Making Money

It is important to keep in mind that fiscal management is not just a function of government authority. Our economy, for the most part, is fiscally managed from the private sector by a technical elite recruited from our most prominent business schools where they learn to "make money."

Innovative, risk-transfer products, for example, were introduced to make markets more efficient, but were really designed to more efficiently "make" markets. When applied in conformity with "efficient-markets theory," in conjunction with the Commodity Futures Trade Modernization Act (the government authority needed to make the consequences of "making markets" legitimate and non-retributive), the economy predictably took a nose dive toward a K-wave, depressionary distribution of the risk. All the commercial paper created on demand to support the marginal profit was transformed into a fiscal crisis.

The demand created by CDS's, CDO's, MBS's, and various other RTV's (which are essentially debt instruments) did not take the form of Federal Reserve Notes until the destruction occurred.

Demand for monetary expansion (the central bank buying treasury notes, or swapping risk for government debt) did not occur until the value a free market otherwise efficiently retributes in short order (without the need for government intervention) presented as risk-detriment in late order. Government was supplied "on demand" to responsibly save us from our "selves." Consequently, the debt that could not be paid (remember that want-to-be kings always irresponsibly overextend the rent to satisfy themselves) was monetized--it became a liability of the Federal Reserve System where, in the light of day (in the form of massive budget deficits), it is subsequently being vilified as "too much government." (Notice how the risk of responsibility was "made" to "transfer" and make money that is now being used to bid up commodities, or swapped for risk, "on demand" in dark markets.)

The value to be retributed was turned into public debt, which is financed through the tax code and, by no coincidence, should not be paid by the primary beneficiaries of the detriment. Supposedly, retributing the value (the capacity for consumers to finance the profit, or pay the rent, on demand) is a "moral" hazard because it bankrupts the efficiency of markets (it reduces the supply of capital and causes shortages). This, you see, is what the so-called "efficient-markets theory" really is by technical objective--it "makes money."

Money is not made by adding supply, however, but by reducing demand, or the capacity for each and every one of us to self-determine "on demand." Without the retributive value inherent to demand economics, the theory of efficient markets is transformed into an ideological proposition rather than an empirical measure of well being.

When destruction derives from demand created from the top down, we are all, nevertheless, individually responsible for our fate from the bottom up. Self-determination is transformed into "personal responsibility."

We are all responsible for complying with the self-determination of the "job creators" or suffer the ill effects of non-compliance, which is essentially to work more and more for less and less to a fault (specifically, default, which is the opportunity to consolidate assets into private equity) "on demand." When we then show up at an ER to treat an illness because we do not have the income (the demand) necessary to be well, we are freeloaders.

Since freeloading is irresponsible, we are mandated to buy health insurance that becomes less and less affordable (and more and more monetized without adding supply) on command. We are then stuck with an even more robust price-support system instead of a system that would otherwise control the price by virtue of efficient markets (with adequate income that comes with added supply) on demand.

If we do not properly position ourselves to avoid it, the detriment we suffer is our own fault. That is, if we do not subordinate to the risk and fully assume the position the gods of misfortune intend us to be in, then we will always be entangled in conflict. We will always be consumed, to hear reactionaries tell it, with "class warfare," bemoaning a fate that is easily determined by delivering the "self" to the objective reality of the money makers (whether on the left or the right) who create the jobs we need to deliver us from angst and suffering otherwise expected.

Money is technically "made" by determining an outcome (position of the entangled risk, or the conflict that consumes us) that is easily predicted (expected) by the practical philosophy (the objective identity) of the risk proportion (like the utility of supporting profits without adding supply and employment). It is important to understand that the added money supply does not chase too few goods and cause inflation, as Milton Friedman argues. Quite the contrary, the result is classic overproduction--a lack of demand, which accumulates supply and cures the prospect of shortages.

The current situation with gasoline prices, for example. Now that the "risk mentions" indicate sentiment for price controls--since the oil market is so consolidated that it can support, or control, the price by commanding it to the up side despite declining demand--pop analysts are preoccupied with explaining why supply-demand fundamentals don't always behave as fundamentally expected.

(Analytically, it is important to understand that a price support encourages added supply. Since the supply added resists the support, the price is being paid on command, not demand. Commanding the price is a demonstration--a confirmation--of power that in a free market is limited by demand.

The quantity in command--the retributive value--is the quantity of governance--the tyranny--that the Tea Party, for example, expects to be limited. It is the "limited government" that technically indicates our freedom to prosper by controlling the price to be paid. It is the empirical value--the relative price expected to be paid proportionate to the risk taken--that measures the power of self-determination and thus the limit of personal responsibility.

Price supports can always be expected to be out of control, allowing the producer to sell an accumulating supply at a price that is rising against declining demand. As the supply rises, employment and consumer income falls, due to overproduction, increasing the price we can expect to pay.

We can always expect tyrants to tax more than subjects can pay, and in a market economy the money to be made has to come from somewhere, so we make it to support the price.

As the price commanded increases, the price demanded decreases, resulting in classic overproduction. Pop analysts are trained to ignore overproduction because the value produced is the holy grail of success--pricing power, which requires making money to pay the price and control the risk.)

Trying to control the price of oil on the supply side does not make sense because the price is being commanded, not demanded. Efforts to control the price by increasing supply has failed because there is ample supply.

Rather than too much money chasing too few goods, there is too much fuel at a price consumers can't afford to pay. Instead of inflation as Milton Friedman describes it, we have the classic phenomenon of overproduction.

Pop analysts reluct to mention overproduction because the logical cure is to either command (mandate) the price on the down side, or deconsolidate the command structure. Deconsolidation is to be avoided at all cost because the economy-of-scale, too-big-to-fail proportion is what empowers the corporate with self-determination--the power to command the outcome.

Deconsolidation structures the risk proportion so that price can be controlled on demand. When consumers are empowered with self-determination at the expense of producers, everybody, including the corporate body, tends to behave more responsibly on demand. Producers are more apt to add supply (a marginal product and a distribution of income) to make a profit (rather than inflating the price to reduce demand and add a marginal profit) because, as long as there is an alternative (supply pluralistically added to occupy the same space), a command posture is impolitic if not impossible without a price support. A government mandate, for example, is supposed to ensure we all behave responsibly, like mandating farmers not grow wheat for their own use because it does not support the price, or buy health insurance because it is unaffordable.

In the case of health insurance, the mandate is not considered a price support, but a means of resistance without sacrificing consumption. In other words, the support is provided to add the supply of insureds without adding the supply of insurers. It is structured into an economy-of-scale proportion, which in all probability will be used to support the price of health care to infinity and beyond. The marginal profit will be monetized (the profit will be "made") without adding a marginal product, which is inflationary.

No, this is not a problem of too much money chasing too few goods. This is an organizational problem that health care analysts fail to recognize because it consolidates power and structures it to distribute on command, by mandate, from the top down, not on demand from the bottom up. Instead of being self-determined, we are turned into animals in a Skinner box, operantly conditioned to responsibly (i.e., responsively) act in the image of our masters.

Consolidated capitalism much prefers a mandate because it conserves the command structure. What can be mandated on the down side can be mandated to control price on the up side, which is why Republicans originated the health-insurance mandate they now oppose. Republican opposition is based on free-market principles and ensuring a level of personal responsibility they can somehow self-determine as long as a command structure legitimately occupies the policy space over time.

Maintaining the utility of an economy-of-scale efficiency maintains the command structure and the crises of overproduction that plagues us. It is the disease, not the cure.

Markets are not made more efficient by means of consolidation. Supply, as in the case of oil and gasoline, keeps rising since the market cannot demand it even with more and more money being monetarily added, which instead of reducing inventory supports the price and thus the money to be "made" on command. Since the added supply does not, as we reasonably expect, reduce the price (because futures markets have "determined" it is too risky), the risk being mentioned outside futures markets, in the light of day, is an increasing probability for government price controls, which could possibly include deconsolidation.

Deconsolidation includes alternative sources, and the economic growth that results will not be inflationary, contrary to popular analysis. The growth will fiscally manage the demand destruction (the deflation) that occurs when supply accumulates to be sold at higher and higher prices.

By increasing the distribution of income (by broadening the base, which is the way Paul Ryan refers to his tax increase on the majority of Americans to pay down debt), the crisis of overproduction, and the fiscal crisis, is cured with sufficient income to demand it, and pay it (but not if we broaden the tax base as Ryan suggests, which would be deflationary and add to the debt proportion).

Instead of reducing demand to control inflation, which obviously doesn't work, but broadening the income base (not the tax base), there is less need to make money by monetizing an increasing debt proportion to income. Instead of ensuring futures volatility, the contradiction (the dissonance) of rising prices (inflation) against rising supply (unemployment) resolves.

Preventing a structural correction that resolves the dissonance is what capitalism is organizationally designed to do. It is designed to profit from detriment (deprivation) in the guise of curing shortages. This is why during the Great Depression we were dumping grain in the ocean to support the price when people were starving, and despite the "Great Moderation" we still struggle with, for example, a glut of homes in the face of homelessness, bulldozing entire communities to support the price. The price, however, is the creative-destruction that capitalism claims is our natural condition and from which it derives value to support it in the name of continuous improvement.

The only reason the choice is either deflation and unemployment (overproduction with falling prices) or inflation and unemployment (overproduction with rising prices) is because the marketplace is too consolidated. The cure is to deconsolidate but is never mentioned until it reaches an overwhelming crisis proportion.

Letting the risk go critically gamma and burst before we consider the obvious is not the model of an Enlightened intellect. Quite the contrary. At this point in our history, letting economic risk gain a fully political dimension is to gain, once again, a declining rate of profit. Instead of a New Deal, perhaps at this point, following the Great Moderation, a persistent deflationary risk signals the opportunity for a more genuine free-market structure that provides with less need for government, rather than deprives with more.

We ignore the obvious cure because we have to "deal" with the "new," immediate crisis. We aptly avoid the cure, and conserve the class identity (the Hamiltonian virtue) of the value, by monetizing the accumulated risk proportion--by "making money."

It is no coincidence that Bernanke reiterates a Fed policy that will continue to be "accommodative" for the foreseeable future. Equity prices (and bond prices) get support (which tends to push small, retail investors in to take the risk). There will be plenty of money being made despite the persistent, deflationary risk...for now, anyway.

Accommodative monetary policy indicates an accumulating fiscal crisis--the inability to pay the economic rent because money is being made on command (what Goldman Sachs and Bank of America do by pre-dicting, or self-determining, prices in the future, positioning 99.9 percent of payers to take the risk because most of us are trying to cope here and now--being personally responsible as pre-dicted). Paying the rent on command (rather than on demand, like in a free market) pushes prices up in the face of rising supply, which supports the profit margin by resisting the demand needed to pay it.

When the king overextends the rent, as "We the People" know very well, the price, historically, will be paid. Fortunately, we have the means to deconsolidate the risk without catastrophic consequences, on demand.