The Super Ego as Prudential Regulator

Being in a state of highly consolidated wealth requires a prudential, super ego to regulate the risk. The risk is consolidated and structurally organized to control its distribution so that its effect can be philosophically rationalized as generally beneficial.

Typically, the philosophy of risk associated with consolidated wealth is an appeal to the super ego. The system of governance becomes so complex it appears necessary to consolidate power into the hands of a few supermen capable of forging order from the apparent chaos (the entropic value of the risk proportion discussed in previous articles on this site). The chaos (the value of a supposed uncertainty), keep in mind, is risk-value these saviors have caused, accumulated, and thus apply by deliberate necessity, which gives their power the appearance of a popular consent (naturally endowed to achieve a state of low entropy). These supermen not only have the natural ability (the power) to dominate (achieve success by risking capital), but also have what appears to be the wisdom to steer us all from moral hazards by consolidating the risk into the hands of elite power (networking the externalities to achieve low entropic value, which is measured with an expanding margin of profit).

If we experience a declining rate of profit (deflation), then we need more consolidation, conservatives contend, not deconsolidation. (Deconsolidation is considered to be a moral hazard despite the more of it we have the less probability of deflation. Since the probability of deflation provides the possibility for consolidating equity by expanding debt, or increasing debt-to-equity, capitalism tends to deflation but stops and reverses short of a declining rate of profit where the risk goes fully gamma. This is where a distribution MUST occur from the accumulation--not monetized--because a declining rate of profit accrues more power--consumer demand--to The People. Remember that monetizing the debt causes inflation, which reduces consumer demand, or buying "power.") Liberals who argue we need more consolidation, but with more regulation, are a subset of this conservative risk assessment and essentially delimit the current debate to prudentially regulating the risk proportion (Dodd-Frank instead of Glass-Steagall, for example). Reducing debt is being described and explained as a function of deliberate, organized consolidation, converging the left and the right into one, consolidated, reactionary element that both the Tea Party and Occupy Wall Street perceive to be the opposition.

What happens then, as we have seen following the Great Recession, is even more consolidation of the risk (even more errors), which provides even more need (validation) for reactionary, rather than pro-actionary, politics. The deliberative, prudential process results in validation (the Aristotelian logic that Ayn Rand uses) rather than verification (the empirical logic that Thomas Jefferson favored) of a popular consent.

While the reactionary element tends to tout its moral (Aristotelian, aristocratic) strength (its consolidated power, its "super" ego) as the legacy of a pluralistic tendency that goes back to the American Revolution, America's founders nevertheless considered concentration of power to be the very height of imprudence. To resist validating the errors (the incivility) that naturally accumulates with consolidated power, they sought to regulate it with civil (Constitutional) rights naturally endowed and empirically verified (tested) by demonstration of popular consent (unabridged freedom of speech and assembly being among the first and foremost). Occupy Wall Street, you see, does not indicate "collapse of our moral system" (which is what the king said about the American Revolution), but signals that the empirical value of the Enlightenment is alive and well...much to the demoralization of would-be kings.

At this point in our political-economic history, in a state of highly consolidated risk, we are, for example, relying on a "super committee" to arbitrate a dangerously, oversized, economy-of-scale risk proportion. It is important to understand that this kind of macro management will not reduce the risk, economically or politically, but will accumulate it even more. (Today it's pepper spray, tomorrow it's...? What form of prudent incivility will the "super" ego bring us tomorrow?)

The super committee has ignored, for example, the problem that plagues us--too much consolidation, like repeal of the Glass-Steagall Act of 1933. Instead, the committee's impasse is described as being over the left-wing delegation's intent to steer the committee toward a moral hazard--tax increases.

Having failed, then, to agree on budget cuts, the committee has determined the fate of our economy by procedural default. Cuts by "sequester" are highly deflationary--they will take effect while income is falling for ninety-nine percent of the population and rising for the top one percent.

Falling income combined with the sequester will accelerate declining, economic demand, and combined with the repeal of Glass-Steagall will accelerate the process of turning equity into debt. In other words, this process is designed to profit the top one percent at the expense of everyone else, increasing political demand which, instead of deconsolidating the risk (repealing the repeal of Glass-Steagall, for example), will result in more deregulation to get a more progressive tax code.

A more progressive tax code, however, will not have the expansionary effect that it did in the 90's without deconsolidating the banking sector like we did in 1933. Glass-Steagall, remember, was repealed and signed into law in 1999 at the final hour of the final day of the Clinton administration. President Clinton was advised by his Randian economic advisers that consolidation will increase the efficiency of markets (that it will expand the pie). Of course, we know now, as we knew then, that it does not. It liquidates equity into debt, efficiently consolidating industry and markets by supporting deflationary risk instead of resisting it. The result is declining income against rising prices (monetized debt)...the ultimate dream of Bank of America and Goldman Sachs--putting everyone in their proper class, providing prudentially shared prosperity through its regulated deprivation, by committee, of course.

Understand that the capacity for prudential regulation is not its consolidation. All the arguments that are elite modeling of the risk proportion (whether a legislative "super"-ego committee or Wall-Street quants, both of which hauntingly hark back to fascist tendencies for managing systemic risk from the top down) tend to fallaciously beg the question. These arguments that derive from a liberal-conservative philosophy of the risk add errors to the system when we need reduction.

One thing we know for sure, fascism is not the model for the prudent regulator, something that our founders knew very well and very carefully wrote it out of our constitutional form of government. That is why it has lasted for over 200 years...not because it encourages the consolidation of power, but because, contrary to what elite theorists are currently telling us, it is intended to resist it.

Consolidation of power, economic or political, does not achieve an economy-of-scale efficiency, it achieves an economy-of-scale deficiency! The evidence is overwhelmingly obvious and it takes a veritable army of conservative philosophes--technical elites empowered and compensated to apply the risk--algorithmically calculating the zero-sum reward (the deficiency) to appear ontologically derived.

Understand that the "proof" of this ontology is a philosophical endeavor. Despite what physicists (the quants) claim, describing reality as a confirmable hypothesis combined with its mathematical proof is a philosophical construction easily manipulated to fit a preconceived notion of reality. The history of science is full of mathematicians armed with mathematical descriptions that were empirically disconfirmed despite a predictive utility.

According to the quants, a theory that is not verifiable is not science, it is philosophy, which leads us to believe that philosophy is not a reliable means of knowing things, much less a prudential means of determining liability for the administration of justice or, for example, the equitable effect of tax policy.

So, we need technical elites empowered and compensated to apply the risk, which invokes the Iron Law of Oligarchy and suggests the mechanics of natural law determines our fates based on one's ability to calculate (quantify and manipulate) the odds. In other words, to manipulate the math to fit the prescribed outcome fallaciously describes an ontology of the outcome--a philosophical error that loads the system with quantifiable (knowable, predictable) risk.

Algorithmically calculating the zero-sum reward (the economy-of-scale deficiency) to appear ontologically derived and, therefore, prudently regulated with the legitimacy of natural law, the elite are armed with the "proof" of its mathematical description rather than the liability of its intentional, philosophical prescription.

That there are no prosecutions after the Great Recession like there was, for example, after the savings and loan crisis is because the risk is being described as force majeure--a product of nature. Its prosecution is, then, tantamount to prosecuting gravity for causing an apple to fall off a tree and bonk you on the head--the risk of loss is fully assumed.

A philosophy of risk is in technical operation here to exculpate the liability inherent to its organized consolidation, and this philosophy effectively governs the practical concept of self-determination and the ability of the person (including the corporate body) to prudentially regulate it in self-interest.

The self alone, according to this philosophy of risk, is the prudential regulator as long as we have a free market. (Remember, according to free-market theory, the freedom to choose--disposable income--affects the practical philosophy of selfishness. A selfish person is not likely to survive a free market, but a self-interested person is. Such a person is not solely self-determined, not without defeating the free market first, but is prudentially regulated by the determinations--the discretionary income--of others. To be completely self-determined and act selfishly, or imprudently, requires consolidating markets and accumulating discretionary income, or class warfare.) So, in order for the philosophy of the prudentially regulated self to be confirmed (to credibly "blame yourself" if you don't have a job, as one prominent conservative recently put it), it is necessary to ensure a free market, and conversely, if we do not have the power to self-determine, it must be because we don't have a free market.

The capacity to apply risk depends on income (like the ability to pay health-care premiums by government mandate, which leaves the consumer with virtually no means to control--demand--the cost and the marginal profit based on merit). The capacity to self-determine, then, is primarily a function of value imparted to labor, which according to modern economic theory is less important than consumer demand.

As long as we impart more value to consumer demand than the value actually imparted to labor, then we support (by super committee, for example) the capacity to "command" rather than "demand" the distribution of the risk--exactly what a free market is not.

Along with the failure of the super committee, the latest attempt to distribute the risk by means of constitutional mandate failed to pass the House as well. The right-wing delegation, despite holding out for making the Bush tax cuts permanent, apparently recognizes its philosophy of risk does not pass muster. Passing the super committee's cuts, or making the tax cuts permanent, either way, would not only make the costs and benefits of the Great Recession the "new normal," but would surely gain a gamma-burst proportion--the point at which the fully assumed risk of loss is fully consumed at present value.

As popular sentiment continues to swell against them, conservatives generally sense the need to reduce the gamma risk. The limit has been tested and the super ego wins, Constitutionally, by means of popular consent.

As our founders wisely recognized, popular consent is, by nature, the prudent regulator.