Economy-of-Scale Efficiency

We are so bent on accepting the "bigger-is-better" hypothesis that recent events are apparently not evidence enough to reject it.

"Too big to fail" builds great things until it fails, revealing how deficient it really is.

Defying Ivy-League logic is nearly anathema when it comes to an economy-of-scale efficiency. "Bigger is better" is a foregone conclusion, ironically described as a function of efficient-market theory.

Ironically, an established economy of scale effectively destroys market efficiency, and with all the conventional wisdom vested to advance the theory in practice, there should be ample evidence to support it.

Recent high-profile events like The Great Recession and, more recently, Fukushima, Daichi, however, provide ample evidence that the law of large is a false, theoretical efficiency. In both cases, being bigger is not proving to be better. Instead, size exacerbates the ability to control the extent of the detriment as these events continue to present an accumulated risk of equal proportion.

The accumulated risk proportion presents an over-sized detriment because the size itself is a determining variable. The size of a firm determines the extent of a crisis proportion, and since size determines the extent, errors endogenously accumulate and exacerbate until the defective model is thrown out. The Great Recession continues to be a persistent detriment because, as was discussed in a previous article, a binomial, political realignment occurred, and now the too-big-to-fail problem is to be resolved by means of deregulation rather than deconsolidation. Doing the same thing over an over again expecting different results is just insane!

This persistent insanity, this egocentric, philosophical psychosis of selfish utilitarianism, indicates an arrogance of absolute power that plagues every nation state. The vehement if not violent protests of late demand a more deconsolidated, pluralistic power structure that allows for a more direct accountability of leadership. The leadership, however, is so consumed with power, so self-satisfied with superior wisdom apart from the feral arousal of the rabble, they can only detect and interpret the signals for pluralism--for change we know will work rather than just believe in--to be a signal for more consolidation, which accumulates more error into a gamma-risk proportion.

When error is over-proportioned (the reward over-accumulated and at high risk, or in need of distribution) instead of error reduction (the needed distribution that pluralism ensures), repressive authority finds renewed vigor for even more consolidation to keep the peace, custody of the morals, and conserve the principles that form the basis for civil society in everyone's self-interest. Risk is resolved into subordination, and freedom the risk to challenge it (which is the retributive value of the risk that needs to be reduced).

Popular protest is the opportunity for the elite to demonstrate power and confirm its consolidation by exacting deprivation. The realignment, for example, that recently occurred in the wake of the Great Recession, and a Democratic Party majority bent on even more consolidation to mitigate its effects, presents Republicans with the opportunity to confirm the power to accumulate wealth with even more deprivation as we look to pay the debt caused by the accumulation. Thus, the errors accumulate, stressing the system (what we call systemic risk). The stress confirms the need to deconsolidate the risk, but is used instead as an opportunity to demonstrate power in the gamma proportion.

Without deconsolidation, errors accumulate and will present in a crisis proportion. Thus, for example, we see the Fed struggling with policy options that are speculatively inflationary or deflationary and analysts that are curiously uncertain about a double dip. Analysts know very well that the realignment will do nothing but support conflated trending of inflation and deflation, accumulating detriment into a predictable, crisis proportion.

While an economy of scale produces over-sized rewards, it also yields a detriment coefficient to the benefit (the bigger the risk, the bigger the reward), and the size of the potential detriment makes it a probable event. However, this probability is argued to be a highly improbable event based on our limited knowledge of exogenous (hidden) variables that latently accumulate endogenous errors (risk), much as Schumpeter describes it.

An improbable event that is a phenomenology of our ignorance--a kind of epistemological force majeure--is fancifully referred to as a "black swan" which falsely infers the risk is unanticipated because of its unfathomable, indivisible proportion by analysts and actors using a divisible, heuristic algorithm that models individual self-interest as the general will and welfare. We cannot see the forest for the trees. Economy-of-scale firms, then, position for the fully assumed risk of loss and invent risk-transfer technologies (like credit default swaps) to hedge (offset) the risk proportion into a more indivisible, collective dimension, assigning the risk to the least able to pay--the unassuming masses. The debt accumulation is a direct empirical measure of the accumulating proportion of error (i.e., it usefully detects the accumulative risk proportion with a predictive, heuristic utility, rather than just relying on a self-interested, heuristic utility).

If we continue to persist in error, as we are doing now in an economy-of-scale proportion despite the protests of a gaining critical mass, each crisis, rather than a heuristic, self-corrective algorithm (like a free market provides), is cumulatively self-destructive. Is not the human species smarter than that, or are we insanely self-determined to condemn ourselves to a self-interested philosophy of heuristic hedonic utility at any expense?

The "if I can't have it all then nobody can" philosophy cannot be, should not be, the moral imperative that determines our future.

While utopia may not be possible, preventing dystopia is, and the time is nigh.

Organizational Design for Political Settlement of the Risk Proportion

Our economy is designed to assign the macro-risk proportion by political settlement. The assignment (the settlement) occurs by means of quantum, market mechanics directed by a public-private mix of regulatory authority. (See the article, "The Bureaucratic Model of Power and Political Economy" on this web site.)

Remember that where public authority does not regulate, private authority does. When corporates get so big they can dictate the marketplace to a detriment in a too-big-to-fail, economy-of-scale proportion, the market becomes regulated by public authority. The regulated effect is as much to protect the benefit derived from the detriment as to protect the public, resulting in a political settlement rather than a market settlement of the risk proportion.

Both Democrats and Republicans organize to regulate the marketplace.

Republicans contend the marketplace is self-regulating. Entrepreneurs competitively organize to maximize profit and minimize cost and the result is the legitimate (ontological) outcome of indivisible collective action (the general welfare) derived from the bottom up by a divisible (deontological), popular consent. It does not need government regulation (an arbitrary, indivisible deontology) imposed from the top down.

Democrats contend the self-regulatory hypothesis is disconfirnmed and free-market theory is passe'. Successful firms entrepreneurially consolidate to defeat the socio-economic benefit of free markets, causing the need for government.

Which one is it?

Republicans organize to regulate the effectiveness of free markets without government regulation, and Democrats organize to regulate it. So we toggle between regulation and deregulation without the full effect of a free market--freedom! If the role of government is to ensure freedom, this is not the way to do it.

The assumption is that power naturally consolidates (the "iron law of oligarchy")--but only if we let it! It is a soft determinism. We are not necessarily condemned to a tragi-comedy of changing elite authority. Quite the contrary, pluralism is the risk to be fully assumed in priority--it is the risk that the ambition to accumulate power foolishly tries to prevent only to find it cannot be prevented, only avoided by its organized accommodation.

Our founders intended to prevent power from accumulating into the hands of aspiring tyrants. Capital so consolidated that it concentrates into commodity futures to support an inflationary-deflationary trend, for example, allowing speculation to defeat the prospect for organic growth, is the kind of over-extended risk proportion our founders fully intended to prevent. It disfunctionally diminishes the utility of the animal spirit--the prospect, the crisis-preventing productive incentive, to get rich in the pursuit of self-interest (life, liberty, and happiness).

The founders clearly recognized that allowing for a few tyrants (oligarchy) results in even further consolidation of power (monarchy). Consolidation is fully expected to control risk organized to accumulate into a crisis (gamma-risk) proportion (catastrophic, indivisible, over-accumulation of alpha risk, or the risk of loss--the necessary condition for pluralism--fully, endogenously, assumed). Instead of cycling and recycling the crisis proportion to resist pluralism, it is more practical--it makes more sense, it is more "enlightened"--to accommodate the natural tendency to pluralism in priority.

The Constitution provides a system of checks and balances to offset the accumulation of risk. Less for the purpose of providing for the general welfare, it is more to keep the accumulation sustainable. The offset has evolved into the two-party (counter-party) system of political settlement we have today.

The counter-party system allows for continuous extension of the rent (the classic means of deriving and accumulating value, but not without also accumulating an equal proportion of risk). The proportional value of the risk is organized to regulate (to counter) endogenous, pluralistic tendencies that naturally occur when the economic rent gets too high as in the case of the American Revolution.

The Revolution pluralized and redistributed the risk and reward that was consolidated by the monarchy. The value was derived through classic extension of the rent (much like today when wealthy speculators bid commodity futures up, deflating average incomes in zero-sum). Americans did not share the king's divine right to their property and renting its value back to them (much like the rich do today through the cyclical proportion of debt to equity and the "natural" ability to manage, or rent, the accumulated proportion). Americans regarded the extension as taxation without representation (an avoidable accumulation of risk), or as Adam Smith described it, taking the risk and doing the work without enjoying the full value of the reward (resulting in an unavoidable distribution of the risk value re-presenting the retributive value of the accumulation).

When the value becomes fully retributive, warfare is the likely form of political settlement, and we had the Revolutionary War. Today, we find ourselves descriptively engaged in "class warfare" (deciding who legitimately pays the most tax--the rent--with the greatest economic utility). Class warfare indicates a value retributively proportioned, and our Constitution allows it to be civilly organized to prevent it going fully gamma.

Republicans essentially organize to consolidate the value (accumulation), and Democrats organize to limit its extent (distribution). The extent of the risk is regulated to discount the risk of loss fully assumed in the gamma proportion.

It is critical to understand that the gamma risk is the risk that cannot be avoided. Apparently, our founders understood that. They understood there is a level, a dimension, of risk that is fully assumed and unavoidable whether we like it or not. So, it is better to operationalize it, organize and legitimize it, to support the acquisition of property and the demonstration of power like the king, but without the fatal flaw of ignoring the unavoidable risk (not being so arrogantly drunk with power to think you are immune to "the risk").

Combined with public, regulatory authority, the marketplace gains an "exogenous" risk proportion, as Schumpeter, for example, described it. The added cost transforms the dimension of risk proportion.

Politically imposed costs, by compromise or other means of tax and subsidy related or supposedly unrelated to a particular policy space, may or may not accurately reflect the cost of externalities or even accurately identify them. (Following the Great Recession, for example, subsequent regulatory arbitration has been arbitraged in the form of market risk to yield record profits in the face of continuing economic distress. While it is impolitic for regulators and beneficiaries to admit, the profit and the loss is a zero-sum risk proportion--the negative externality expected to be abated by regulatory authority.) The inaccuracies accumulate "econometric errors" to transform the risk into beta-risk volatility (uncertainty--risk to be manipulated and arbitraged). The accumulated uncertainty is then regulated in what I refer to as the "gamma-risk" dimension.

Gamma risk adds cost to the economic rent (the price of economic participation), requiring an economy-of-scale efficiency to control the cost. Organized consolidation to control the cost controls the effect of government regulation so that the liability of the firm is limited to a largely political, rather than an economic, settlement of the risk. Thus, the risk gains its "gamma" (unavoidable, indivisible) proportion, requiring assignment by means of authority. Analysts, then, (and "The Will of The People") are confined to an elitist analytical model for predictive utility (and conformity).

While a practical elitist model operates to yield a predictable conformity, it also accumulates errors since a pluralistic model is typically used to maintain a pluralistic, free-market legitimacy with "stories" concocted to describe and explain the relationship of the risk-to-reward. The distributive assignment of the risk (the offset that hedges the risk) is narrated to suggest a pluralistic legitimacy while maintaining an elitist distribution of the reward.

Although Democrats are supposed to counter Republican policies and programs that support cyclical trends, the counter measures only have the appearance of being counter-cyclical, which would explain why they are never effective. Counter measures have an effectively pluralistic appearance, but tend to support rather than resist the trends they are supposed to counter; and since neither pro-cyclical or counter-cyclical programs trend a stable political settlement, but tend to realignment, there is also the perennial tendency to align both parties to disabuse the appearance of a cyclically disfunctional, counter-party opposition that leaves the risk in a perpetually unsettled proportion.

Notice, for example, how the recent lame-duck bipartisanship produced tax cuts but not spending cuts despite debt being extended to a crisis proportion. Everybody gets a tax cut, and this compromise will supposedly yield the greater good (i.e., Strong Pareto Optimality). The Tea Party element will be subsequently used as a counter party to the risk. Spending will be cut to satisfy the popular demand the Tea Party represents. At the same time, notice how the Fed and Treasury, acting separately but together to abate the crisis proportion of debt, are always quick to deny policy collaboration and swear off inter-agency criticism. This not only allows for exigentical creation of counter-party risk on the economic side, but allows monetizing the risk with a third-party element that directly represents the political risk.

That third party element--the Congress--combined with the regulatory and corporate bureaucracies forms an organizational technology political scientists refer to as the "Iron Triangle." It is a highly structured, integrated operation of business and government organized to counter-party the risk both politically and economically. It not only affords a high level of structured inaccessibility to the processes of power, which are the exclusive domain of the power elite, but adds immense complexity to the analytics associated with the current value of the risk. The proprietary character of the risk dimension and the manageable extent of its political proportion is maintained so that only the properly initiated are qualified for its active management--anything else is just commentary.

The combined, triangulated technology for counter-partying the risk creates a political-economic environment so complex it is difficult to reduce policy and programs to verifiable hypotheses. Instead, public policy is more amenable to compromise--the exigency for creation of counter-party risk. The disposition for compromise supports the demand for debt and the extended value of the risk in the gamma dimension, and the consequences (the cause-effect relationships) are analytically reduced to the errors built into the compromise. The counter parties blame each other for the accumulating crisis proportion, creating a cognitive dissonance that is intentionally organized for binomial, two-party, political resolution in the form of cyclical realignment, driven mostly by the exigency for compromise. Pragmatically disposed, in the meantime, bureaucrats, like the Philosophes of the Enlightenment, independently manage and maintain the technical extension of the risk (the economic risk of default that results in political risk and its settlement by organizational design).

Compromise renders an analytical environment in which causation is reduced to an ideological debate: the recessionary trend and the high unemployment rate, for example, would not persist if partisan values had not been compromised, so the argument goes. (The sum of errors is what Schumpeter refers to as an exogenous, econometric error accumulation, which presents a persistent, exogenous risk that must be managed in a crisis proportion.)

Verifiable measures are reduced to all manner of rhetorical device to support binomially induced tautologies presented as verifiable evidence. We can only, then, "believe" what we cannot verifiably "know," and the issues are safely rendered a function of ideological binomialism while the economy is creatively destroyed in perpetuity.

"Creative-destruction," as Schumpeter described it, is the cyclical dynamic that causes the need for government spending and the extension of debt (the classic extension of the rent). The process is regulated to maintain an "endogenous" legitimacy of the outcome (over-extension of the risk proportion necessitating exogenous, elite management). It appears that by natural process, elite authority, whether public or private, will utltimately determine the extent of the risk and the proportion in which it is to be shared in the form of debt-to-equity (i.e., the ability to survive the cyclical trend without government spending).

Cutting spending increases the demand for debt (and make a special note here that no expense was spared to bail out mortgagers, but programs to support mortgagees are slated to be fully cut, making them counter party to the largest proportion of the risk by regulatory assignment). While cuts verify where the demand (the income) needed to drive our economy is, it will not happen without supporting the deflationary trend and the risk of default, increasing the demand for debt. Since the demand that reduces the risk has been consolidated into the upper-income class as capital formation, but legally defined as proprietary wealth, the risk will not reduce until that wealth is turned back into capital at a rate of interest that causes the risk. If debt is not provided (or the wealth deconsolidated) at the necessary rate of interest (the extent of the political risk), the fundamental legitimacy of the system comes into question (that is, redemption of the retributive value, with the risk of loss fully assumed in the gamma proportion, is more probable).

To avoid redemption of the accumulated value, political risk is settled by positioning a counter party to take the risk. Since avoidance accumulates the value, the result is an economy-of-scale (politically too-big-to-fail) dimension of risk settled in a highly divisible, proprietary proportion. The outcome is supposed to be like buyers and sellers meeting in the marketplace; and since, supposedly, we operate with a free-market legitimacy, the transaction (the offset) has the apparent propriety of offer and acceptance, limiting any risk of liability to a civil jurisprudence and political resolution, if at all.

Determining liability (identifying causal determinants with the intention to do harm) requires examining the risk proportion and its probable, monetized extension. Let's consider, for example, the useful function of small investors being positioned for the risk with virtually no probable reward (with the risk of loss fully assumed).

Professional, institutional investors are apt to take a position based on a counter-party position (with non-elite investors being the most vulnerable of targets). Valuation is largely limited to the position of the counter-party, and it is difficult at best to tenably argue that such a determination is unintentional. Nevertheless, counter-party risk is argued to merely be the naturally assumed, proprietary position of buyers and sellers (bulls and bears) in a free-and-open market. Everyone knowingly and willingly accepts a position and assumes the risk of "taking" that position(?).

If you are big enough to move the market (big enough to borrow massive quantities of "easy" money provided by the Fed, for example), then you have the capacity to determine the value of virtually anything. (Keep in mind that this is no "black swan." It is not a causal determinism occurring by chance alone, but neo-classical innovations creatively applied to deliberately achieve classical, economic results.) Something has value (like the position of a party) just because you buy it, sell it, or hold it. If small investors have a large bond position, for example, going short bonds and long equities positions for counter-party risk. The increased value of equities has less to do with fundamentals and more to do with a "risk-on" proportion to the counter party, which is why small investors, for the most part, have been cashed out.

Small investors invariably try to avoid the risk only to find out it is fully assumed (that there is no "black swan," which is nothing but a statistical invention--a creative interpretation of probability--to scapegoat the liability).

Despite all the new tools available to small investors (which can be easily used to track positions and suggest a probable, technical strategy that assumes the counter-party risk to the reward), they are still significantly disadvantaged. Organizational size alone (the risk proportion) presents a risk advantage which is used to technically (systematically) direct and offset the risk from the reward.

Large-cap firms have privileged access to information networks, which includes access to exchange information, for example, that tracks who owns what and when. Small investors are easily positioned for the risk and elite investors the reward, confirming a practical, class distinction defined by being assumed in a proprietary proportion--the lower the class, the more risk assumed. Even investments that supposedly have no risk, like treasuries, have systemically derived risk because the capital is so consolidated investors can be positioned (commanded) to assume risk by virtue of investment class.

Classification of the assumed risk incurs a liability that must be politically managed and reduces to rhetoric that normatively measures who deserves to win and lose. The concept of "moral hazard" is invoked, for example, to falsely induce a legitimacy that is ethically, rather than empirically, based. Arguing a moral hazard reduces measures to absolute, certain knowledge--immutable moral principles--deductively, rather than inductively, derived to protect hypotheses from disconfirmation.

Normative assessment of the risk serves to protect the reward from probable loss (reclassification, or reassignment, of the risk). If, for example, the legitimacy of an accumulative reward is that it will trickle down to resist unemployment and prevent economic crises, the hypothesis is throughly disconfirmed and the reward (as well as the incentive) is misaligned with the risk. To prevent empirical re-assignment of the risk, it is binomially realigned in a political dimension, organized for its political settlement without changing its inherently unstable (gamma-risk) proportion.

While the empirical measure is an easily detectable zero-sum, the normative measure is that the elite are naturally expected to win and the non-elite to lose. (Philosophers like Ayn Rand argue that while the outcome is normatively valued, that value is empirically verified to be "normal" and thus naturally legitimate, or expected, independant of government form. A free market, free of government intervention, ensures that the very best always have the means of power.)

The only way the command structure (the ability to position the counter party) can politically survive a pluralistic legitimacy is to make it appear that the outcome is ontological and by popular consent, like a free market.

The organizational design we have now is conflated. Democrats busily regulate while Republicans deregulate. Political elements of the system are fused in perpetual, countervailing conflict and the political settlement is a confusing, seemingly uncertain mix of conflationary elements. It is a dynamic process of mutual support in the guise of conflict resolution, and the product is anything but uncertain by design.

Conflated confusion provides fertile ground for elite authority prepared to forge order from the deliberately organized chaos. It is chaos argued to be ontologically determined, of course, (and so we should expect that occasional "black swan" to scapegoat the detriment) derived from pluralistically free and openly fair political AND economic processes.

The redundancy of pluralistic process--political and economic--should protect us from tyranny (and prevent the "black swan" that fails our expectations and results, supposedly, from unintended consequences). If we, for example, see commodity prices rise amid a deflationary trend, the redundancy is not operational. It is functionally fused to yield a highly predictable result deliberately directed in the self-interest of its managers and a clientele of the highest income class. Anyone outside that elite, privileged class suffers a detriment (an assigned risk proportion) that is declared to be ontologically determined and legitimately derived.

Conflation of the processes and its elements gives the system a chaotic and legitimately undirected appearance, but it is deliberately organized to only appear legitimate. The outcome is not really a popularly derived, pluralistic ontology that legitimately resolves a consensual settlement from seemingly undirected chaos.

Organized chaos is a deliberate ruse. Political and economic processes are deliberately fused so that highly structured, predictable outcomes of elite command and control appear to be ontologically legitimate, like a free market.

Proponents of elite power contend the organized machinations of a power elite are but the natural expression of the human, animal spirit. Combined with the ability to anticipate the future, and an imagination for causal determinism, we naturally aspire to command and control it with a predictive, self-interested, self-determined utility.

Selfish pursuit of power is the natural order of things, elite theory argues. It is fused with the natural right--the inevitable occurrence--of the best and the brightest to profitably manage, or legally manipulate, the natural order, organizing to reduce randomness without the assumption of risk that a free market otherwise fully assumes in priority.

Self-interest, conservative philosophy contends, is an irreducible moral standard (a standard measure of reference). It provides the greatest value for the greatest number of people (with the non-elite naturally subordinate and dependent on the generosity of their oppressors, which ultimately results in political settlement and subordination of the risk proportion by means of continuous political realignment).

The process for conflict resolution occurs largely among an elite who bargain for the means to safely keep the value consolidated. Since the value is surplused in the form of private property and conserved with the legitimacy of a free-market ontology (with the risk of loss fully assumed), it is critical to verify that legitimacy and assure it in priority in order to prevent an accumulated, catastrophic, crisis proportion.

Assuring a genuine, free-market resolution in priority reduces the probability of uncivil conflict. Animal spirits can be pluralistically resolved into peaceful and productive prosperity instead of certain incivility.

Instead of protecting the consolidation of power with the certain result of civil instability, like we see now worldwide, it is possible to have peace without sacrificing freedom or prosperity. Subordination to elite authority is not a necessary condition--it is not the inevitable fate of the human condition in the spirit of an animal.

"We the People" are not mere animals. The plurality is not a feral rabble naturally tamed and properly organized by the exploits of a self-seeking or self-righteous power elite.

Pluralism does not inevitably reduce to a subordinated risk proportion that must be managed and settled by elite authority. We will more effectively keep the peace and provide productive incentive without organized consolidation because it is the problem, not the effective solution.

Ivy-League solutions, like we have now, whether from the so-called left or so-called right, are not the only alternative.

Deregulation Without Deconsolidation

Deregulation without deconsolidation effects all manner of abuse. It results in uncivil behaviors that proponents of consolidated capitalism falsely refer to as free-market economics.

Allowing capital to consolidate is antithetical to free-market economics, so the priority of regulators is to keep the market free and open. Just regulating the effects to reduce the externalities and abuses renders additional barriers in posteriori, demanding the efficiency of even more consolidation to overcome the effective costs of the barriers rather than compete to reduce the costs.

Competing to reduce regulatory costs, of course, reduces both the marginal profit and, as the proponents of consolidation contend, the financial support needed to reduce unemployment. Thus the argument: regulation causes unemployment, and in order to absorb the cost and maintain the marginal profit (resist unemployment), it is necessary to consolidate. Even better is to deregulate industry and markets. Combined with consolidation (being bigger and better able to position for boosting the proprietary profit), deregulation will provide the maximum marginal support necessary to reduce the unemployment rate.

(Keep in mind that while deconsolidation will reduce the marginal profit of big firms, the margin is not lost as opponents would have us believe. The fully assumed risk is conserved. It distributes to competing firms who add innovative capacity to reduce costs and improve quality. The added number of firms also reduce unemployment and add the demand needed to resist the declining rate of profit without a crisis proportion. The marginal distribution reduces the proportion of consolidated, proprietary risk--the crisis proportion--that requires big-government intervention and regulation complained to be out of proportion.)

We see, then, deregulation and an especially low, marginal (proprietarily positioned) tax rate, rather than employment, now having the highest priority of the new, Republican congressional majority, with the President, and the Democratic minority along for the ride. The political settlement, while rationalized to be the application of "less government," operationalizes government to tolerate uncivil enterprises (the S&L crisis, Enron, the Great Recession...) as proprietarily legitimate. Rather than less government, it actually increases the need for it in the face of political platitudes like, "government is not the solution, it is the problem." It makes a free market look like a ridiculous proposition. It makes it look like ensuring a free market through deconsolidation of the risk (not to be confused with deregulation without deconsolidation) enables and supports a criminal element when, quite the contrary, it resists it, thus resisting the need for government authority as well.

Through deconsolidation, the risk of liability is fully assumed in priority, not offset. The need for regulation is then an empirical measure of the remaining externalities. Government becomes a credible ally rather than an adversary, legally and properly limited and affordably applied to resist the criminal element. Deconsolidation cuts regulatory costs by preventing them in priority and allows us to empirically identify what "needless government regulation" really is.

Rather than encouraged by offsetting the market-risk liability into a bought-and-paid-for political, civil settlement, uncivil behavior is resisted with a facile, empirically verifiable measure not confounded by the art of compromise. Activities that produce a benefit by causing detriment (like the sum of business practices that leads to a Great Recession) are self-determined to be proprietarily impractical--inimical to the self-interest of the firm and the success of the enterprise.

Instead of expensively trying to control the effects (like the trillion-dollar budget deficits to treat the effects of the Great Recession), we "effectively" prevent them through the cost-efficiency and effectiveness a free-market deconsolidation of the probable risk provides (prevention by deconsolidation of the detrimental risk proportion).

Remember that risk has a proprietary proportion. If you buy a skateboard, you assume the risk of skateboarding. You not only own the skateboard (the intended benefit), but you own the risk (the potential loss or detriment it may cause). If you sell a skateboard, you assume the risk of it being defective and unmerchantible (safe and effective). Similarly, a consumer has the power to say no--you have the power to exact detriment in the proportion of your proprietary, self-interest (with the risk of loss to the counter party fully assumed in priority, or in the alpha-risk proportion). If you do not have the power to say no, to whom does the risk belong and in what proportion? How does the buyer hold the seller accountable?

Even more complex and arbitrary, how much proprietary risk does a person own in the macro dimension? After the Great Recession, for example, how much of the risk you own depends on your proprietary position and its political settlement. If you have an upper-class income, the risk to you has been minimized. How much power does the average income have to say "no" and command the risk consumed in a proprietary proportion?

To effectively and legitimately assume a proprietary-risk dimension, we must be sure the system is prepared, in priority, to allow it be managed in that proportion (i.e., it requires deconsolidation of the risk in proportion to the divisible unit in which the risk is ultimately assumed and the reward consumed).

By ensuring a free-market proportion instead of consolidation, "the risk" is fully assumed in priority rather than being offset. Deconsolidation into a free market organizes a caveat-vendor business environment. Big business tries to pass-off deregulation as a free market environment because deconsolidation of industry and markets puts a direct democratic process in control. The collective sum of divisible market value (the unconsolidated risk, or ontological law, of large numbers--pluralism--fully assumed in the form of full employment and purchasing power) subjects the over-extended ambitions of elite power, and the republican form of government, to the will of The People. Freedom rules rather than the technical exigencies of an indivisible crisis management that eventually creeps into controlling every aspect of our lives.

Primarily, the extent of control exerted by indivisible crisis management is to regulate the amount of risk-to-reward and debt-to-equity that confirms the proprietary, divisible dimension of class distinction by limiting the inherent liability (the fully assumed risk) associated with it. The distinction is the power to offset the risk to the lower class through an indivisible (collective) management of the risk in posteriori.

Offsetting risk into a macro proportion is technically organized by both business (through economies-of-scale and enigmatically complex financial structures) and government (by political settlement and regulatory authority). The two entities, public and private, are cross-effectively organized (which adds "exogenous" complexity, as Schumpeter describes it) to conserve the divisible, proprietary value of the risk proportion with the indivisible legitimacy of ensuring the general welfare.

Government is effectively captured--organized with business--to support the economy of scale efficiency that consolidates the risk and causes the need for government. Risk is then offest into a political settlement and regulated to support the need for economies-of-scale. The result is a mutually supportive, cross-effective organizational tautology that tyrannizes the marketplace and reduces individuals to being subjects of a proprietary ruling class who claim their misfortunes are legitimately self-determined by the free market.

To deal with the misfortunes of a so-called free-market ontology, consolidation of industry and markets forces labor, for example, to consolidate in order to collectively bargain. Deconsolidation reduces the gamma-risk (political) proportion, allowing the risk to be collectively bargained in a more pluralistic, alpha-risk (economic) dimension. Both inflation and deflationary risks are more likely to be controlled without sacrificing self-determination (proprietary management of the risk) for the general welfare.

Rather than the individual being overpowered and dominated by organized collective action, the individual is empowered to collectively bargain and freely self-determine. Through deconsolidation, the political and economic dimensions converge, controlling the proportion of risk through a clearly legitimate means of direct, democratic accountability. (Keep in mind that "democracy" is a practical term common to both dimensions. We, for example, can very well experience a democratic political environment yet experience tyranny in the marketplace at the same time.)

Deconsolidation of the risk does not politically sacrifice freedom to secure the general welfare. Instead, it maximizes and easily verifies freedom with the easily detectable and unfiltered measure of its deprivation. The uncivil intentions of would-be gangster capitalists, for example, are quickly and easily dispatched with the divisible ontology of a free-market collective action, avoiding the costly machinations of political settlements easily manipulated by the ambitions of power cleverly endeavored to offset the risk through the consolidation of industry, markets, and government processes.

Without ensuring a free market in priority, the risk of liability is transformed into the risk of default (turning equity into debt--intending to deprive while pretending to provide) and becomes an extortionist tool of gangster capitalists (people that gain profit by causing harm, or creating detriment, which becomes the liability, the risk, to be assumed and thus avoided by means of consolidation and co-optation of public processes). The fully assumed risk of loss a free market provides is reduced to a proprietary risk managed at the proprietary desks of big financial interests that are extortionately too big to fail. That conserved market value (the assumption of risk) is transformed into general economic risk known as "systemic risk."

Systemic risk accumulates, by design, into crisis (gamma-risk) proportions. The risk is then managed by regulatory authority to not only protect the public from consolidated power, but protect consolidated power from the public (effectively protecting the powerful from themselves). By protecting the public from the full effect, regulatory authority protects the offset that converts risk into consolidated value.

Converting value and consolidating it by detrimental means--by causing risk--is what gangsters do, and gangsters are apt to extort protection payments to protect their "clients" from "the risk." This takes the form of increasing reserves. The Fed, for example, has been buying toxic bank assets and the proceeds increase bank reserves to protect us from their toxicity (the risk fully assumed--the endogenous, fully expected and intentionally avoided declining rate of profit organizationally offset by corporate consolidation and regulatory authority). The proceeds, however, are not circulating in the "real" economy but held in reserve and applied to headline inflation--arbitraging risk via derivatives like options, futures, and swaps.

Traging the inherent risk of the reserve assets without liability supports profitability without risk, which increases the value and security of the bad assets in the Fed's accounts (but without putting the homeless back in their homes or to replevin the lost equity of homeowners which, understand, is the value being gained in capital and held in reserve, being used to derive a detriment from The People). Thus, the banks are wealthier (the risk has been offset) and "we" are all protected from the risk systemically perpetrated from their proprietary desks (making most of us poorer).

The macro-arbitration of the risk proportion (the offset, or protection payment originating from the central bank) occurs to protect "us" from inevitable, endogenous risk (like a Great Depression). A public good (a collective, supposedly indivisible, public benefit) is provided, all legal and proper by means of civil authority (by consent of the governors, not the governed, which is, arguably, "the risk" perpetrated and arbitraged to gain the value of civil protection). While it is sold as a general benefit, it is really a game of confidence and ultimate extortion, converting value and consolidating it into a too-big-to-fail (gamma-risk) proportion.

If the risk of default is fully assumed and systematically assigned to the lower classes, the liability associated with the risk is also fully assumed and takes the form of political risk. Economic risk converted into political risk is then consolidated and conserved, thus limiting it to a civil liability and a political settlement. The value is then prepared to be re-extended from its reserve in the form of public debt, which reduces the value--the currency--to pay it, accumulating the need for more debt while the ability to regressively pay it diminishes (i.e., the declining rate of profit).

While the value of the risk is consolidated and conserved, the more the debt is churned the more risk (liability) accumulated. To mitigate the endogenous liability (the risk of loss fully assumed, or unsustainable without exogenous influence), the risk is shifted to a counter party--government (e.g., the Fed and Treasury)--to be politically managed as a public good.

By monetizing the debt, the burden is regressively distributed (countered, or "offset," even with the new risk-retention rules of Dodd-Frank) in the form of reduced purchasing power and net worth. Without creating the counter party, the endogenous risk of loss (sending yourself a check in the mail--paying yourself interest and dividends from your own principal resulting in a declining rate of profit) is fully assumed.

The reserve system is effectively a counter party created to absorb the endogenous risk, allowing for its continuous accumulation into a political, exogenous, gamma-risk dimension. (Schumpeter describes and explains this as a process of "creative destruction." If we apply it to the current discussion, it acts to transform the "exogenous" taste and preference of the electorate into the expected value of "endogenous" risk. We expect the risk of default, for example, and although we may not prefer it, profiting from the detrimental loss of others is the expected value to be consumed.) The value being held in reserve allows for continuous overextension of the economic rent without the risk of default (what is known as "the full faith and credit of the Federal government").

Tea Party delegates counter that reducing both spending and taxes is the political correction needed to apply an economic solution. Tax reduction will finance growth, offsetting the need for public debt. The adjustment (balanced budgeting) will provide the liquidity (the demand) needed for growth necessary to both reduce unemployment and strengthen the dollar, increasing both purchasing power and the value of savings.

Keep in mind that a strong dollar, according to mainstream economic theory, makes our exports more expensive, and reducing unemployment is being closely correlated with increasing our exports. Thus, labor is the counter party to headline-inflation risk.

The more employment we have the higher the inflation risk. While inflation (too much money demanding a limited supply) provides a weaker dollar to make our exports more competitive, it reduces purchasing power, the value of savings (net worth) and dollar-denominated assets (like oil), generally pushing inflation risk higher and the dollar lower.

A devalued dollar also weakens our counter-party relationship with China in zero-sum, for example. Apparent economic coefficiencies (like reducing inflation with unemployment) become more complex with an accumulated, and countervailing, political risk that confounds trending analyses, which then become the exclusive domain of a technocratic, public-private regulatory authority. The domain is exclusive because the authority is not only assessing the risk, it is directing it. The divisible, ontological legitimacy of market mechanics is diminished.

If, for example, financial markets were more ontological--directed, or driven, by a more divisible collective action--speculation would be more like gambling because the outcome would not be exclusively and esoterically determined by the invisible hand of a power elite.

With the risk less consolidated, headline inflation would be much less a problem confounding economic recovery. There would be much less probability speculative trends will move in the predicted direction with entrepreneurs free to innovate and expand the economy rather than consolidate it in zero-sum in the employ of a large, conglomerated corporate body.

Through deconsolidaton, rather than just deregulation, risk becomes deleveraged, less speculative and will be applied to more predictable, and stable, organic growth. Debt turns into equity and provides the purchasing power (the consumer demand, or discretionary spending) needed to utilize the excessive spare capacity (including entrepreneurial utilization) that causes deflation and turns equity into debt.

Speculation that turns equity into debt--causing detriment to make a profit--is less likely if it is a real gamble. If it is really a free market, ontologically determined, rather than the manipulations of an exclusive, elite, interlocking directorate who risk the loss of principle in the divisible world of alpha proportion, there is less need for a regulatory authority operating to prevent the-loss-fully-assumed in a consolidated, gamma-risk proportion.

To technically resolve the so-called endogenous, economic dilemma of inflation or unemployment, for example, (the so-called paradox of thrift in which, supposedly, we must sacrifice jobs for capital formation), the more unemployment we are likely to exogenously create.

Unemployment is not merely a trade-off with inflation considering inflation amply occurs despite high unemployment. It is, in practice, rather, exogenously created to destroy the endogenous, natural tendency to trend a declining rate of profit (the disinflationary tendency of deconsolidation, which would effectively control inflation at full employment without an inflationary regulatory authority).

Technical, regulatory expertise supports the ability to raise prices despite declining demand (a whipsaw effect in which the margin is increased by reducing income and net worth), allowing the political, gamma risk to accumulate. That accumulated proportion must be creatively managed, and so it is regulated using the spare capacity of raw, economic, animal spirit consolidation affords. The spare entrepreneurial capacity (the otherwise unlikely opportunity for upward class mobility) is used to consolidate rather than expand the economy.

Instead of increasing the number of firms in an alpha-risk proportion, adding supply to control both inflation and unemployment--instead of organic economic expansion--there is extension of regulatory authority and the risk it represents. Regulation and technical maneuvers are innovatively added, with reserve entrepreneurial spirit, to mitigate the risk of loss rather than proliferate firms to add supply and employment toward a non-deflationary effect (a diminishing risk of default that turns debt into equity rather than equity into debt like the Great Recession).

Consolidation is intended to control the animal spirit--the alpha risk that shares the wealth, causes innovation and growth, and keeps ambition tied to that goal. At the same time, letting the animal spirit run wild in the alpha dimension also renders a close, direct accountability of that ambition ("the pursuit of happiness," or property and power) with less need for government (and debt).

Consolidation is intended to civilize (regulate) the animal spirit--unruly, inefficient, rebellious.

Alpha-risk gone wild is too messy, too inefficient, too unpredictable. It is too risky, too spurious and confounding. It is too radical--creative, imaginative, innovative--for the public good. It's like mob rule, right?

Reduction of spurious and counfounding variables renders a more predictably stable trending pattern in which to creatively position and arbitrage the value of countervailing parties in the gamma (political risk) dimension. It brings civility (the politics of power brokering) to the marketplace. It brings buyers and sellers (winners and losers) together with a level of clever sophistication and intellectual elegance that only the elite among us can properly understand and successfully manage toward the general welfare (toward a proper political settlement of the risk proportion, cleverly innovating the means of setting off the risk from the accumulated reward).

While the risk is deliberately derived--constructed to transfer (or hedge)--to another party, it has the exculpatory appearance of being either exogenously derived and unintended by popular demand (whether by changing preferences in a free market or government by popular consent), or confounded by endogenous error accumulation. Either way, it is the political risk to be monetized, reliably transforming equity into debt (causing both inflation and unemployment).

Schumpeter, for example, describes macro management of accumulated risk as the complexity of combined political-economic variables. The complexity causes econometric errors that correlate with independant variables and, Schumpeter explains, the errors endogenously accumulate resulting in unintended consequences--like capitalism unintentionally transforming, or trending, into socialism. His theory is not to expound a political position, but expostulate the probable outcome of ideology combined with policy programs.

Despite the most technically deliberate intentions of the best and the brightest, Schumpeter observed, whether so-called capitalist or so-called communist, the elite compete among themselves for hegemony. The most successful are those that operationalize ambition with popular consent and the general welfare (hence, the endogenous trend is always pluralistic, resisted by exogenous, elitist trends in a crisis proportion).

The recent protests of a well-educated class of workers in Madison, Wisconsin, and elsewhere around the world, would seem to confirm Schumpeter's theory of elite authority naturally progressing to accommodate populist sentiment. Qadafy, for example, claims he has been "holding the reins of power for The People," implying a populist purpose despite the reactionary political program under way. Reactionary elements are, naturally, resisting the trend, but only to strengthen the resolve of "middle-class" labor.

To a well-educated middle class, the machinations of a power elite are readily apparent. Americans, for example, very clearly observe their proprietary, middle-class position being put at risk by the clever manipulations of an elite class who, after having increased the supply of labor (having swapped credit for default), would claim dominion over their right to self-determine. Serfdom, they have very clearly determined, is not an improvement over self-determination.

Labor is being effectively positioned to take all the risk while capital takes all the reward, entrepreneurially "swapping" equity (the capital) for debt instead of growth (the credit-default swap). The infusion of capital needed to prevent deflationary risk (monetizing the debt) fuels headline inflation (risk-on hedging), which supports a deflationary trend (deficient demand and deficit spending). The result is a low interest rate (high bond prices), starving the economy to allow the top income class to keep getting fatter (accumulating political risk). The low rate of interest (the high economic rent) "accommodates" the demand for debt over equity, weakening the dollar and positioning the lower classes to take all the risk (the risk-on proportion that the Tea Party is supposed to counter).

The Tea Party scheme will encounter binomial resistance because it reduces the debate to recognizing where the accumulation (the deflationary risk) resides, revealing the stakes being binomially conserved. Neither Democrats or Republicans intend for growth to be financed from the accumulation. Doing that reduces the effectiveness of creating and applying the binomial, counter-party scheme to control the political risk.

Circulating debt conserves the value of the risk of default, and controlling the political risk keeps the accumulation accumulated by monetizing growth (debtor financing) instead of paying it off (the value of swapping credit for default in the form of an "insurance" product). Rather than turn debt into equity, risk-prone distribution through counter-party classification and assignment conserves ownership of the equity in the form of debt.

Credit is always available to those that need it the least because they own it, which also includes the value regulated in reserve. That consolidated value is currently being distributed by the Fed and Treasury at a near-zero rate of interest and instead of being invested in growth and jobs is being plowed into commodity futures. While the deflationary effect is classical (liquidating equity), the means is newly engineered through the Commodity Futures Trade Act and physics engineers hired into Wall Street from the natural sciences to turn growing middle-class equity into debt by what appears to be free-market means.

Instead of engineering the means of preventing deflation, the means to have inflation and deflation at the same time has been created by Wall Street. Its financial engineers have created the means to command and control the timing and pitch of a deflationary trend through algorithmic, risk programs.

Risk is engineered to algorithmically arbitrage. By positioning risk to cause detriment, predictable profits can be provided without the risk. While the risk has been displaced, the reward, however, is not completely had without liability.

Since deriving a benefit by deliberately causing harm incurs a civil if not a criminal liability, algorithmically or otherwise, the risk that accumulates with the reward must be managed (controlled or regulated) to protect both the accumulated value and the means to derive it from the risk.

Cleverly, the hedging algorithm also provides the exculpatory means of market (quantum) mechanics. It makes it appear that the profit margin accumulated, resulting in the Great Recession on the macro scale, for example, was decided by the free market and not directed, or engineered, by means of a divisibly culpable command-and-control. If there is any elite authority culpable of exacting harm, it is government authority.

If there is any one thing to be blamed, it is government intrusion in the marketplace according to reactionary elements looking to avoid a huge tax liability. Government regulation is fundamentally causing this exogenous problem of inflation and deflation risks existing at the same time (the means of deriving the accumulated risk-value that the reactionaries say they have legitimately "earned"). It is keeping unemployment high and allows that value, and middle-class net worth generally, to accumulate into the upper class.

Not recognizing big government to be the problem, and thus deregulating, according to conservatives, results in fundamental attribution error, or what Schumpeter described as "exogenous" risk. It econometrically accumulates errors resulting in, for example, a confounding inflationary-deflationary risk existing simultaneously in the same quantum, policy space.

Keep in mind that the quantum accumulation into the upper class is supposed to "endogenously" trickle down and prevent the "exogenous" need for government spending and the risk of default, both public and private, associated with it. The accumulation, however, has not trickled down, supposedly because investors fear an excessive tax burden (what should be described as an "endogenous" or inherently assumed risk, but presented by conservatives as exogenous). So, the bargain plays out like this: if we do not release the endogenous liability associated with the accumulation, it will be withheld until the fear has been alleviated (which means it will be withheld in perpetuity because the accumulated benefit and the liability cross-effectively accumulate coefficiently).

Not supporting what causes the problem will deliberately make the problem worse by consent of the governed who are being extorted into accepting detrimental terms in the form of a false dilemma (the lesser of two evils). The limitations of this so-called "bargain" confirms a pernicious, extortionist, criminal-like cohort intending to derive and consolidate value by causing detriment. Supported by organized consolidation of industry and markets, which causes the need for big government, this cohort is inimical to a civil society and needs to be relentlessly prosecuted if we are to deregulate without deconsolidation.

To reverse the deflationary trend, according to conservative elements, it is now necessary to lend the accumulation back to the middle class (increasing the debt burden, which is what conservatives mean by "trickle down"). Without being taxed or otherwise confiscated and retributed, the value must be re-earned (un-monetized and conserved), keeping the middle class solvent and paradoxically thrifty (i.e., willingly productive) by increasing their divisible, proprietary, debt proportion.

It makes little sense to loan money to yourself, so it is lent from the reserve counter party--the Fed. All the risk is "reserved" for those with the least tolerance, protecting (insuring) the accumulation from the probability of being distributed without retaining ownership (without losing legal title to the equity, which defines the insured extent of the risk--the real rate of investment interest--in the form of debtor obligation). The risk is conserved, insured in the gamma proportion, to be politically distributed (assigned) from the reserve at the real rate of political interest.

Democrats blame Republicans, and Republicans blame Democrats for creating the demand for debt. These elite factions of party politics game for popular sentiment to verify (legitimize) the extended value of the risk, the loss of which is fully assumed and transformed into counter-party risk. As long as equity is shared in the form of debt (accumulating economic rent), the accumulation can expand over time without the political risk being fully assumed. It is, instead, monetized in the gamma dimension to perpetuate the demand for debt (the classic extension of the rent), causing a distribution without risking title to the accumulated equity.

Growth is not the product of accumulated equity as the proponents of consolidated capital promise. Over time, the amount of equity is not expanded. It is conserved through a process of creative-destruction that is falsely argued to be the innovation that spawns growth through economies of scale. The process is nothing more than a cycle of boom and bust that innovatively conserves the distributive value of the risk (the overextension of debt into a crisis proportion) and the assignment of risk (the detriment) by organizing the means of positioning the counter party to take it as a matter of propriety (by income classification). "The risk" is then organized into a political settlement with a regulatory authority that limits if not legitimizes the liability of causing detriment to generate profits, like the Great Recession, thus encouraging and perpetuating the detriment by organizational design.