reduced to an unresolvable relativism, and subjective indices are disguised as objective indicators with a predictive utility that is nothing but self-fufilled prophecy (manipulation of determining variables). Markets can be easily manipulated if the capital is consolidated--it is an easily confirmable hypothesis, but subject to all manner of evaluative measures, including moral hazard.

If counter-cyclical measures (the TARP and extended unemployment compensation) are a moral hazard, that hypothesis has been disconfirmed, yet it is still a working hypothesis. Why? Well, it is "relatively" complicated. The cognitive process suggests there is no natural law to be discovered and consistently applied; and there is value to be "derived" from that uncertainty, arbitraged by a "speculative" demand that arbitrates the relative value of the risk into an empirical (knowable) value for current, practical use.

While there is freedom, a priori, to pursue wealth and power, its legitimate constraint is relative to a mutli-dimensional space-time continuum that has no natural law that objectively "rules" without the consent of the governed. If we do not adhere to this principle, we are cognitively condemned to a complex uncertainty that perpetually oscillates with no objective reality. It is the model of instability that solicits elitist authority and diminishes our "natural rights" discovered, a posteriori, with the emergence of the scientific method in the age of Enlightenment.

If we are to reduce the human condition to relative uncertainty in a post-modern era, the reduction to a reality of inherent complexity, multi-dimensional, multi-phasic, leaves us all in a condition of vulnerability that demands an accumulation of power and authority (the accumulation of gamma risk that, by our own cognitive device, cannot be avoided in a crisis proportion).

Imbedded in a general equilibrium theory, for example, that is closely associated with a supply or demand-side dimension, legitimate market mechanics is hard to understand and an easy object of eristic reasoning. It impedes the objective application of reason to the functional legitimacy of pluralistic process to provide a peaceful, productive prosperity.

Prosperity does not have to be the result of cyclically destructive processes. In a post-modern era, the legacy of the Enlightenment is not recurrent presentation of risk (making the same mistake over and over again), but the logically positive presentation of pluralistic processes that objectively operationalizes continuous improvement with confirmable hypotheses.

Resisting the eristics of relativism, we together assume the well-rehearsed perils of accumulated risk with the objective of preventing, rather than preserving, its irrational recursion.