Spreading the Risk: Managing the Risk Coefficiency

Much of the current discussion for financial reform that precipitates from the current liquidity crisis is about measuring risk.

Since managing risk requires a measurement of it, much of what is risk management is managing the risk coefficiency, or what is the perceived risk and the liability associated with it.

First, it is necessary to identify the source of risk in order to measure the coefficiency of probable reward and possible liability (assets less liabilities, or a fair-market-value-to-book-value differential based on the value of the risk).

For example, if the risk can be identified as "systemic," the liability associated with it can be considered ontologically exculpatory (it is a shared liability). It is possible, then, to share in the reward of the risk without any liability, or not share in the reward but share the liability.

Limiting liability is largley a function of managing the risk coefficiency, or identifying the source of the risk, which determines the divisibility or indivisibility of the liability for the risk taken.

Avoiding the risk does not necessarily avoid liability in the same measure because it is possible to forsee consequential liabilities associated with the risk being avoided. If avoiding risk causes harm, it can then be considered tortious, if not criminal, behavior depending on the source of the risk being avoided.

So, what makes for "the risk?"

The inception of capitalism is marked by the reduction of risk (risk avoidance). So, the implication is that economic activity assumes (takes) risk (the doctrine of "assumed risk"). The liability is equivalent to the risk assumed (the action taken) in the marketplace.

Separating the risk from the liability requires a court of law and a jurisdiction in which to sue. "No taxation without representation" essentially speaks to an assessment of risk based on the expected, probable liability of the king being the source of the risk that determines the value of "taking" the risk, which eventually evolves into "making" the risk (managing the risk coefficiency) as capitalism evolved from feudalism to post-industrial society.

While the corporation was originally a means of spreading the assumed risk, it later developed as an organized means of limiting liability (reponsibility) for the risk along with its probable reduction. (You can't be held liable for the risk if you can blame it on royal fiat, or an uncontrollable--unavoidable--gamma risk.)

Just because you take the risk and fail, or avoid it, does not mean you are not liable for the consequences, especially if you knowingly and willingly assume risk despite the probable consequences. Supposedly it is "necessary," then, to consolidate into large corporate bodies that can afford to assume (to take) the risk (the economy-of-scale ontology).

The best way to reduce risk was, as it is now, to "network the externalities" (to control the probable risk factors). The gamma risk, like the value of your goods or services being determined by royal fiat, was a risk that accumulated into a revolutionary proportion; and the revolution, as Thomas Jefferson surmised, continues long after The Revolutionary War.

Supposedly, economies of scale reduce market risk. If we want a free-market mechanics, it is necessary to not allow for this control of the risk because it requires firms be "too big to fail." It defeats the structural incentive of free-market economics which is, "the risk of failure."

Defeating the free-market model is not the product of an exculpatory ontology. It is a deliberate act of design to knowingly and willingly avoid the alpha risk. While the action deliberately increases beta-risk valuations, it also increases the value of the gamma risk--it increases the need, the demand, for government authority.

If we want to reduce the need for government (the gamma form of the risk), look no further than reducing the deliberate act (increasing the liability) of reducing alpha risk by organizational means of economies of scale.

Instead, however, current financial reform is looking to regulate, rather than eliminate, what empowers the model of consolidated risk and its elite regulators. The action "taken" will empower the too-big-to-fail model with "fail safe" measures because being "too big" is for the purpose of avoiding failure without risk of liability.

Failing safe means that the too-big model is safe from failure, not that the marketplace will be empowered with the risk, and the liability, of failure.

Financial reform being offered will not empower the alpha risk because it will not reduce the purposeful size of organized economic scale to avoid, and accumulate, the risk into a crisis proportion that protects the model from empirical failure (the coefficiency of organizational size to economic success based on an otherwise probable of failure).

So, instead of progressing into an ontological model for managing risk without crises, we regress back to reliance on the gamma-risk ontology of government fiat. (Would Obama and the legislative realignment transform our economy into a model less prone to catastrophic risk? Your "guess" was as good as mine, and the answer is, no!)

The gamma risk is getting support where it needs resistance, and the alpha risk is getting resistance where it needs support. It is the formula for continued cyclical crises that is clearly considered to be a social benefit to be conserved.

As long as the means of surplusing risk and the means of managing it is considered to be a function of managing the risk coefficiency by deliberately (reliably, predictably) causing it, the pent-up demand for an equitable distribution of risk, and power, will eventually propel us forward.

Destiny is no slave to a hard determinism. We can choose to completely progress out of feudalism and the tendency to consolidate power (the risk) with a deliberate, genuine self-determination that spreads the risk with a measurably self-evident coefficiency.

Cultivating "Organic Growth"

The economy, simply, must be organized for "organic growth" that is clearly identified with expansion of the pie (the proliferation of firms and dissipation of risk, not the consolidation of firms with proliferation of risk and dissipation of industry and markets).

Expansion is clearly verified with employment. It does not rely on the abstruse quanta-phenomenologies of an elite regulatory authority. By the same measure, simply organizing for "organic growth" will not be indicated by consolidation of firms (the merger and acquisition activity that precedes economic recovery) and continued economic contraction verified with unemployment.

Expanding the pie is supposed to expand the market in which to be shared, literally increasing the number of "shares" in the market to demand the increased supply. The result is growth without inflation and/or unemployment instead of the crisis of overproduction.

Overproduction is demand reduction that results from over-accumulation of the capital, or liquidity crisis. The crisis is easily, simply, resolved by not allowing industry and markets to consolidate with a false economy-of-scale efficiency argument.

It is a critical error to reform financial markets, for example, without deconsolidation of firms too big to fail. The tendency of reform is to eliminate the "failure" component and retain the "too big" component. That is a "big" mistake!

Resolving the financial sector to prevent crises requires deconsolidation. The sentiment expressed by interests close to the reform is that predicting and preventing crises is not possible, indicating that the critical size factor will not be resolved. The capital will then continue to over-accumulate, along with the errors. The result is easily predictable--crises of overproduction; and if it is easily predictable, it is just as easily, simply, preventable.

Mired in technical complexity, the critical, causal factor will be conserved through public process. The critical errors will be maintained as best practices best determined by the private sector which is, of course, being too big to fail. If, however, the only reform is to allow for failure without the resolve of a deconsolidated free-market, all that is left is the unresolved risk (what cultivating a free marketplace dissipates, or resolves, in priority). The accumulation of errors will present as catastrophic liquidity crisis and the need to prevent it in posteriority.

Maintaining the status quo by allowing the possibility of failure is not real reform. It allows for the business cycle to operate according to the classical model of capitalism which, by empirical trial, is an ontology for the consolidation of wealth and power into the very highest degree of crisis proportion. The empirical back test on this macro dynamic fully indicates that "too big to fail" will continue as the best organizational practice. Valuations will reflect the organizational practice.

Defining "organic growth" defines the problem to be solved or, in the case of financials, "resolved."

Resolution authority, which is suggested to be the primary means of financial regulation, does not suggest a free-market ontology, but an authoritarian regime that affirms the legitimacy of an elitist practical model, not pluralism.

If we want to cultivate "organic growth" of our economy, rather than firms that are too big to fail, we must switch to a pluralist model.

No change at all is certainly not the change we need if we want to expand the pie.

Ontology of the Moral Argument and Technical Analysis

There is no difference between the moral question and the practical question when analyzing economic trends.

When, for example, the analyst observes that the accumulation phase of the business cycle is followed by a distribution, it is critical to also observe that the latter phase tends to structure into a political process that confirms the distribution of power, dominated by argumentation of "the right thing to do." If the majority of The People do not have the economic power (the income) to exercise choice in the marketplace because it is in an accumulation phase, they will look to political means for a distribution.

To say that a distribution MUST occur is an ontological argument.

What happens if the distribution does not occur because the practical philosophy of ensuring a constant state of accumulation ensures the the greatest good for the greatest number? The outcome is always a demand for a distribution.

The deprived, who are a necessary condition of accumulation, are not the sole source of the demand. The beneficiaries, who realize the necessary condition for accumulation, must also demand a distribution to pay the accumulated debt of deprivation. Thus we have cyclical trends--boom and bust--both short and long.

While the empirics of the process ontologically presents in the natural world, it is inextricably linked to teleological influence and provides a predictable sentiment for the analyst.

For the greatest number of The People who must be deprived to provide the utility of the accumulation, the failure of expectation is at its highest level, and is an empirical measure. The measure will be empirically acted on with the effect of a distribution to satisfy the demand. The empirical measure has the moral import of providing the greatest good for the greatest number: an equilibriating, stabilizing, distribution of power that minimizes the retributive value.

The retributive value is approximately the value that must be monetized into a public debt if it is not distributed directly to The People (the greatest number) to either pay the debt or cause the economic growth (the distribution) to render the debt unnecessary by satisfaction of the demand (an increased savings rate that pays the debt and supports the dollar rather than causing deflation).

While arguing that accumulation is, and should be, sustainable is empirical nonsense, it is persistently argued in error nevertheless. Its practical application is not a function of reason but the sheer force of accumulated wealth and power.

The distribution must, and will, occur in the short and long term. The depth and breadth of the deflationary trend is dependant on the length and strength of the accumulation phase and the organized ability to price the consumer out of the market, causing a declining rate of profit.

The declining rate of profit is mitigated by continuous consolidation into "too big to fail." Without the consolidation, equity value is not gained, and sustained, in the form of accumulated capital (and we now see the Dow back up to 10,000 with financials scoring record profits).

The organized accumulation of power, both politically and economically, runs a high risk, however. The demand for distribution is prepared for a facile switch to a socialist legitimacy (the legal authority) to retribute the accumulated value on command.

While the utilitarian moral obligation may eventually present as socialism by historical ontology utilizing the practical means of an organized consolidation of power, the failure of expectations has no recourse beyond the force and legitimacy of public authority. The "greatest good for the greatest number" is whatever the technocrats declare to be a verifiable hypothesis, much like what we have now with a very high degree of failed expectation.

Not expecting the Ivy-League "talent" to be bonused in record amount for wrecking the economy, for example, is not in any way unreasonable. Proponents argue, however, anyone that does not see the moral utility of bonusing the best and the brightest from record profits is not fit to be one of them because they are not initiated to see this deeper, secret knowledge: productive capacity is ensured by profiting from the deprivation of others. (Could that be because it does not make any sense!) The reward (the moral utility) is supposed to be from expansion of the pie, not the deprivation of it. The deprivation and the profit are verifiable, the deeper truth of the moral utility is not...it is the realm of true-believing, and over-compensated, automatons of consolidated power.

Keep in mind as well that compensation is decided by the boards of directors, not the stockholders. The elite, of course, have that secret knowledge to rule in the best interest of the plurality--a moral argument that indicates the probable trend of executive compensation as well as the source of executive recruitment from Ivy-League schools.

High-leverage finance, and the high compensation for executing it, will continue to trend despite being described by opponents as providing a "perverse" incentive which, again, indicates recognition of a moral hazard. Eventually, given the depth and breadth of the recession, the hazard is likely to sublate into a pay incentive that executes growth, rather than consolidation, in order to be profitable. The fundamentals will then be likely to drive the trend both short and long, turning this trading market into an investment market.

The longer the accumulation phase, the longer the recession. Resistance to the distribution, accumulating in the form of the public debt, determines the probable outcome: a double-dip recession with a weak-dollar recovery.

Resistance accumulates by moral argument: avoiding the risk of not ensuring continued accumulation. Socialism (unproductive and inefficient command economy) is the risk to be avoided.

The result of resistance is an accumulating debt that sublimates (and simulates toward a socialist sublation) a distribution, but it has the utilitarian moral capacity, so the unsublated capitalist argument goes, of productive incentive that allows capital to be gained for investment in economic growth.

Avoiding the moral hazard of a government-forced distribution (the gamma risk), the moral argument then becomes: providing the greatest good for the greatest number is by deprivation, identifying just exactly what is irrational about the marketplace we have now.

It is not The People who are too irrational to act in their best interest, it is the elite of power. The ontology of the moral argument is clearly indicated.

Valuation of Assets

Asset valuation, critical for successful investing, requires identifying what determines "market" value.

What, then, is market value?

There is alpha, beta, and what I call "gamma" risk.

Political economists utilize analytical modeling to achieve predictive utility. If predictive accuracy is lacking, it is probably due to using the wrong analytical model. Error is likely reduced by changing the analytical model being applied. Actors in the marketplace are unlikely to switch practical models because modeling provides predictable results and also satisfies consistent philosophical considerations to achieve a normative legitimacy of the means and ends that also affects the outcome in some very unpredictable ways.

Actors in the marketplace are likely to have a consistent application of a practical model to reduce the probability of outcomes to what appear to be random variables that are usually a "gama" risk. The gama risk is reduced to a political gaming of economic variables to produce a predictable outcome that has a normative legitimacy. This does not mean that identifying the gama risk is not a technical function to be quantitatively ignored. That is a critical error. Rather, it is a technical function of properly applying an analytical model. Proper modeling renders what seems an inscrutable vectoring of willful actors and organized technologies into an easily predictable phenomenon at the micro or macro scale of analysis.

Much of the analysis at griffithlighton.blogspot.com, whether normative or technical, descriptive or prescriptive, proceeds from choosing an analytical model to not only accurately describe and explain valuations, whether moral or monetary, but to achieve a predictive utility.

It is a mistake to ignore moral valuations, for example. It is fundamental to practical modeling that is used to shape what "the market" determines to have value. The public and private sectors operate with different normative properties that largely determines organizational, size, shape and cultural attributes that if not accurately modeled, a predictive utility will be achieved only by accident (randomness).

Where the public and private sectors intersect is where the gama risk essentially resides, and where the appropriate analytical modeling describes, explains and predicts what are normatively called "market distortions" that effect the outcome--what the value really is at any time. Recognizing the normative aspect of the gama risk technically reduces the error endemic to quantitative analysis and punctuated events of predictive failure.

Utilizing the appropriate practical, analytical model, for example, renders the current economic "crisis" not a crisis at all, but a fully expected, "normal" (normative) outcome. If it is expected, it could have been prevented, but that would require abandonment of the working practical model that determines the outcome. Not abandoning the model, and the expected outcome, is a normative consideration--because it would be the "wrong," the aberrant, thing to do; it would be impractical, and the normative consideration (the value it represents) is to be fully, analytically, expected with a technical value of about $4 trillion to date. The magnitude of this technical value, and the effects, like a public-private solution (the gama-risk valuation of assets), is too easily predictable as long as the analyst is willing to empirically apply the appropriate analytical model.

If the analyst considers the plans of Geitner and Bernanke a "market distortion" of valuation, it is a normative invocation of the pluralist model that does not predict the real (expected) value of the assets, but may very well suggest an expectation of value in the future based on the normative valuation (a retrace of the value). This suggests a mixed model in operation: an elitist and pluralist model in combination, rendering a bureaucratic analytical model of political economy. The analyst may hedge the gama risk utilizing this model (see the article, "Restructuring the Elements of Power" at griffithlighton.blogspot.com).

Substitution of the Value

Assessing the value of assets requires identifying the substitution of value derived from varying sources. For example, announcement of the Obama administration for a moratorium on mountaintop removal will, if enacted as administrative law (the bureaucratic model), reveals the subsidy (the substitution of value) that gives the profits of coal companies more value than the "actual" cost imparts to the benefit. The asset of coal reserves are thus overvalued, and the rate of substitution (Pareto Optimality) is diminished. The measure of cost/benefit efficiency is rendered an inaccurate technical valuation. The subsidy trades, or substitutes, the value of coal assets for the value of alternative energy assets.

The normative value of recognizing the "real" value of the subsitution effectively reassesses the value of the assets. The subsidy is then recognized as a "market distortion" that will be an incentive to innovate the technology to remove the coal asset to recapture the subsidy (the value-added benefit that had substituted the value-subtracted cost to produce a net inefficiency that was determined to be an asset and not a liability, determining the total assessment of the value). The result is a reassessment of market value and the "natural" incentive to minimize the cost and maximize the benefit, or to optimize the economic value to everyone's benefit. The benefit is rendered more indivisible and the marginal profit more accurately measures the marginal utility.

The subsidy is normatively "bad" because it does not allow for the incentive to attribute the value of the profit margin (the measure of marginal utility) to the value of the possible alternatives: it did not allow for a competitive multiplicity of the marketplace (a pluralistic model). Instead, the subsidy is aquired, and the substitution of value maintained, by access to political process (an elitist model), and the value ultimately retributed to its source--the value of possible free-market alternatives--by administrative law (a bureaucratic model). The value is assessed by operation of a bureaucratic model of power and political economy.

Looking at the Bernanke/Geitner plan for recapitalizing the banking system, Geitner's declaration of needing the authority to seize the assets of a failing company that is too big to fail, including non-bank firms, is a declaration of bureaucratic power that counters, or technically corrects for, the critique that the market has been rigged into a tyranny of corporate power. It is substituting for the positive effect (the optimal efficiency) that would obtain if bureaucratic power were applied to ensure in priority a free-market economics in which the economy is pluralistically not dependant on the success or failure of any one small firm, but instead is dependant on a few interlocked firms that are too big to fail and, thus, dependant on bureaucratic power to survive.

Combining the elements of elitism and pluralism, the Bernanke/Geitner plan operationalizes a legitimacy of outcome (of power) that combines the value of market efficiency (pluralism) with the absolute arbitrary value of government (elitism). The synthesis, while being an ad hoc organizational measure to allow what is a failure to succeed, is the organizational technology that can be utilized to effectively ensure free-market efficiencies and the fair and accurate valuation of assets and liabilities that is, in this case, clearly lacking and critically needed.

To incentivize, or optimize the marginal utility like a free-market would, the subsidy, the substitute, of the latest plan to lure private capital to support what is too big to fail but not too big to be government controlled (absolute arbitraty value) is, predictably, entirely at the expense (the risk) of public capital and is, predictably, consistent with the bureaucratic model of power and political economy (see the article, "Restructuring the Elements of Power" at griffithlighton.blogspot.com).

We see, then, the contradiction to be reconciled, or to be practically applied into what central bankers call "a process of resolution." While the public dollar is imparted less value than the private sector dollar, arbitration of the value is by public authority. The absolute value of public authority is substituted for the efficiency value of free-market economics, and the subsidy (and the sub-optimization) occurs.

The distribution, or retributing, of the accumulated value (the subsidy) is a necessary condition for economic recovery and growth. Without retributing the value, the means of accumulating the value (the subsidy) is not possible. It is a necessary condition of the capital, and the more value retributed without depreciating the value of the dollar (by recapitalizing from the accumulated benefit rather than monetizing the debt with a regressive tax burden--a subsidized valuation), the more profitable firms can be and the more economic expansion that can occur.

Fear or Loathing: Do Economists and Business Leaders Lack Expertise to Manage the Economy?

There has been criticism that our technocratic elite have shown considerable incompetence to predict, prevent, and now control and abate the economic crisis.

The criticism, getting a loud voice from a wealthy class of new rich who are now being branded in the media as "less rich," is incorrect. The economy has and continues to be managed with competence to define class distinction, or the measure of "success" that occurs with the deflationary phase of the macro-economic business cycle.

The "class" dimension is absolutely critical to understanding the measure of success or failure. What appears as a political failure--a maldistribution of wealth to the upper class--is an economic success. That is what the Hamiltonian (elitist) model of power and political economy is supposed to do: operate to clearly confirm class distinction, defining just exactly who the elite are. At this point within this elitist model, there is, of course, the impetus for a political solution to catalyze a recovery phase of the cycle that is the antithesis of deflation, or inflation (an economic metric).

As long as the recovery phase is managed within the Hamiltonian model, the political measures taken will be inflationary: monetizing the debt with a regressive tax code that produces a budget deficit. The alternative to the budget deficit (inflation) is an equally massive economic detriment, like people starving in the streets, that no one can tolerate, not even the elite because it accumulates too much retributive value to be managed at one time.

At this phase of the political-economic cycle we can choose to finance the recovery with a regressive tax burden that confirms operation of the practical elitist model, or we can choose to progress the tax code and modify the working model to a more pluralistic effect.

Progressing the tax code will not destroy our nation or the free market as all the conservative rhetoricians, that have all the access to media form the margin because the elite can afford to own it, say it will. The fearmongering is an expression of this marginal disproportion of power that the elitist model produces and is designed to maintain with a level of competence that is the best money can buy.

The experts are busy telling us that the prospect of progressing the tax code is keeping the economy in a deflationary trend. We should be afraid of that prospect. It will spoil recovery by discouraging the reinvestment needed to trickle down to the masses and overcome their fear of having no income to spend. Nevermind, of course, that expert implementation of this theory led to their having less income to spend, record depreciation of household net worth, and the fear (the prospect) that it will get worse. What is bad about the economy, what is to be loathed, is being expertly attributed to the fear the elite have of probable change that occurs with the depth and breadth of the cyclical trend and the unequal distribution of wealth and power it is intended to conserve. What the elite fear is, by the absurd reduction of the 18th Century collective utilitarian argument, what we all really fear in our collective self-interest.

What is the elite's fear is the non-elite's triumph of a constitutionally endowed pluralism. The fear that our technocrats are telling us is driving our economy into the ground is a misattribution. The fear factor is the political will to switch to a more pluralistic model that threatens the status quo of power a la Thomas Jefferson.

Our economy is not continuing to trend deflationary out of fear of the largely non-elite consumer who is not spending. The spending is inadequate because the income is not there to support it. It has been consolidated as per the elitist model in operation, and being very competently applied. The trick is now to fool us into believing that choosing the means for a more pluralistic model of power--a more progressive tax burden that will enhance non-elite spending--is antithetical to the basis of our constitutional form of government that protects our freedom. The argument is, of course, absurd.

Operating with the elitist, Hamiltonian model causes the lack of income because it has been accumulated in the upper class to now be consolidated through political process of a regressive tax burden so that the recovery will be financed by borrowing from the consolidated wealth with interest (a budget deficit) instead of taxing it.

The elite of power are afraid, they fear The People will realize that the practical model can be easily changed so that instead of financing the means of consolidating power, We finance the means of real freedom we are all endowed.

Instead of financing the means to defeat free-market economics, We finance the means to allow for it in the fullest measure. We may then confirm what it is we have to fear: a free market or the lack of it?

The expertise being used is being mistaken for the lack of it because the complexity of the problem is being used to convince us all that the cure for our loathing is to be feared: that the problem is the solution; to identify the fear of the elite--the solution--as the object of the loathing, or a fundamental error of attribution. It is a deliberate error, a fallacy, being detected but erroneously interpreted as, attributed to, incompetence of the technocrats instead of the successful operation of the organizational technology--the elitist model of power and political economy.

The bad economics we all loathe is not the result of free-market economics, merely the lack of it. Realizing that is what the elite fear and will do whatever it takes to turn what We loathe into what they fear with the highest level of expertise.

Managing the Risk

If you have been following the articles in political economy at griffithlighton.blogspot.com, analytical modeling is critical for understanding political-economic policies, programs and evaluation. The different models of power yield highly probable results. Predictive utility--managing the risk--is the practical utility of organizational modeling.

Devising and implementing policies and programs that fit the pluralistic model in which power is maximally diffused to check fraud and abuse with the most direct, and confirmable, accountability is the antithesis of the model we are using now across all jurisdictional boundaries, from the structure of community power to "globalization." Trying to achieve pluralistic results with an elitist model of power condemns us to a painfull progression of historical evolution, needlessly suffering the illusion of pluralism to realize it by means of dialectic determinism.

In order to achieve a more pluralistic society, abandoning the elitist model for the pluralist model is a requirement.

The first thing the Obama administration did was finance expansion of healthcare with a regressive tax burden. Regressive tax policy is a characteristic of the elitist model. It shifts economic value from low incomes to high incomes in the name of the general welfare. A regressive tax burden does not fit the pluralistic model because it consolidates economic value and, therefore, power to organize and manage the pluralistic elements of power to a predictable outcome that fits the elitist model. Providing the means to organize the plural elements of society into an operational consolidation of power that predictably yields a consolidation of value describes the elitist model of power.

In anticipation of SCHIP, and subsequently, the pharmaceutical sector set to consolidation. It fully intends to tap-out the pool of funding set up by the program's regressive tax burden in collusion with the medical profession. The result will be rising costs and lower incomes to finance it, fully consistent with (predicted by) the working practical model with the final practical result being deflationary--exactly what ails the people touted to benefit from the program.

The profit scheme of the elitist model of power and political economy is a web of seemingly disconnected policies, programs and sectors both public and private. It is seemingly pluralistic, but its elements are deliberately organized to defeat the direct and confirmable accountabilities--like controlling costs, fraud and abuse--that a true pluralistic model easily achieves. The result of SCHIP, for example, deflation, will pressure tax increases to keep the profit margin expanding as the pool of funds is depleted (more deflation). It perfectly fits the elitist model of power and political economy in which a "class" of people are targeted for a regressive burden, made a sub-class of citizens below the citizens that do not pay the tax directly but set themselves up for an indirect increase in the price of goods and services in the private sector. The majority buys into the elitist, class-model of power that seduces The People into operationalizing with the model for their deprivation thus considered "self-determination" and a legitimate outcome of the practical model.

The TARP funding, implemented by Treasury with the authority of our Democratically controlled congress, is another example of how the elitist model of power and political economy works to predictably manage risk.

While the American people were told the return on TARP funds would be 1-1, The People ended up with a realized loss of forty cents on the dollar. Investment from the private sector, however, yields a twenty cent return on every dollar. The difference in the quality of the investment and the expected return is that one is an elitist dollar and one is not. One is a public-sector dollar, and one is not. According to the Hamiltonian model--the bifurcated model of power, the public-sector dollar should not be allowed parity with the private sector of power, ensuring the superiority of the power elite, operating with public immunity and impunity. The sum result is that the leverage (the bad debt) was liquified into a merchantible money asset that fully supports the elitist model. Operating within the model is thereby confirmed to present minimal risk and the probability that the model will survive to reiterate the expected return is almost perfect. The same risk-return ratio exists for the SCHIP program and, combined with the approach for the financial sector, suggests that the change in organizational modeling we need to prevent crises is being managed to minimize the risk the change we need will not occur, despite all the rhetoric.

The problems we now overwhelming face are not a function of ideology and rhetoric, but of practical organizational means. The change we need is not ideological or rhetorical, it is organizational. Accepting a new ideology will not change anything but the rhetoric to support it. Accepting a new organizational model will achieve the practical change we need.

High level financiers will now call for the need to have a global, coordinated means of managing the risk (the retributive value) of overleveraged assets that causes highly punctuated crisis events like we have now that threatens the Hamiltonian model of power. The elite will call for a coordination of central banks--a monopoly of economic power that is otherwise considered illegal but is now being argued to be the only simple solution for preventing deep deflationary trends of the business cycle and abate harmful economic volatility. It is a call for an inimical consolidation of power that should not be allowed to occur. By their design, this crisis is a vehicle for finishing the consolidation of power at the global level so that power will not be shared any further by historical dialectic, like the American Revolution, but kept in current hands.

It will be a global system of governing that will manage the systemic risk by there being no means of exacting the retributive value with the force and legitimacy of public authority. It is the systematic consolidation of power that Thomas Jefferson warned us of.

Evolution of the Political Economy

The last transformative crisis of capitalism was a punctuated evolutionary event that called into question the system of a bifurcated power structure of public and private domains discussed in previous articles. After The Great Depression, the power elite admitted contemplating whether the power structure should be modeled as fascist or communist. The bifurcation of the power structure was a threat to elitist power because it was too unstable and was providing empirical confirmation of the Marxist critique of classical capitalism.

The elite could not very well adopt a model we had fought a world war to prevent, and communism, while it would allow the elite to sytematically keep its power by maintaining an elitist administrative model, is antithetical to the Hamiltonian model of a ruling "class" society of private power with the force and legitimacy of public authority (government). Since the Hamiltonian model was too unstable, it would have to be modified (evolved) to survive. The conservative "principle" of strict bifurcation of the power structure that produces "great" wealth, and the legal authority to accumulate that wealth, causing a "great" depression, mutated into a "mixed" Keynesian economy.

Marx predicted this evolution of capitalism and called it "anti-socialist socialism." While the "decision" (the economic determinism) to adopt a more public/private mix of power was to prevent confirming Marxist hypotheses, all it did was confirm the critique of classical economic theory that the accumulation and consolidation of wealth and power will result in crises that evolves the power structure into an evermore equitable distribution to save itself. The power elite hang on to the vestigial emblems and rhetoric of consolidated power as long as possible.

The conservative rhetoric we hear now, that society is "naturally" ruled from the center-right, is but a desperate vestige of an empirical failure in an evermore scientifically cognizant society. There is really very little the conservative element can do in the face of economic determinism. We can continue with regressive (deflationary) burdens to publicly finance Keynesian policies and programs to validate the Hamiltonian model of power as application of the general welfare, like the SCHIP legislation, for example, but as we have seen, kick the systemic risk out the front door, it just comes in the back; and with every punctuated event toward a more pluralistic power structure, each recession is accompanied with a higher level of social expectation so that, while the detriment is monetized, it still "feels" like The Great Depression.

Financial markets will continue to be volatile. Equities will dip to oversold levels till the professionals have shook out and consolidated as much equity share as possible...you know the old saw, "the market can wait longer than you have money." This is where the zero-sum plays in the macro-economic cycle, where the mainstream economists falsely assure small investors that the lost value is not being consolidated. The bear market will end, and the recovery phase of the macro cycle begins, when the professionals are largely buying and selling to themselves.

Small investors will panic-out if not sell out of necessity. The wealthiest among us (the power elite of the Hamiltonian model) will consolidate those shares and sell them back on the uptick of the business cycle to small investors that, among other things, have to pay a more significant tax burden by a function of the size of their income (this is the reserve--the surplused value--used to buy, or consolidate, the wealth in a state of distress and an indirect means of accomplishing a zero-sum accumulation). The value of a regressive tax burden, including the burden of a flat tax, is magnified by the element of crisis. The false argument that there is no zero-sum loss of asset value is easily made by economists by ignoring the full mechanics of the macro systematic cycle. That is what they are educated, if not paid, to do.

Falsely arguing a non-zero-sum accumulation of wealth, and power, is an easy con because the sum lost is gained on the uptick of the business cycle and not at the time of the distressed value, the crisis, where the victim (the zero-sum loser) is experiencing the deflation of asset value. Ingenius as this system of expropriating value may be, it is not sustainable because, over time, the distribution of value is so strikingly inequitable that not only does it cause crisis, but as the distribution tends to become incrementally more equitable, the members of cafe society appear increasingly clownish and the compensation for it to be intolerably absurd.

The army of MBA's that have been graduated over the past twenty years to administer the means that finance the incomes of cafe society become the scorn of non-elite society. They will have to look to more pluralistic means to satisfy their dreams of success, unless of course we retrench to accepting the false efficiency of "bigger is better" compensated by an organized means of "too big to fail," condemning ourselves to an unneccessary farce of cyclical crisis in which we reward failure with success.

Arguing the value of rewarding success is the last vestige of conservative rhetoric to persuade us that the natural progress of a more pluralistic society should be resisted because it leads to the evil, alternative "ism" to capitalism. It is an argument that masquerades ideology as intelligence, pressing for adherence to principles that are but the passe' rationalism of 18th Century utilitarianism evolved into the "isms" (the unempirical belief systems) of modern ideology.

While 18th Century utilitarianism motivated the production of great wealth, it is now an argumentative absurdity that lacks the empirical truth of daily modern life. We observe failure being lavishly rewarded with success; and when the non-elite lose their jobs and their savings as a consequence of the failure-rewarded-as-success, it is absurdly argued as a non-zero-sum economic expansion of the pie.

Calculating economic growth liquidated into negative growth, like we are experiencing now, as the general welfare, or a "collective" gain produced by an inequitable distribution of wealth and power, the conservative utilitarian argument has evolved into complete absurdity. The productive "utility" of the argument is that we emerge collectively stronger as non-elites must work harder to achieve the measure of success that, by definition, cannot be collectively had. The non-elite must sacrifice to achieve the reward of "success" in zero-sum so that the only way to share in success is for someone to be unsuccessful, or a system condemned to a struggle, a conflict, of a change of elites. While it may motivate a productively innovative capacity, it does not promote a peaceful means to prosperity. A moral existence becomes secondary to the struggle. The Nietzche-like "will to power" becomes the dominant existential value, or the moral imperative beyond what is good and what is evil. The moral imperative is, then, confirmed to be the interest of the self, and the powerful, then, have achieved power with a moral and, thus, legitimate collective security of what we all ultimately strive to achieve as individuals.

Where the adherence to passe' conservative principles lacks the intellectual capacity to recognize and allow for the natural evolution of a more pluralistic structure of power, it is full of self-interest, which forms the fallacious composition of the conservative argument: that the welfare of the elite (ensuring the success of the individual) is the general welfare (ensuring the success of the collective). The argument is defeated by the very definition of the elements that compose it: the elite by definition are successful by the non-success of others (a zero-sum). This is also where conservatives discredit the operation of a free-market mechanism that allows for a peaceful and prosperous evolution of pluralistic society.

Defeating the pluralistic, democratic, mechanism of free-market economics while maintaining its moral and collective legitimacy is an elegant success of the capitalist model to consolidate power and keep it. Success in the free market is defined by defeating its operation. The accumulation of wealth that causes liquidity crisis is the reward of that success and cyclically causing the crisis ensures its consolidation into a zero-sum over time. Pluralizing the accumulated power of this freely acquired success by an intervention of the public sector (government) to ensure the operation of the free-market mechanism is regarded as a threat to freely pursue the rewards of success by denying the full value--the full power--of it. Government, therefore, as it was in the 18th Century, can only be regarded as evil unless it operates to keep the power privately consolidated for the public (collective) good (the Hamiltonian model). The communist model of government operates with the same utility of consolidated power but without the distinction between a public and private sector which is becoming evermore mixed whether capitalist or communist. The contradiction, and the practical organizational convergence, is readily apparent.

The practical evolution of mixing what is public and private to maintain a consolidated model of accumulated power is not necessarily an improvement. Progress is not always linear.

The businessperson has always tried to defeat the free market out of self-interest, and where the free market obtained, self-interest has always been verifiably checked in the collective interest, or for the general welfare.

We are not doomed to the determination of a natural existence. We are not merely the ineffective subjects of an economic determinism in which the convergent forces of evolving organizational technologies result in a dystopic hegemony of consolidated power and a continuous conflict to willfully ascend its structure. Whether the legitimacy of power is capitalist or communist, for the individual or the collective interest, we achieve existential satisfaction when freedom is the measure of our success.

Government that ensures a free and unconsolidated marketplace in priority operationalizes all the elements of power--what is public, what is private, the individual interest or the collective interest--into a peaceful process of pluralism. What is otherwise an eternal sea of differing opinions that forces a perpetual conflict of competing interests is rendered a peaceful progression of realizing our natural existence both individually and collectively. Rather than a fate of economic determinism, we are free both individually and collectively to determine our fate.

Just because the proponents and practitioners of consolidated capitalism falsely argue the legitimacy of free-market economics does not mean it cannot be rendered a true legitimacy with the force of public authority. The result will be a peaceful prosperity that allows for the freedom to pursue the good life rather than the dictates of the will to power beyond what is good and evil determining the fate of our natural existence.

by Griffith Lighton

March 1, 2009

griffithlighton.blogspot.com

Organizing for Needed Change

If We The People want to effectively reverse and eliminate the cyclical crisis we are now experiencing, not only is trickle-down economics an empirically disconfirmed hypothesis that demands much-needed change, but the organized consolidation of the economy that it operates to produce and maintain demands change as well.

We see the congressional delegaton attempting to apply solutions to our economic woes that are the problem. It can hardly be characterized as "change we need."

From the price of commodities to the way public and private entities plan what we produce, the problem is organizational.

Bailing out what is "too big to fail" just perpetuates the problem--too big to fail--and effectively validates the "belief" that it is the model of efficiency when it is a hypothesis clearly disconfirmed by the evidence (massive unemployment and massive monetary support).

The massive monetary support will not reorganize the problem. It will provide a short term monetary stimulus that will forget the cause of the problem--the acquired belief that bigger is better, or most efficient.

The evidence that it is not is overwhelming!

Organizing for the consolidation of the political economy, for the consolidation of power, is the status quo ante, not change we need.

Instead of a point at which change is to naturally occur for a continuous, empirical improvement, our current crisis is being used to reinvent the problem into a confirmed consolidation of practical power that allows for elitist command and control of our political economy and for a continued false self-determination of The People.

If we do not reinvest, reorganize, consolidation of economic factors into small factors of manageable efficiencies that are quickly responsive to supply and demand costs and benefits and the tastes and preferences of the consumer (the public) with an equally quick accountability, the public is condemned to elite management of the political economy that in no way ensures a rational, objective, pragmatic decisional process that the collective will of The People is most apt to provide with a clearly verifiable legitimacy.

It is not impossible, and surely more possible and less complex than what we are doing now, to invest a small entrepreneurial economic system in which the stabilty of the system is not dependant, and therefore less apt to be corrupt, abusive and inefficient, if the failure of one industry or market entity does not condemn the entire system to short or long-term cyclical crisis.

Instead of how big you are being the measure of success, surviving the pluralism of the free marketplace is the measure of success.

Allowing for organized consolidation renders as the measure of success how corrupt and abusive a business can be and still stay in business (like securitizing--consolidating--debt obligations too big to let fail and impossible to renegotiate so that the debtor must fail and the lender must be bailed out). The abuse includes the margin of profit (inflation and unemployment to be managed politically) and a decisional process that leads to clearly verfied inefficiencies of current form that are shown to be difficult at best to reverse even with the force of public funding and authority. Reversing this measure of success is the change we need, and is entirely possible.

More than $2 trillion of monetary and fiscal stimulus (investment) is best spent to pluralize (deconsolidate) the economy, and power. The reason this alternative is ignored if not discouraged is because it will effectively cure what ails us. It will minimize the probability of crisis by not maintaining a consolidated model of power in which its huge costs are rendered a predictable, recurrent benefit of a power elite and a means to apply power rather than properly deny it.

Instead of denying access to power the inefficiencies of aspiring to be big enough to be corrupt and abusive, what access to financing provides and largely determines, the rigors of pluralism are discouraged for a systematic structure of power in which the pursuit of life, liberty and happiness is largely the discretion of a ruling class, enforced by the self-determination of the masses to be in service to it. It is antithetical to a structural model for freedom, morality, and efficiency.

Maintaining the model we have now is to commit to a proven model for encouraging inefficiency, immorality and a lack of freedom that interact to be a cause for crisis and, historically, acquiesence to an elitist model that cyclically reinforces and reinvents itself. An elitist model always deliberately discourages the natural tendency for a peaceful and prosperous pluralism. It cultivates and ensures its succession with the promise of a short-term comfort and security that assures the probability of an insecure future.

Invest pluralism of the marketplace in priority, not its continued consolidation as we are determined to do now despite the domonstrable political will for "change we need."

Pricing the Risk

It looks like the bailout funds will be mostly used to consolidate rather than pluralize the financial sector. Easily predictabe.

The economic model of efficiency being used is "bigger is better" which translated means "bigger is too big to fail" and receives public funding to consolidate and cause more crisis for more funding.

The current price on this risk is greater than $700 billion with a perfect probability of failure at 100 percent. I guesse we can't accuse our elits of not striving for perfection.

The bigger the firm, the more likely, if not certain, it will leverage risk for a magnified return, which caused the crisis we are now in. Banks will not be in the business of risking capital to grow the economy--lending to The People and their businesses--but to leverage a pure profit by bidding up futures contracts, straddling rate spreads and securitizing the risk into inscrutible value with bogus marks to the market.

The bureaucratic managers to discharge the TARP are sector executives that are likely to price the risk based on returns for the private sector and the consolidation of market share, recycling crisis with the legitimacy of public authority.

Instead of better products, services and prices, the consumer is financing an organization inimical to its interests.

Instead of financing a competitive multiplicity of the marketplace in which risk is priced in terms of the best value for the customer (The People), the risk is priced to shift it all it to The People with the least possible benefit and the greatest gain for the private corporate entity, thereby securing exploitation of The People, the perfect probability for crisis, and the public funding that it causes, all with the legitimacy of public authority which is defined by the consent of the governed.

The risk is priced out of the market and into the public domain so that the accountability is all with a bogus consent of the governed. The risk is priced by dumpimg all the cost into the public domain. The result will be crisis and the need to service the inefficieny of "bigger is better" with public finance, always being supported as the confirmed model of efficiency with the empirical verification of the huge amount of public money spent to bail it out, and preserve it, by popular consent.

The People's capital needs to invest a deconsolidation of industry and markets, not pay for the organized means for The People's deprivation.

Obama/Biden 2008!

Selling the Greed

"Buy the greed, sell the fear," so the saying goes, but as we emerge from a period of our economic history in which this philosophy has been practiced to the nines, and the result has been to cultivate a culture of corruption and crisis, the small number of beneficiaries and their huksters now need to sell the greed and persuade The People to buy the fear.

"Greed is good," so the argument goes, and we must now manage the crisis component of this practical, utilitarian philosophy with the neo-conservative element, like the McCain camp, arguing that The People must buy into the fear of socialism in order to preserve what motivates the creation of wealth and, therefore, the privilege of determining its distribution.

Wealth shared is wealth squandered by not making the scarifice necessary to create it, so they argue, but The People are not seeing an empirical verification of that hypothesis. The utility is not verified, but disconfirmed by the clearly observable evidence.

Yet, we still have the aspiring non-elits that cling to the absurd belief that if we share the wealth, the wealthy will no longer be wealthy and the poor will still be poor. The result is a Non-Pareto Optimal, dead-weight loss in which everyone loses.

The argument is irrational because it is the product of greed, an emotion accepted, bought, as a practical philosophy instead of an indicator for behavior modification that avoids an impending crisis of a few that have too much at the expense of everyone else having too little--what we have now.

Conservatives argue that the criticism of the utility of greed is overly academic. We are thinking about it too much. That a sacrifice has to be made for the production of wealth, savings, is obvious, and the elite, they argue, are best suited to own and manage that sacrifice, the savings, so that we can have more savings by it being deprived of The People. It is, of course, illogical to claim the deprivation of value adds value. No, it redistributes the value to cause an easily avoidable crisis--a cyclical liquidity crisis characteristic of a debtor economy.

Since the elite are best suited for managing the capital (the savings, the sacrifice), they must be rewarded with the "privilege" of not having to share in that sacrifice, conservatives argue, because they will not, then, take the risk to organize the production of wealth we all enjoy. The privilege is the reward for successfully providing The People with what they want, and that is motivated by the emotion of greed with the result being an accumulation of wealth that indicates the value added in the form of the capital.

The problem with the conservative argument is that the value was not added, it was accumulated. The result is a debtor economy (a leverage economy in which more value is added than produced) that is always being managed, organized, to buy the greed and sell the fear even when it is illogical and empirically not beneficial for The People that give it both the value and the legitimacy of its power.

Conservatives argue recognition of the problem as socialism. The logic required to solve the problem is reduced to the fear, the emotion of it, which otherwise serves to indicate danger to protect and promote the welfare of the species. Conservatives are utilizing this primordial survival instinct to destroy its utility for The People. Reversing that would be to, as they say, think about it too much. Providing for their welfare, I dare say, is what The People want, and providing for recurrent crisis does not, then, fit the reward of privilege.

The privilege of accumulating value by leveraging it into an artificially added value is supported by the innovation of productive capacity. The more per-unit production added per dollar invested, the more value can be added, or accumulated, to be greedily reinvested for more accumulation through innovation. The problem is that the accumulation does not allow for a competitive reinvestment based on the profit margin. The result is to greedily innovate ways to add value without growth, which leads to the crisis of overproduction in which demand is overburdened with debt, like we have now.

The growth that occurred was largely in the real estate development sector, where you can get rich quick, but because the wealth is greedily accumulated, instruments of finance were innovated to allow the demand to be driven by debt that could not be paid. The result is the crisis of overproduction, or the inability to pay--the foreclosure crisis.

According to conservatives, the capital is greedily invested to innovate production which adds wealth. If the reward of greed is denied by sharing the wealth, it will not create it. If we do not allow the reward to be fully enjoyed by the risk taker, the risk will not be taken, and the reward will not be had to be unduly redistributed with a socialist model, or reinvested to cause competition and disinflation with full employment and maximum consumer choice provided by a free-market model.

Greed drives the incentive to risk the capital. Without it, risk, or innovation, will not occur. This equates risk of loss with productivity and innovation. If you are not productive and innovative--greedy, you lose.

So, the argument goes, we were much better off before we started flirting with spreading the wealth around. That has made the capital not willing to take the risk of growth and innovation. It becomes illiquid. If we do not allow greed to operate, we will self-determine, choose by operation of our intellect, an extreme deprivation. We are all better off if we all embrace the reality of our greedy impulses and ignore the latest fashion of intellect.

Never mind that greed is likely to result in the indifferent deprivation of others, which brought us to the crisis of illiquidity. It was the greed--the overwhelming, irrational, fearless passion for risk and reward, the supreme confidence in its virtue without thinking about it too much, not the lack of it--that caused the illiquidity. If greed is the problem, how is it the solution?

Now that the greed has been overbought into a major crisis, the fear is now oversold. The People are not buying it. It is illogical. It is unreasonable to accpet the problem as the solution.

Where The People once accepted the business cycle as a naturally recurrent event of undirected determinism, like the weather, We now know it can be the directed product of our self-determination, not driven by greed and fear, but the virtue of our intellect.

Obama/Biden!

Economy of Innovation

President Bush says that regulatory reform of the financial sector should allow for innovation. The general suggestion is that regulation of industry and markets stifles innovation, including financials.

That is incorrect.

First, innovation is likely to occur where the capital is, and if the capital is allowed to concentrate as much as it is (not spreading the wealth around), then innovative ways to produce profit without growth are assured, has occured, and has resulted in general crisis.

Innovative ways to prevent crisis (optimal investment), instead of causing crisis, requires spreading the wealth around, or deconsolidating the capital.

Regulation can also produce innovation to control externalities, like pollution. Unfortunately, the capital is so consolidated, the innovation is resisted, considered a cost, not a benefit, so it suffers deficient investment (economic growth) and tends to be exported along with the jobs associated with it.

Neo-conservatives opt to keep the regulatory authority proactively cooperative, acquiescent, and a sycophantic satrapy organized to give the abuses of consolidated power the legitimacy of public authority, and to reactively manage the risk, the cost, to a minimum.

For the financial sector, the lack of regulatory authority produced negative innovations that are now being dealt with as negative externalities to be crisis-managed by the regulatory authority.

The negative externalities are the product of extreme misfeasance if not malfeasance of a public/private power structure called "The Iron Triangle." It is the bureaucratic model of power and political economy and it yielded a competence for corruption because its power is so huge and concentrated (non-pluralistic). The result is a systematic, structural, failure not seen since the Great Depression.

There is no reason to believe switching this bureaucratic form of power to a socialist legitimacy will be any less corrupt, and here is where the conservative rhetoric is focused to instill fear, loathing, and logical fallacy.

What needs to be innovative about the financial sector?

Innovative ways to lure consolidated capital out of its horded haunts yields crisis. We have incontrovertible empirical proof of that by living it now, but McCain still wants us to "believe" that innovation of leverage finance, encouraging it with a highly regressive tax code, will "create wealth." No, it creates crisis!

According to McCain, and what has proven to be a greedy, malfeasant, neo-conservative cohort, ensuring a very clear means of verifying class distinction drives productivity, innovation, and wealth. The argument is that if we do not subsidize the rich to stay rich, by not spreading the wealth around, we will suffer the effects of socialism--low productivity.

Policies and programs that encourage innovation of financial instruments yields low productivity and economic growth with the empirical proof of the current crisis. The employment we have had has been mostly to confirm ensuring class society of rich and poor so that we will be productive by exporting our good paying non-service jobs. A service economy, that is, an economy of servitude was created. Being assured A 2.50 an hour job serving food is not the model of innovative financing that assures creating the wealth. What it does assure is consolidation of the wealth and a workforce structurally enslaved to serve it up.

Mr. McCain and Mrs. Palin... NO THANKS!

We need our financial sector to very simply finance innovation of productivity in the marketplace. If the talent we have now--greedy, self-involved, incapable of seeing past their self-interest and the consciousness of their class--cannot identify the entrepreneurial talent that will pluralize the marketplace and cause productive capacity, full employment and low inflation, then let's get those that will, and we know all too well that will not be the party of McCain and neo-conservatives.

Too Small to Survive

McCain, in a continued attempt to give a populist tone to neo-conservative policies and programs that ALWAYS lead to crisis, is now saying that his economic plan, despite that it will make the rich richer and the poor poorer (the formula for crisis economics and politics) will not be to merely support businesses too big to fail, but too small to survive.

This is to validate a classic elitist argument that can be found in the discipline of organization theory in the area of organizing to manage risk. McCain is using it to support a populist sentiment. Is he really that incompetent that he does not realize that it is a pro-elitist, not a pro-populist argument?

Elite-model organization theorists advocate that the bigger the firm, the more capable of surviving risk, like running the economy into the ground with the least capable to survive beimg, of course, the smaller firms.

The classic illustration of the argument is this: since a small firm is more likely to drown in shallow water, it is at a higher risk, and so it is also unlikely to take risk. The implication is that economic growth is more likely to occur if firms are more able to survive risk and, therefore, take it.

Adhering to the elitist model of risk managememt was applied by hiring quantum physicists to fashion imploding models of debt-structured finance (high return, no growth). The model is just the classic pyramid scheme where the first in, at the top, are highly profitable which lures others into the business model. The result, of course, is classic economic crisis--deflation--and the pyramid comes tumbling down threatening the entire economy if it is not bailed out; an outcome that has been verified, once again, in a very up close and personal way.

Understand, despite what the Ivy League experts tell us, that the model eventually imploding and collapsing, taking small firms down because they are too small to survive, is fully anticipated and intended. That eliminates the competition and consolidates power. Despite the neo-classical innovation of means (algorythms of quantum physics and computer programing), the result is entirely classic.

While it appears to be counter to the pro-elitist model and argument for hedging risk, the effect of McCain's plan is to keep the causal factors of the crisis intact to require the need for government in the future (to socialize the loss-=the risk--by preserving the element "too big to fail"). So much for his stance on limited need for government...very similar to Ronald Reagan's nonsense.

McCain's attempt to give the Hamiltonian (elitist) model of political economy a populist face is just another laughable attempt to put lipstick on the pig. It is just another deceit.

I prefer to go with a genuine intelligence and conscientiousness that can be trusted.

Obama and Biden for President, and David Boswell (D-KY) US House.

Intended Consequences

Modeling for Stability

Notice how volatile markets are. Hardly the model of stability.

If you are managing your savings, your capital, for the highest return based on, as we are told, that the highest return is in equities, then there is likely to be a high volume of savings in equities.

While stocks have the highest return on investment, it is volatile. The hedge fund manager--the person that angles to leverage a 30+ percent return--hedges the risk on the return by causing volatility--by market manipulation with volume. Since a 30+ percent return cannot be had through economic growth without causing competition (pluralism of the marketplace) which would diminish the power of consolidating (use of volume to manipulate prices), the return is leveraged from your savings, about 40 percent so far.

If you want to "share" in the wealth, you MUST deconsolidate the capital.

The current political-economic model in operation, the Hamiltonian model, promises to ensure stability. Its legitimacy is that by always providing for the welfare of the highest income class in priority causes stability.

For the highest imcome class, the elite, the model very reliably provides the means of gaining power and keeping it. It is verifiably stable. It always produces the intended consequence--the highest return on the investment with reliable efficiency (falsely referred to as the efficiency of markets).

This model is called, the elitist model of power.

For non-elits, it is the model of instability. The volatility--the micro/macro stochastic oscillation that is naturally predictable--is the business cycle you are "subjected" to, and because the cycle has this "natural" characteristic of predictability, the subjugation, the exploitation, is a natural determinism. The subjugation of the ruled to the rulers is a "dictate" of nature that persists despite whatever imaginary, Jeffersonian notion there may be for The Natural Rights of Humanity.

We cannot escape our natural condition. It exists independently of our imaginary ideals. If we foolishly try to transcend what subjects us to reality, the consequences are reliably determined to be instability, and according to the neo-conservative elements of our global society, the cause of our current instability can be nothing but the foolish attempt to defy conservative principles and values, the laws of nature, the proper and efficient elitist model of power.

The elitist model is, of course, verifiable nonsense, right up there with the flat earth at the center of the universe.

That we continue with this idiocy is a complete tragicomedy.

The McCain/Palin ticket is laughable! Combined with the current economic crisis, a complete tragedy!

Let's get real for much, much needed change.

Obama/Biden 2008!

Re-Capitalizing the Benefit

The no-confidence market sentiment for a top-down (disconfirmed trickle-down theory) bail out plan will quickly go strong positive with its antithesis: a bottom-up bail out that would be a re-capitalization of the benefit.

Recapitalizing the benefit will restore the liquidity not lost, but being withheld from the market waiting to be rewarded for its inefficiencies, and the narrow benefit it incurs to be trickled down if the right incentive is provided.

Lowering the capital-gains tax to lure liquidity back in just exacerbates the problem because, it is the problem. Rewarding the perverse incentive with the means to be perverse, I dare say, is more perverse!

Our economy--the credit economy (needing to borrow to make ends meet)--is being held hostage to a practical solution that causes the problem.

Regressive tax policy and deregulation of the financial markets without ensuring a self-correcting, free-market mechanism has produced an enormous benefit and detriment. The way to quickly and surely reduce the cost, and the risk, of re-capitalizing is to redistribute the benefit to the cost side of the equation. That is, by recapitalizing the benefit.

There is the very clear risk, given the failure of trickle-down economic measures, that top-down measures to fix it will not work, throwing away good money after bad. The sentiments of Republicans for instilling the bail-out bill with free-market "principles" by, for example, reducing the capital gains tax on the consolidated capital is one of those disconfirmed principles they love to validate with legislative authority that does more to cause the problem than effect a solution.

Interesting how bi-partisanship cannot produce an empirical solution to this problem. The only solution available is Hamiltonian, which is the problem.

While Obama and Biden will likely apply a more empirically verifiable, and Jeffersonian, approach to this problem, and McCain/Palin, so full of their conservative "principles" (for change?), most assuredly will not, the choice, both politically and economically, is all too clear if a genuine solution is what you want.

The Hamiltonian tenet that it is a representative's responsibility to give the governed what they need, rather than what they want, in better judgement is not well supported here, if not generally just a whole lot of Hamiltonian hooey designed to redefine and misapply The People's self-interest and the General Welfare.

Confine the principles of conservative economics to the dustbin of miserable failures, empirically verified.

Choose the way of an effectively pro-growth, low risk, investment strategy now!

Recapitalize the benefit from the bottom up.

Vote for Obama/Biden to sustain it.

Money Moyenage

Consolidating the Wealth

If a mature capitalist economy entrepreneurs profit without growth, then where does the profit come from?

Before the emergence of capitalism, in the age of feudalism, profit (economic gain) was a non-inflationary, zero-sum, no-growth endeavor of despoiling your competition--the wealth of the other overlords and their subjects. The accumulated wealth became capital to be invested to expand the pie and cause, create, a "capital" gain that, still, was not inflationary because it increased the supply, or caused economic growth.

Capitalism emerged as a peacefully prosperous means of using the wealth consolidated by royal monarchists to organize an expansion of the pie, or to produce economic growth with the result being the profit (the measure of economic growth).

As capitalism matured, wealth and power has again become a moyenage, no-growth endeavor in which the competition for profit is not to innovate productivity as much to innovate the means of despoiling consolidated fiefdoms of economic power--of acquiring profit before growth which effectively minimizes growth and effectively minimizes the competitive free-market mechanism of price competition that controls inflation.

It is a game of monopoly in which winning the game is to bankrupt the competition and subjugate all the other players to your power; not expanding the pie, but consolidating it.

The result is profit without growth and liquidity crisis--consolidation of the capital that we are now experiencing and that congressman Franks has misattributed to a lack of government regulation on a consolidated capital.

No! The cause of this crisis is a fundamental lack of the self-regulating mechanism of a free market economics due to consolidation of wealth largely caused by a regressive tax code and a lack of government regulatory authority to properly act to ensure it in priority as Adam Smith prescribed.

The problem is that capital has been allowed to consolidate and revert to a passe' state of feudalism--of profit without growth. It is an illgetimate operation and organization of capital without ensuring the free market mechanism to control it.

Socialism is an indicator that the free market mechanism (pluralism) is not ALLOWED to work, not that it does not work. Franks is wrong and this bail-out bill is wrong. It should be defeated because it is based on a fundamentally flawed analytic.

Very best wishes.

Alternative Value Destruction

The command and control of our economy, domestically and internationally, is largely being executed through the manipulation of energy prices.

Following the deflation of demand (demand-side economics that is the primary tool of a command capitalist economy) causing a global recessionary trend, the next phase is to destroy the value of the alternative supplies that have been directly supported by the price of oil.

The retrace in energy prices, and commodities generally, is a cyclical phenomenon that is the invention, the deliberate construct, of a command economy that has nothing to do with free-market fundamentals. It is not the legitimate product of a free-market pluralism that can be legitimately defined as the "natural" occurence of fundamental market dynamics that can be called the general will or welfare. Arguing this cycle as the product of market fundamentals is patent perpetration of a fraud.

Today, for example, with the probability of predicting the path of a cylone in the Gulf of Mexico being nearly zero, and OPEC declaring that our fundamental scarcity of oil is adequately supplied, the command price of energy markets is clearly indicated and decidedly confirmed as the price of oil falls under conditions for price support.

OPEC's "declaration" that supply levels will be maintained should be a reason for price support, not resistance, under scarce conditions. Destruction of the rate of substitution with a price being compressed to below $100 per barrel is in progress to give the demand side of the market less elasticity (demand-side command and control of markets).

The price of energy inputs is not the product of a fundamental market scarcity. It is the product of a fundamental fraud that is the sure product of a consolidated, non-pluralistic, organizational model. It both defines the problem and the solution that demands the political will required to change it.

Obama/Biden 2008!

Very best wishes.

Pop Analysis on Oil Prices: Avoiding the False Technicals

The probability for any short-term disruption to supply is virtually no different now than when the price peaked. The quick 14% drop follows Bernanke's price signal on the price of money--raising the interest rate.

The popular analytic on oil prices continues to be a fraud. These analysts are the minions of elite power. If they are not so inept to actually believe the analysis because they have been educated to, they know that they have to produce analytics that please the plutocrats, the supra-sovereign ruling class, to keep their jobs. These slaves are as corrupt as their masters.

Markets are being determined, commanded, by a post-monetarist consolidation of capital. A model of consolidated power (the elitist model) has the most predicitive utility. Using a pluralist model is either inept or a deliberate fraud with the inaccuracies explained away with fallacies of fundamental attribution, typically with effects being attributed as cause.

In either case, inept or corrupt is not in the public interest, but systematically engineered to produce a predictable result that is a special interest. It is the function of the pop analyst to give both the means and ends a pluralistic legitimacy because a command legitimacy is not legal by statute or in theory.

Free market economics cannot be verified with the command economy of a consolidated capital. It must be validated with a false legitimacy, with the perpetration of a fraud. Fraud in the marketplace is a crime. The criminals need to be prosecuted not rewarded.

Predicting prices is a technical function of mass movement, momentum, and fast stochastics. It is a function of an extreme overconsolidation of capital and command economy. Nothing has value unless the plutocrats, the ruling class says so. It is a power structure that lacks both political and economic legitimacy. The remedy is to replace the elitist model with the pluralist model of power. Until then, the system operates with a false legitimacy and the need to monetize the retributive value supported by false technocratic analytics.

The oil market will be a noisy trend down. The result will be an unpredictable (unorthodox) improvement of macro fundamentals in correlation with rising rates with the determining variable being solely the mass movement of capital into equities. The movement will cause the recovery (a more progressive tax code will have the same effect but with a true legitimacy). The improved macro will just be a technical excuse, a fraud, to sham the illegitimate operation of a command economy.

For the small investor, always staying opposite the momentum (selling into the momentum strength) the probability of losing money to false technicals (the stock in trade of a consolidated capital and its MBA management) is close to zero. Chasing momentum is a strong negative. Buy and hold is also a very risky strategy with a consolidated capital like we have now. The probability that investment will be shocked in a sudden reversal is nearly one (1). You can count on it. Just look at the price of oil.

The way to make the market safe for small investors is to render it with a genuine pluralistic legitimacy.

The best probability for that is to build the coalition for Senator Barack Obama, the next president of the United States.

Very best wishes.

Predictable Patterns

The last time we had a mortgage crisis and bailouts in financials was when we had Reaganomics--full blown trickle-down economics--in operation.

The results of the Bush administration's latest retrenchment of the regressive-taxation working hypothesis is, predictably, deflation and a liquidity crisis, just like last time.

The reason these neo-conservatives can't learn from their mistakes is because they are a slave to their ideology. They are not pragmatists of the common good. They are ideologues and fully expect the highly predictable result of an exclusive, zero-sum benefit the economy is organized to produce. The cost and the benefit produced is not considered to be a mistake, but the natural consequence of people that are fittest to lead in a free republic (Hamiltonianism). The measure of that "fitness" is the status of your income and the willingness to be in service to its conservation.

The economy's distressed assets, the wealth of the nation, are bought and consolidated to be retailed back to "The People" in the recovery phase of the business cycle.

This process is a legal means of expropriation that can be legitimately stopped and reversed by a coalition of non-elits in the political marketplace, where the current trend began.

Every policy and program effort you will see from neo-conservatives will be to stop and reverse the current trend without progressive tax measures and a more pluralistic economic environment (bailing out financials, executive orders to lift the ban on offshore drilling...). Anything but to reverse the fundamentals that they have organized to command the business cycle to expropriate a highly exclusive benefit with a massive deprivation of the wealth. The new coalition must resist those efforts because they are the source of the problem.

The beneficiaries of the current political-economic organization will benefit plenty from the stop and reversal of the current deflationary trend with progressive tax policies and investment in a deconsolidated marketplace (Jefferosnian pluralism). The biggest difference is that non-elits will not "suffer" being continuously set up for crisis and deprivation.

Everyone benefits with a more Jeffersonian model of a democratic republic in which the elite are rewarded access to power through pluralistic processes and consent of the governed, a pragmatics of continuous improvement toward the common good, not the other way around.

The change we need will not be the product of ideology, left or right. It will be the product of a practical pragmatism guided by a moral intelligence to be rewarded by the empirical proof of the popular vote, not the command machinations of a bureaucratized elite authority shammed with a false pluralistic legitimacy.

Build a coalition for lasting change in which everyone benefits.

Build the coalition for Obama!

Very best wishes.

Political-Economic Phenomenologies

Consolidated power structures struggle for legitimacy. Partisans, like Phil Gramm, make the process more difficult and tend to be marginalized. Gramm's contribution to the consolidation process must be legitimized with more than his description of an inherent weakness of the masses that need him and neo-conservatives to lead them out of their dystopic delusions.

Since the benefit of consolidated power is highly exclusive, the general utility of it has to be phenomenologized. There must be a way to assure "The People" that power consolidated is not illegitimately unchecked. Thus, we have the function of the bureaucratic model of power.

It is necessary to create the appearance of pluralism in spite of elitist processes, policies and programs. While granting bureaucratic authority seems like sharing of power, it can be just the elitist administration of it, and one trick is to correlate events to give the appearance of legitimate public authority through pluralistic process of power.

We have, for example, the Bush administration lauding immunity of prosecution for telecoms in the war on terror, and the FCC announcing a precedent-setting ruling against Comcast's private regulation of internet content by not passing certain kinds of data tramsmissions.

Both cases fit an elitist model of power, and the solution also fits the model while falsely implying a legitimate pluralistic authority at the same time. This is just a psychological trick--a phenomenology.

Since the telecoms have been "allowed" to consolidate, and will continue to be allowed, private regulation of content has no legitimate authority of public process afforded by a free market mechanism if the content has no other route to take, or no free market alternative.

The argument is that centralizing telecom makes it easier to monitor for terroist signals intelligence. Really, for the most part, it's just a neo-con way to exercise command and control of communications for any purpose and gives authority to a supra-sovereign status.

The advocates of limiting the processes for freedom have no credibility of public service. They do not have the verifiable legitimacy of the public trust, never did, never will. Rather, that they cannot be trusted is thoroughly verified! That's why neo-conservatives advocate limiting, if not eliminating, the processes for ensuring freedom.

Free markets work. We just need to "allow" it to happen.

Finance free markets instead of consolidation of markets, freedom reigns!

Simple, effective, affordable regulation of markets is entirely possible with an easily verifiable legitimacy of the public good. We just have to decide to do it.

Very best wishes.