Nothing From Something

Ex nihilo is a concept fundamental to economic theory and practice. We freely invest capital to produce what consumers want, and the reward is the profit margin. The margin is the measure, the expression, of consent to produce more (something), not less, and the capital is accumulated to do that (more or less) from the margin.

The accumulated capital, however, can be used to reduce the measure of consent by organizing economies-of-scale. Being "too big to fail" simply means being beyond popular consent. The technical measure of consent is corrupted and becomes a function of ideological (political) interpretation. While the margin objectively measures the amount of political risk (the probability the margin can and will be retributed as a measure of direct, democratic, popular consent), "the risk" is now in the gamma dimension with determinants that are not fundamental, but technically derived. Like going short to arbitrage the risk, a panic can and will occur to cover the probability the loss can be greater than zero (nothing from something).

Free-market economic theory postulates an ex nihilo legitimacy. Businesses are created from nothing to satisfy the demand of the marketplace (consumers with adequate income to "direct" the extent of the risk). Expostulated, the Great Recession, for example, provides ample evidence that the legitimacy has been reversed.

There is not enough demand to direct the extent of the risk (to keep it from going gamma). Instead, the risk is assigned by big businesses, determining the extent of probable default (your credit score, whether it is you personally or your business). The risk does not extend to create something, but to reduce (short) something as much as possible to nothing. The result, for example, is an interest rate that is nearly zero and wants to go negative (insufficient demand--your credit score--with an extensive risk of default).

Deflation does not expostulate a free-market economics. Instead, it critically demonstrates a lack of free-market legitimacy and a strong tendency to command economics.

Quantitative easing, for example, delivers long-term bonds to banks as an extension of the Federal Reserve Bank (a central authority that is both public and privately endowed). The bonds credited to banks are sold to the treasury, expanding the money supply in the form of public debt. The return on the investment (the money lent) at low rates is postulated to signal recovery which is achieved when the bonds are called back and resold to the central bank from the treasury.

Quantitative easing is not signaling recovery, but impending crises. It gives the impression of wealth ex nihilo, but it is really masking a process that tends not to "produce" something from nothing, but to "reduce" something to nothing.

QE (risk ex nihilo) needs to come in priority, not ex post facto.

Deconsolidating the risk will provide the quantitative easing necessary for economic health without the inflationary or deflationary side effects.

Managing the Unavoidable Risk

In the quest to avoid, if not eliminate, risk, we tend to organize into risk-management ontologies.

Utopian socialists, for example, envision elimination of the risk ontology that plagues capitalism by consolidating the risk into state control. It is much like what we have done to bail out firms too big to fail, but with a more equitable distribution of the benefit, absorbing the risk in an economy of scale that is ontologically too big to fail.

Economy of scale is the best model for managing risk according to mainstream, conventional wisdom.

Organizing an economy of scale is the prefered model for managing risk because it creates a too-big-to-fail ontology. The risk is routinely shifted to the system and the result is managed as an unavoidable consequence with a divisible benefit and an indivisible liability. Since the liability is a shared component and the benefit is not, the result is general systemic crises.

Systemic crises suggests an ontology is in effect, and since the distributive result is so easily predictable, mainstream analysts apologize with the "who could have known" doctrine, to go alnog with the too-big-to-fail doctrine, to maintain the exculpatory effect of the organized ontology.

The free-market process, on the other hand, if we should so choose, is both highly ontological (a highly diffused and anonymous distribution of legitimate risk that is easily managed with little-to-no need for government authority) and highly empirical (with quick and reliable accountability).

Rather than being alienating, the free-market process is organized for quick and decisive liability--exactly what big corporates do not want and are organized to efficiently avoid (the alpha risk, and with the help of government authority, the gamma risk).

Ensuring an organized plurality rather than consolidation, free-market economics ensures the organic growth necessary to spread the systemic risk. Spreading the risk in (alpha) priority rather than avoiding it and letting it accumulate into a crisis (gamma risk) proportion maximizes the legitimacy of the zero-sum to a positive, distributive effect.

The health care sector is a good example. We see the tendency to consolidate the risk into an economy of scale rather than dissipate it with a pluralistic ontology. The tendency is to direct the risk and command the cost and benefit whether public or private, and avoiding the alpha risk accumulates gamma risk, demanding an authoritarian regime to manage it. An authority, rather than consumers, determine what is produced, how, when, at what quantity, at what price, and how, when, where and to whom it is to be distributed. The freedom of both consumers and producers is reduced to a gamma-risk ontology--if we do not like it, too bad, that is just the way it is.

Freedom is reduced to fiat and gaming for the means of absolute power with the legitimacy of a populist sentiment contained in the fear of an accumulated risk. Utopian dreams become dystopic nightmares accepted as the best practice, the natural condition, of an ontological fate.

The organized ontology not only determines the distribution of the liability, but who commands and controls it.

Acquiring Market Share

Acquiring a share of a free-market, rather than mergers and buy-outs, requires replicating or improving the successful behavior that causes the empirical measure of success--the profit margin.

Replication and improvement means proliferation--expansion--of the marketplace, not the contraction of merging and acquiring markets which, for the most part, is the business of investment banks, private equity firms and hedge funds. These financial firms know very well their investment practices deflate the economy. They position with various kinds of instruments structured to gain value on the short side as the economy declines--the notorious credit default swap, for example.
The effect is an economy in command and control.

If the profit is margined on command, it is not free-market economics.

In a free market, an expanding profit margin is a measure of an expanding marketplace and demand (supply-side economics).

In a consolidated organizational environment, despite being touted as the best model for expanding supply, a contracting marketplace and a declining demand supports the profit margin (sustained capital accumulation) and resists the declining rate of profit (the distribution necessary to sustain demand and make a profit in an expanding free market). This intentional support and resistance occurs in both the short and long term. The result is a net gain for the commanders (the elite) and a net loss for the commanded (the non-elite).

While the gain is considered to be legitimately ontological by the operation of free-market economics, the gain is nevertheless retributively valued by the loss. A correction of the value is then always in demand and forms a gamma-risk ontology. Managing that risk, instead of the free marketplace, leads to a growing authoritarian regime that is equivalent to the lack of free-market legitimacy.

Mainstream economists who strongly supported the investment methods that led to the current liquidity crisis, known as the Great Recession, said these means, now the subject of heightened regulatory authority, would lead to optimal economic expansion and, therefore, no need for government. These economists explain the massive accumulation of errors as, not fully understanding how the economy equilibriates.

Notice how investments made in "dark markets" free of government regulation did not result in less need for government. Quite the contrary, too-big-to-fail firms rely on government intervention. Let's face it, the Ayn Rand philosophy is a lot of hocum if the organizational model is not there to support it.

Free markets do not operate in the dark, and the dark marketeers say they were operating with Rand's practical philosophy. They continue to advocate Rand's philosophy despite the practical failure.

Clearly, then, there is a practical effect to be achieved despite the free-market philosophy having been accepted by a controlling elite authority (and there is no reason that will change with a socialist legitimacy). We must consider that if the dark marketeers knew their methods would achieve the Great Recession, it would be necessary to operate in the dark.

Now that the free-market correction has come in the form of government authority, complaining that there is too much government intervention, which, like Ayn Rand says, causes the problem, is complete nonsense!

Government intervention does not cause itself, and if too-big-to-fail firms were really the model of free-market efficiency, it would not be necessary to operate them in the dark.

Not learning from the mistake here means that the Great Recession is no mistake. It is, as we now hear the conservative argument being delivered, the classical, free-market model of comparative advantage at work to re-adjust labor costs to third world levels where peasants just left the farm.

The problem here is not labor, it is capital. It is capital that needs the adjustment, allowing for economic expansion at the lowest possible price, rather than contraction of supply at the highest possible price with labor always trying to cause the distribution necessary to prevent crises of liquidity.

Increasing supply and controlling costs, whether forging steel or providing health care, is less about combining Ayn Rand with a too-big-to-fail efficiency than just simply accepting the model of pluralism.

Since the too-big-to-fail practice is, by definition, so obviously an organizational technology inimical to free markets, mainstream economists are now saying this "doctrine" should be abandoned to allow for failure. It is absurd, of course, because being so organized is too big for failure. The remedy is to allow for failure, not to disallow being too big.

The mainstream does not give up easily. They are apparently paid to persist in error which, of course, suggests there is no error, just fully intended consequences. The mainstream fully understands that the economy will not "equilibriate" with the investment vehicles being utilized, but "dis-equilibriate."

Now that the crisis of disequilibriation has occured, mainstream economists now argue we can benefit from the correction of valuations. Specifically: we will now benefit from the readjustment of labor costs, or a deflationary reduction of demand that increases supply without expanding the marketplace (false supply-side economics).

Rather than contracting the available supply by growing the size of a fewer number of corporate bodies, supply is added by adding to the number of firms available to supply the "growing" demand and acquire market share. The rate of profit, rather than declining, gets pluralistic support--it is growing, economic growth is occurring--without inflation or unemployment.

It is possible, then, for capital formation to occur without either the inflation liberals prefer (flooding the market with demand without increasing supply), or the unemployment conservatives opt for (starving market demand with an accumulation of capital to grow the economy which, of course, is not growth at all). Both options, of course, as we observe over and over again, cycle to progressively consolidate power, politically and economically, into one big corporate body with an evermore complete command and control acting to manage "the systemic risk."

Deciding how market share can be acquired is to decide how we manage the risk.

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.