Indicators of Classical Economic Modeling

Independent investors need to determine the objective of current political-economic activity to protect their capital from the fully intended predations of classic economic modeling--to consolidate the capital (your savings and the value of your investments).

The intention to confirm practical application of the classical economic model well into the future is fully indicated by innovative political means that correlate directly with the innovations within the financial sector. Federal Reserve chairman, Bernanke recently refered to innovative financial instruments and practices as a healthy market efficiency that needs to be closely regulated to both prevent this deep recession from getting deeper and prevent innovation that is systemically destabilizing in the future.

Bernanke is confirming the intent to support the predatory results of allowing the capital to consolidate into innovative market mechanisms that are a function of massive money flows and momentum that CAUSE "bubbles" (extreme overbought conditions that lure investors into a false-positive with the valuation being speculative and not fundamental--like $135/bl for oil and eight years of false economic growth policies--only to burst the bubble and consolidate the monetized value). The next phase of the business cycle, neo-classically refered to as the "infusion" phase in which new capital is injected by monetary expansion (monetarism), is when the unconsolidated capital intended to restore liquidity with minimal redistribution from the consolidated value (the distribution phase of the cycle) is carefully regulated to that end and allowed to be innovatively consolidated later in the accumulation phase of the cycle. (Buy-and-hold is a good strategy at this point of the cycle when the Dow dips below 7500 which has become a false support beyond which the market is overvalued in the next six to twelve months).

Bernanke is applying the Hamiltonian model of ensuring the welfare of the rich in priority (what is too big to be allowed to fail) that CAUSES the systemic crisis, ensuring the organization and operation of the systemic risk in order to prevent it (?). Capital is allowed to consolidate, antithetical to the legitimate means of a free-market (pluralist) mechanics. Expert (elitist) adjustment of the negative externalities occurs at the end of the process since financials will innovate to avoid non-market regulation. The result is an ends-justifies-the-means legitimacy of a command economy with a false free-market legitimacy.

Causing crisis, and the systematic mechanism of predation, in the name of innovative technical management of the systemic risk by operation of careful regulatory authority (state capitalism) administered by a professional class of MBA's is a confidence game intended to conserve the consolidation of the capital and a defeat of the free-market mechanism it pledges to ensure. This is where the political economy becomes so complex, so difficult to understand and confirm, that the machinations of the elite easily achieve the consolidation of power with a false pluralistic legitimacy.

That the political economy is being reinvented (innovated) to ensure the fair and equitably legitimate outcome of a free-market economics by public regulatory authority just indicates one thing: the market is being rigged so that the small investor will always be at a systematic disadvantage with a free-market legitimacy by operation and declaration of public authority.

The practical philosophy that we must replace the free-market mechanism with the operation of a public authority is not paradoxical, it is a contradiction. It indicates a fraud, not the operation of a genuine civil service acting in the public trust, but a bureaucratic political economy of elits entrusted to conserve the distribution of wealth and power in a continuous crisis proportion that always demands its elite management and the "bonus" compensation of a sub-elite class of loyalists to administer it.

The bonus payments to retain the elite talent to administer state capitalism (to administer a non-free-market organizational technology with a free market legitimacy, or to perpetrate the fraud) buys the loyalty of what is otherwise a tendency to be free and fair, rewarding the most corrupt and morally incompetent. For the investor, this affects the bottom line. It is not just an ethological and ethical consideration. It indicates what the macro-economic model will look like despite the recent political changes, and I am sorry to say it is a faux political change that will not ensure the cure for what ails us: a regulatory authority that ensures a free and unconsolidated marketplace in priority (pluralism).

Recent political change is an innovation that conserves the consolidation of wealth and power by systematic predation and a means of managing the retributive value (the full value to be distributed to recover from, and prevent, liquidity crisis) shammed as technocratic management of systemic risk and punctuated crisis that will ensure the probability of its recurrent accumulative and distributional macro-economic value. The classical economic model of capitalism in which the measure of success is to defeat free-market mechanics as a function of organizational size is conserved with the pluralistic legitimacy neo-classically administered, and carefully measured in posteriori, rather than ensuring its legitimate means, and the probability of fair and equitable results, in priority.

Ensuring an organized deconsolidation, and the plurality of opportunistic investment that will naturally occur, is a pragmatic priority easily set to be accomplished in the first 100 days. The Democratic party executive and legislative leadership, however, do not understand the economics well enough to effect the needed change even if they could see beyond the self-satisified dictates of their ideology and the thrill of politically gaming for it despite the president's penchant for pragmatism.

The change we really need (pluralism) is highly improbable. So, load up and hold on to equities of companies that are too big to fail the liquidity crisis they are organized to cause both now and in the future with the very highest probability being very clearly indicated.

The Economic Stimulus Legislation

There has not been a lot of confidence in the congressional delegation, and the president's pragmatism seems to have devolved to a partisan deference to the congressional leadership. He will find that, despite what Emanuel tells him, to be a mistake, already showing up as a waning popular support.

If we can fully embrace pragmatism over partisanship, The People will be much better served. The economic stimulus legislation is a monument to old-school Keynesian economics and monetizing the debt. Nothing new about that except the size of it.

Without a more progressive tax code, and all we have seen is a penchant for regressive tax measures, the middle class will be hammered with the debtor assignment on this colossal debt. If this is intended to be anti-recessionary legislation, we have not seen anything yet!

The speaker of the house says Democrats did not gain a majority to compromise The People's business. That would be meaningful if there was confidence in the ability to recognize what that is. It does not appear to be a confirmation of pragmatism over partisanship that avoids outmoded, Keynesian technical measures. Rather, it appears as typical tax and spend legislation that will leave the least able to pay holding the big bag of debt.

Does anyone really believe the speaker of the house and the congressional delegation is really interested in change We The People need?

What I see is an old-school stimulus program that will be highly inflationary, setting up the realignment toggle switch to the Republican Party. Demand-reduction measures (a highly regressive tax code with a rising rate of interest--Reaganomics) will be used to then control the inflationary trend. We will just be churning the problem.

So much for building a pragmatic coalition for change we need.

You don't have to be a Republican to be part of the neo-conservative coalition.

Conservative Rhetoric

In a previous article, "Public Finance and Community Power Structure" at griffithlighton.blogspot.com, we discussed the function of bifurcating the power strucuture into spheres of public and private. Where the two spheres intersect is where the rhetoric resides to direct the winds of change.

We now here the conservative critique of the neo-classical, Keynesian means of facilitating the distribution phase of the business cycle (fiscal and monetary stimulus) as a futile attempt to "tax and spend our way to prosperity." This "liberal" means-to-ends, conservatives argue, is an empirically disconfirmed hypothesis.

The tax-and-spend hypothesis is empirically disconfirmed. The hypothesis is nulled by a significant history of Keynesian fiscal and monetary policy, only to lead to our current liquidity crisis of a monumental proportion.

The rhetoric ideologically plays on the bifurcation of the power structure and the bipolar ideological debate that boxes-in ideas and arguments that fuel the winds of change beyond the duopoly of false choices and a false pluralism.

A good example of properly utilizing the bifurcation of the power strucuture is the proposed cap-and-trade energy program of the Obama administration. Directing the tax revenue from this carbon tax into green energy technologies, instead of letting it all be untraceably sucked into the abyss of class-conscious rewards and inefficiencies, the "reinvestment" dimension will utilize the private sector element of the bifurcation to green the economy. Greening will be profitable with the reinvestment being directed from the public sector.

Conservatives, of course, object that the greening policy directed from the public sector disrupts the useful bifurcation of power because, instead of generating revenues to be consolidated and paid out to the upper echelons of power (operating to merely support the power and privilege of the private sector and the welfare of its power elite first), it will actually be greening (operating for the general welfare, including the power elite). Instead of a short-term capital gain for the immediate and wasteful gratification of a spoiled and greedy elite, the revenue will be reinvested for a benefit that cannot be defined as either public or private. The benefit is, rather, pragmatic change we ALL need beyond the artificial rhetorical constructs of power and politics for solutions that are purely economic with a clearly verifiable legitimacy of providing for the general welfare.

On the other hand, that the AMA will not see a reduction in their medicare payments indicates an unwillingness of the Obama administration to dispense with power politics for pragamtic solutions neither public or private.

While I understand that a more progressive tax code will be the vehicle for reinvesting in healthcare, and the doctors' income will be affected by the code (the more income, the more tax paid), the incentive will still directly exist to increase prices, and the taxes to finance it, well beyond the rate of inflation and the increased tax rate. The cost will runaway despite the progressive code to tax the higher income so that the market pressure will not be to control the costs, but to pay the doctors the highest price for the lowest quality.

While the administration is avoiding the incentive for doctors to greedily deny healthcare to medicare patients, holding healthcare hostage to their class consciousness, it needs to be clear that public health goes well beyond taxing tobacco, and who knows what else, to regressively finance their greed. Providing healthcare will be largely a function of controlling costs and assuring the highest quality through tried-and-true competitive market practices that do not solicit the greediest among us supported by regressive tax vehicles, but the most responsible to the wants a needs, the preferences, of The People in a free marketplace. It needs to be perfectly clear to the power elite, including the doctors, it is to be freedom before tyranny whether public or priavte!

What obtains outside the box of the liberal/conservative theories and practices is the real change we need. Ideas to fuel the winds of change can be found at griffithlighton.blogspot.com.

Rebuilding the Economy

To rebuild the economy requires we consider, once again, the classical and neo-classical models of capitalism.

In a previous article, "Shorting the Economy" at griffithlighton.blogspot.com, I stated that there is no shortage of savings (the accumulation of capital). The question is who owns it, or how it is distributed.

Classical capitalism is composed of two macro-cyclical trends: the accumulation phase, and the distribution phase. At the macro scale, capital accumulates into ownership of those who have invested existing capital for a return on the investment. The process conserves ownership of the capital and successful businesses share in its distribution based on the return on that capital (the measure of the profit margin).

The foundation of the classical model is the fundamental elitist ownership of the capital with the money supply expanded by derivative financial commerce such as credit and issuing stocks and bonds. The process is classically the trickle-down economics model with the structural power of commerce extending from the top down where the capital (the savings) largely resides. Even the savings of non-elites, even if independently micro-managed by its small owners from personal accounts, is ultimately macro-managed at the upper echelon of capital management where the mass movement (the money flow measures) of capital dictate the bid within markets over time from the macro to the micro level of this power structure.

While being able to dictate the direction, the trend, of prices and markets is the antithesis of a free market, the frequency, the length of the accumulation trend is long enough to give the outcome the illusion of a free-market legitimacy--that no one person or entity can dictate prices and the direction of markets. The outcome appears force majeur when it really is the deliberate active management of the capital at the fundamental level of power to yield a reliable and easily predictable outcome in the long term--conserving the ownership of the capital at the upper echelon of power, or what a free market fundamentally is not.

If a free market is what we are all expecting to achieve equitably legitimate outcomes, this is where the legacy of the classical model of capitalism, the neo-classical model, fails us.

This brings us to the distribution phase of the cycle.

When the capital becomes so accumulated that expansion of the economy cannot continue without sharing the capital, and power, crisis ensues. It is the classical crisis of overproduction. The capital is so accumulated (the power so consolidated) that society cannot afford to buy the goods and services it produces, being in a condition of oversupply that is caused by a lack of demand (purchasing power). The effect is deflation. To reduce the oversupply (to increase the demand), credit is extended, but because the value has not been properly retributed to its source (its proper ownership), credit becomes over-extended and crisis ensues.

The way capital is shared without relinquishing its ownership at the upper echelon of the power structure, the means by which the surplused value is retributed, is by the extension of credit--an expansion of the money supply. So we see, there is no dirth of savings. Americans create plenty of value, and that value is saved plenty. It is not properly retributed. The effect is our current mortgage crisis and the crisis of illiquid financial markets, or deflation.

Whether the practical model is classical or neo-classical, the effect is the same--deflation. The improvement the neo-classical model provides is for the minimal payment of the retributive value to stabilize the system of power; to conserve the power structure.

The neo-classical model, Keynesianism, operates on the hyperextension of credit to provide the needed liquidity with government spending. It can be in any form and is paid for through Treasury and the Federal Reserve which is a binary organized technology for the extension of credit and its payment (i.e., expansion and contraction of the money supply, or monetarism).

Whether the tax code is regressive or progressive is the determining variable for the value, the distribution, of the capital. The more progressive the tax code, the less non-elites pay to repay the extended credit (expansion of the money supply) to retribute the value, and the less the debt is worth to the elite of the power structure. It is a zero-sum game.

When we now here conservatives argue that the call for a more progressive tax code along with monetarist expansion of the economy is a burden of debt to our children, they literally mean "their" children, the children of the wealthy. The savings of the non-elite increases. The savings of the elite decreases. The capital is more equitably shared and the value added to the fundamental capital properly retributed to its source.

The recovery and the reinvestment MUST BE from the bottom up in order to not be just another neo-classical, Keynesian tax and spend program that ensures the stability of the status quo.

Conservatives are providing the classical response to the neo-classical policies and programs we are now engaging. A progressive tax code is not alone enough, but it is necessary, and conservatives and liberals know very well that without a strategic reinvestment for pluralizing our economy--deconsolidating the capital, industry and markets, the cyclical crisis of accumulation and distribution is assured to be the vehicle for abuse of power well into the future.

Instead of being properly marginalized, the conservative element is co-opted into a binary system of toggling realpolitique of falsely competing ideologies. Ideology "A" effects realignment with ideology "B," to "A" to "B" and so on.... It is not the model of pluralism though it intentionally appears to be.

The conservative rhetoric is already setting up for the predictable toggle switch when the Keynesian recovery program from the top down fails to properly retribute the value and The People are left with the debtor assignment on the public debt by operation of a centrally planned, top down, capitalist economy--what the rhetoric currently describes as the burden of debt going forward that will bankrupt the government (The People).

Quite the contrary. Bottom-up reinvestment financed through a more progressive tax code will lead to robust growth and a recovery that is largely out of the hands of the power elite. The recent negative sentiment of the stock market is political, not economic. That will become apparent when the stock market turns into a raging bull with the prospect of 3 percent growth, and a rising rate of profits, in the next twelve months.

Without rebuilding (reinvesting, recapitalizing) the economy from the bottom up, the crisis of overproduction will successfully recycle by "the will to power" considered to be "beyond good and evil."

Science and Life

While we learn that science is for designing computers, orbiting satellites and going to Mars, the application of the scientific method is much more.

Science has application in everyday life. We tend not to apply it because it is impersonal and associated with abstruse mathematical language and a strict, unrelenting logic of always trying to disprove what we consider to be the truth.

Look at the state of our economy, for example. While it determines every aspect of our lives, we tend to analyze it with unscientific cognitive process.

For example, if we say that all fair-haired people are criminals, there will be a tendency to treat them as criminals, and they will, then, tend to be criminals at the margin of social acceptance and participation. It is a tautology, a deduction that proceeds from a false premise resulting in a false confirmation of the hypothesis by causing the evidence. The result is a false induction.

Now that we face verifying the effectiveness of the various means to stimulate our economy out of a great post-Keynesian recession (deflation) in which economists are falsely arguing is unprecedented and are therefore at a loss for what to verifiably do, our ability to give the scientific method an application to everyday life is being saliently challenged.

If we proceed from the premise that government intervention in the marketplace is bad, there is a tendency to treat the need for intervention as bad, and that will, then, tend to result in policies that directly or indirectly result in a regressive tax burden that has a deflationary tendency that causes the need for government intervention. It is a tautology, a deduction that proceeds from a false premise resulting in a false confirmation of the hypothesis by causing the evidence. The result is a false induction.

As we apply the scientific method it is critical that we recognize that empirical truth is not something that can be proven. It can only be continuously tested and disproven (not confirmed by the evidence). Truth, then, is always becoming evermore apparent, or cognizant, as we always try to disprove it. This is called the null hypothesis. Like Einstein once said, paraphrasing: science is the cognitive process of always trying to disprove the existence of God. Since the process of nulling the hypothesis is in continuous process, the existence of God is continuously confirmed. Rather than being in conflict, science and theism is thoroughly compatible, reinforcing, and is unreasonably rejected as a cognitive method for evaluating everyday life. Rather, God challenges us to null the hypothesis--to find the truth.

If we are to find the truth of our economic predicament, what about the working hypothesis has been nulled or disconfirmed?

That would be the "trickle-down" hypothesis, or the hypothesis that regressive taxation produces the general welfare or the greatest public good.

The hypothesis has been thoroughly tested and decidely nulled!

The course of action to be taken for economic stimulus and reinvestment in 2009 is empirically clear and convincing.

A progressive tax code will be a minimal government intervention that will maximize the ability to reinvest, recapitalize, our economy into a sustainably peaceful and prosperous pluralism without either monetizing the debt or burdening the least able to pay it only with the assurance of future deflationary trends that can in no way be defined as the general welfare or the greatest public good.