Democracy and Disinflation

Political-economy analytically models the interaction of politics and economics. What seems random, spurious, and confounding in one dimension can be explained by its interaction with the other.

An analytical trick is to treat the two dimensions independently to deduce the evidence for supporting particular hypotheses (what logicians call, a Procrustean bed). Wholistic analyses avoids the analytical tricks inherent to political and economic arguments, policies, and evaluative measures.

If self-determination is a primary political objective, for example, what does an inflationary or deflationary economic environment indicate? What then, both politically and economically, is the measure of success?

Disinflation, for example, is an economic risk to be avoided but politically indicates a high degree of self-determination. Both producers and consumers self-determine their fate, obviating authoritative, political management of risk, indicated by a disinflationary economic environment.

We often hear disinflation spuriously equated with deflationary risk, confounding it as a political measure of success. When producers consolidate to gain more self-determination than consumers (or labor), the risk of disinflation is reduced and measured by the rate of inflation. As the value (the risk) accumulates to the producers, the deflationary risk (the declining rate of profit) increases and presents as purely political, gamma risk. Evaluative measures are now the object of ideological debate, spurious and confounding.

The more disinflationary risk is minimized, the more political risk accumulates. It is then necessary to consolidate the accumulated risk to manage it. The Fed, for example, manages aggregated risk to a distributive effect that is measured as either inflationary or deflationary. While it considers these measures to be purely economic, they are together, nevertheless, the measure of political success.

So, for example, multi-million dollar businesses file S-corporation tax returns that "pass through" income to a "small" number of owners. Nominally increasing the number of small businesses empirically verifies that increasing the number of small businesses (deconsolidation) does not have a disinflationary effect since we are currently fighting deflation (consolidation). Spuriously inferred is the conclusion that disinflation is a deflationary risk to be avoided. The political measure of the economic risk is effectively confounded.

A more fundamental example is tax-policy risk which fundamentally combines the political and economic dimensions.

Since tax policy entails a classification of risk, the measure of success is equally classified. Higher incomes, hypothetically, require favorable tax policy which reduces the risk for lower classes. This is the Hamiltonian hypothesis and its measure is political stability that comes from economic prosperity (higher incomes which allow for more self-determination--i.e., discretionary spending).

After more than 200 years, the Hamiltonian hypothesis has serious confirmation problems. The risk the Hamiltonian model supposedly reduces has become so overaccumulated and consolidated it can no longer be avoided. It has become fully gamma.

That we have a republican form of government is confirmed with every election cycle. That we have a free and open, democratic form of economics (a free-market system) is disconfirmed by the very classification of risk that determines tax policy.

At this point in our political-economic history, the argument that lower incomes subsidizing upper incomes benefits the lower classes has reached the fullest extent of disconfirmation. The political risk (the gamma) is, at this point, unavoidable.

How can the political risk be avoided at this point?

Look no further than the fundamental, economic measure for democracy and self-determination--disinflation.

Disinflation will continue to be ignored...avoided by every possible means. We will never hear either Democrats or Republicans, the Fed or the Treasury, the President's economic advisory or any other mainstream policy advocacy public or private talk about the value of disinflation.

The debate will focus on something like "The Pledge to America." The debate, both public and private, will be largely political to avoid economic measures that indicate the level of risk to Main Street. The risk, then, will be applied (or, more accurately, economically derived) by the fact of its accomplishment and bureaucratically managed to mitigate the liability without the consent of the governed.

Political artifices like the Pledge to America engages the party system in a re-novation of risk assignment. The novation occurs in a legally representative form, sanctioned by a political process that only remotely figures a disinflationary economic measure.

Since small businesses have been significantly reduced in number due to the deflationary trend, for example, what is left (pass-through businesses with assets that are anything but small) not only get bigger by cyclical default but also get a tax subsidy that would otherwise cause a disinflationary measure. The tax subsidy, ex-post-facto, renews the inflationary and deflationary valuation of the risk. While this process is characteristically capitalistic, without a significant disinflationary effect, a free-market mechanism is not confirmed.

Without ensuring a free-market mechanism in priority, public policy resists the democratic compliment to our republican form of government. Contrary to Rand Paul's argument, for example, that our form of government measures up to be too democratic, the effect of burgeoning budget deficits (inflation), public debt, and economic contraction (deflation) indicates the missing means of the market mechanism to render a more pure, democratic form of governance.

Rand Paul's theory of the constitutional republic yields the inflation-deflation indicators that effectively crowd out disinflation as the measure of political-economic success.