Psychology of Market Position

Contrary indicators instill the market with a psychology of uncertainty. There is a heightened sense of angst that directs participants into a defensive, risk-averse, feedback loop. The result is a deflationary trend marked by both inflation and unemployment, or stagflation.

Current uncertainty, however, is a market phenomenology. Markets are not causing a psychological disposition, psychology is causing the disposition of markets. Nor is government influence affecting the psychological condition of the marketplace.

Markets are being psychologically constructed to control the perceived legitimacy of the risk proportion and its distribution, which also influences the need for government to be in the loop. It sounds complicated because it is.

Affecting the "disposition" of market participants to take a position in the marketplace is inherently complicated, and complexity naturally appeals to authority, invoking an elitist, practical model to manage the uncertainty ("the risk"). Fusion of psychological and economic attributes are especially tricky because both rely on inferring a probable motive (the uncertainty). Risk proportion is large and intentionally complex, not because nature dictates it, however, but to mask an inherent culpability.

Directing the risk to secure a discrete, distributive benefit by means of deprivation (falsely referred to as the paradox of thrift) is not generally considered to be proper behavior. Capitalism, however, maintains that such behavior is only natural and causes markets to be more efficient as long as government does not regulate it or tax the benefit it yields.

Stagflation is the result of a discrete deprivation played out as a necessary condition for economic growth and general prosperity, but accumulating risk is what it really does.

Stagflation accumulates and distributes risk to a majority of non-elite citizens psychologically prepared (and economically positioned) to accept their fate as self-determined if not unlucky. Either way the legitimacy of the risk is phenomenologically constructed to exculpate the deliberate means of deprivation, describing liberty as the privilege--the reward--of deriving value in zero-sum.

When Jeff Skilling, for example, took the "liberty" to mark his risk-value schemes to the market (taking Ayn Rand's philosophy of self-determination to heart), the risk he accumulated was intended to be taken not by him, but by the so-called non-elite. Skilling went to jail, but not without taking the liberty to exact detriment in the self-interest, supposedly, of people he considered to be inferior and naturally subjected to his self-interest beyond what anyone considers to be good or evil. All that matters is the liberty--the capacity--to act in self-interest.

To the victor naturally goes the spoils, and when The People invoke a standard of morality (an otherwise arbitrary, changeable, measure of "the good life), Atlas shrugs.

Stagflation operates in much the same way on a macro, economy of scale. As industry and markets consolidate more and more to efficiently derive value to be converted into capital and consolidated into wealth, the vast majority of citizens are positioned to believe that this economy-of-scale efficiency is necessary to achieve optimal growth and employment.

Amassing capital is supposed to be for investment. Instead, the converted value is consolidated into wealth (deflation) where it is held hostage to secure public policies that favor its accumulation and, thus, stagflationary accumulation of risk.

An economy of scale accumulates risk that a free-and-unconsolidated marketplace otherwise keeps legitimately diffused in a non-catastrophic and highly productive proportion. The economy-of-scale efficiency is a psychological phenomenon constructed to fatefully position victims to accept detriment while minimizing the retributive (illegitimate) value of the risk proportion.

Stagflation spreads the risk, but it is a re-distribution from an accumulation (exercising power from a centralized source, which defines what a free-market is not). Risk is spread out (stagflated) to diffuse its large (gamma-risk) proportion. While the total amount of risk is not reduced, the current potential of its present value is reduced which, being derived from an accumulated source, tends to be retributive (fundamentally illegitimate). "The risk" is transformed into beta risk and the psychological uncertainty (potential future value discounted to the present) that positions us to accept policy programs that do not optimize free-market mechanics (deconsolidation). Instead, we are conditioned to accept more consolidation (accumulation of even more risk in the political dimension where its accumulated potential is unavoidably gamma).

Understand that Ayn Rand's archetype, Mr. Skilling, was manipulating market position. When his victims were properly positioned he moved to consolidate the value converted from the accumulated risk proportion, selling his position with a buy rating. This essentially describes how Wall Street works, and more broadly, and globally, our economy. In much the same way, stagflation consolidates value derived over time from accumulating risk, leaving the shareholders with all the risk.

Shareholders, then, tend to rent stocks and arbitrage the accumulated risk proportion in order to avoid it. Rather than invest growth, investors buy risk value, not employment and the income that enables economic stability. Earnings do not derive from adequate income, but from income rendered inadequate through inflation and unemployment, accumulating debt (the empirical value of the declining rate of profit) which is "the risk" to be avoided.

Keep in mind that a liquidity crisis triggers the creation of money "de novo" to prevent deflation. New money replaces the inadequate income (the income consolidated) to support profits, not increase purchasing power--the power to sanction in the marketplace, which would be the result of deconsolidation (reinvestment of capital, rather than its consolidation into wealth, which would legitimately spread the risk and the wealth, and would reduce debt without the political risk of extreme austerity). New money is given to banks ("ex nihilo") and the income is supposed to trickle down, but because the marketplace is so consolidated the income is quickly consolidated at the top (producing virtually "nothing"). The result is a long, stagflationary trend like we have now.

Stagflation is essentially the result of monetizing the risk. Instead of pluralizing the marketplace, a competitive plurality is minimized. Growth is limited to creating new markets rather than competitive expansion into old markets. The likely result of this deliberate consolidation, contrary to the espoused efficiency it is supposed to render, is the lowest quality (the lowest possible cost) at the highest possible price. Instead of adding supply (and employment), allowing for continuous consolidation of industry and markets will always result in a high ratio of debt to GDP.

Game theory that suggests markets are naturally limited to just a handfull of providers to maintain the profit margin is a part of the psychology constructed to justify reducing the general benefit of free-market mechanics. It is a classic case of fundamental attribution error.

Gaming theory assumes the free market causes consolidation to make a profit. High profits, however, are the incentive to enter a market, and thus the incentive to deny entry by consolidating the capital. Take away the barriers and what remains is the incentive to be both productive and to make a profit doing it. Participation in the marketplace does not reduce to only making a profit.

The free market does not naturally reduce to consolidation, but consolidation does naturally reduce the free market.

In a free market, what remains are those producers willing to be in the market for the sake of producing high quality goods and services at a competitive price, and the Ayn Rand archetypes are limited to innovatively venturing new markets because they are in business to make money, not employ people.

Rather than an interminable wrangle over what short-term measure, like tax cuts, will best jump-start the economy, the net result of simply ensuring a free-and-unconsolidated marketplace in priority will be full employment with the confirmed expectation of low inflation. Uncertainty reduces to fulfillment, and angst reduces to the adventure--the liberty--of taking risk.

Instead of monetizing consolidated debt that is too-big-to-fail, we should monetize risk valued in a small-enough-to-be-directly-accountable, free-market proportion. If we want to reduce debt and the size of government, we have to put ourselves in a free-market position.