Self-Determined Hypotheses

The political-economic conundrum we face is as much technical as it is philosophical, which essentially means they are the same thing in different dimensions. The answer always begs the question in the form of a paradox, but that does not mean it is technically unresolvable.

The status-quo, "iron law of oligarchy" does not have to be conserved in its present form. Remember, for example, our founding fathers recognized that the organizational ontology political scientists refer to as the "iron law" can be recast to fit a changing objective.

Instead of allowing it to operationalize with monarchy, founders of the U.S. Constitution intended to make natural law (empirically verified knowledge rather than truth aristocratically determined) operate toward a peaceful and prosperous pluralism. They forged a republican form of government with democratic values, operationalizing "liberty" with the legitimate, self-determined value of the consent of the governed to ensure its verifiable attainment (to converge philosophical principles with technical identity). When we hear Republicans say they will apply their principles regardless of popular consent, because the masses do not have the wisdom of aristocracy, their policies and programs fail the test of legitimacy and we have political movements like the Tea Party and Occupy Wall Street.

Keep in mind as well that there is a dialectical process involved here. A natural process occurs that pushes (vectors) the risk proportion into a popular, policy space, and resistance to this natural movement only serves to pull the risk in, while it is being pushed, to occupy the space.

The change we really need (the energy needed to physically occupy the policy space) is naturally endowed (the motive--the natural right--is ontologically progressive and self-interested). Despite all manner of resistance (including capturing the bureaucratic organization of power by co-opting the interests of the top one percent), the law is cast in iron. The probability the risk of loss will be fully assumed (goes fully gamma) is ninety-nine percent.

That the top one percent do not need to be co-opted is a likely assumption. Consider, however, that only a fraction are richer than the other members and not all members of the class buy-in to a hard, conservative philosophy because it is not in their self-interest. Identity is not "A is A." The identity is not a fully self-determined hypothesis as Rand describes it but, rather, is an objective risk of fully assumed loss (which results in identity crises we call class warfare). There is an assumed culpability that is not directly identified with (and thus not verified by) the reward as it would legitimately be if the marketplace was really a free market, which it should be. (Keep in mind, moving to a more socialist model of legitimacy will not eliminate crises of identity because the risk proportion is not reduced. Risk is consolidated as a public good, which results in goods positioned to indicate class and privilege, as Robert Michels presciently describes and explains in his classic book, "Political Parties").

Realizing that the risk of loss is fully assumed, or naturally endowed with a measurable probability of about ninety-nine percent, the majority of upper-class members know full well their fate is cast in iron, and their fate is co-opted to conserve the value of the risk proportion. Remember, for example, Progressivism emerged from the Republican Party as an expression of conservative values when socialism and communism were not yet dirty words but a real threat to the operant philosophy of risk--Herman Cain's "blame yourself" philosophy--of common currency at the time.

Progressivism was later co-opted by the Democratic Party, which softened the effect of conservative philosophy. Its co-optation effectively keeps it alive by casting it in iron, permanently installing the tenets of progressivism into a binomial, bureaucratic, party structure, achieving a false verification of identity.

We see then that the current class struggle is a perennial, philosophical struggle over natural identity. (Socrates, for example, advocated seeing the light, which meant that the demos would no longer need the aristocracy to give them an identity that was but a fraud perpetrated to keep them from seeing the truth--the aristocracy, not the gods, were determining their fate.) If we perceive a false identity, there is going to be trouble. It is then necessary, especially in the nuclear age, to manage the risk (perceived identity verified by distribution of its proportion) so that it does not go fully gamma and burst.

Today, given the potential for conflict that mutually assures destruction, conservative philosophy advocates we all need to see the light (ironically invoking the classical, moral theme of the Enlightenment which diminishes the natural right of aristocrats to rule as gods that can do no wrong despite how wrong it may be). According to Ayn Rand's philosophy, for example, and conservatives generally agree, the outrage we are currently experiencing has an improper moral identity. Morality is not functionally categorical, it is an unchanging, natural principle governed by the laws of nature.

Nature, conservatives argue, which includes many liberals, selects the most powerful to rule, ensuring productive use of nature's resources and our ability to survive. The profit margin measures not only the success of our productivity, but indicates the survival of the species. Thus it follows that whatever diminishes the margin of profit indicates, uncategorically, a moral hazard. Whatever diminishes the capacity to make a profit is immoral, not the outrage of unaristocratic rabble (whose capacity to profit is immorally diminished by consolidating the means--the risk--to make a profit).

So, here we are, confronted with a conflicted philosophy of risk that technically threatens the survival of the species--a philosophy that we can neither live with or, according to conservatives, without.

Not only is indignation not a reason for violence, in the nuclear age it is prohibitive. In other words, our moral intelligence is being technologically pulled (empirically tested) to match the quality of our technological progress (suggesting the "categorical" imperative Kant, for example, postulated).

Ayn Rand, as previously discussed, recognized that her philosophy of objective identity results in violent resistance but did not consider that indignation signals her philosophy is wrong (that it does not properly, or categorically, fit the current, moral need as a function of practical reason as Kant postulated). Instead, she advanced non-violence as morally imperative rather than diminish the values that are likely to cause a gamma burst (a catastrophic expression of accumulated risk proportion).

Resistance to property extended beyond the normal needs of the proprietor is an identity that is gaining natural currency. While extension of the risk is a functionally productive identity that rapidly innovates the means of production, its moral identity is technically dysfunctional--it has become a moral hazard.

To overcome the moral hazard, we "naturally" bureaucratize the risk proportion with a stable, routine process that yields a predictable outcome. Our two-party system, for example, while it appears to pluralistically yield outcomes with the legitimate consent of the governed, we nevertheless have an apparent risk that is ninety-nine percent probable.

Despite the effort to teleologically cast the distributive value of the risk in iron, the iron law tends to an organizational technology that ontologically fits the moral exigencies. Today, not only is the good life philosophically desirable, but technologically imperative.

The moral life is no longer a product of pure reason (a utopian vision), but a function of practical necessity. Identity in the age of science and rapid technological development relies on practical reason to operationalize the iron law toward a peaceful and prosperous pluralism.

It is possible to build an organizational technology that ensures a legitimacy of power right down to each and every individual. Identity does not have to be a valid function of a fractal, aristocratic proportion, but real freedom through the formulation of verifiable hypotheses in the pursuit of self-determination.

Transformation of Risk and Popular Culture

We all know the popular saying, "the bigger they are the harder they fall." It is a simple and accurate description of the problem to be solved through financial reform.

Simplicity of the problem, and verifiable accuracy of the solution, poses considerable risk to the status-quo ante. The risk needs to be transformed into a different space and time to induce conserving the value of its reward. Preferably, to cast the value into an endurable "iron law" that implies the proof of its own confirmation, having withstood the test of time, worthy of occupying organizational space.

The benefit (the use value) economies of scale provide are, over time, equal to the cost. The cost is as big as the benefit.

Shifting the value and presentation of the risk over space and time, however, phenomenologizes the risk into a cultural heritage of expected value. Deficiencies are presented as coefficent with the general good of the accumulated value, always to be realized in future value.

With the value of the deficiency-coefficient priced into the present value, however, the zero-sum deficiency of value is realized both now and in the future (crisis). Only the risk on that value is transformed into gaining value (the empirical value of the crisis), similar to the way options are valued only on the probable future price differential at the present value (an empirical presence of potential value).

The gaining risk value is then arbitraged into value derived and accumulated from the fundamental (alpha) risk. That value is fractionated and securitized (bundled) into an inscrutible hyper-risk that presents an insurable value of uncertainty.

An insurance-based economy of scale is born. The differential between present and future value (the derivatives market) becomes so complicated that reduction to a simple and easily verifiable reform hypothesis does not seem credible, and the economy of scale efficiency (transformation of alpha risk into beta and gamma risk) is allowed to grow. The result is a culture based on the value of uncertain risk that is all too certain.

Retail investors, for example, that sold out in the last liquidity crisis were invested in the cultural expectation of sharing in the wealth. It was a redistribution of wealth that suddenly reversed. It was not a failed expectation, but a false expectation. The loss was always present in the value, but not realized until the risk-value was transformed into a derivative space to be actuated at a particular time.

Retail investors are always told not to try and time the market, but that is what is required. What they are not told is why.

As value accumulates to retail investors, a distribution is imminent. Always present to the value in derivative form, the probability of risk nears 100 percent dependant on the position of the investors. The accumulated value is the source of the risk, but it is not culturally visible to retail investors expecting to share in wealth that cannot, by definition, be redistributed without, as conservatives argue, a liquidity crisis.

Subsequently, since the value is not fundamental but it has to come form somewhere, the crisis is falsely attributed to the "herd mentality" that was cultivated to chase the value without recognizing the transformation of risk, culturally valued as fundamental, alpha risk.

Investor remorse is also culturally valued, which transforms the risk of reform into a less probable space. "I should have sold before the crash" is the popular sentiment that transforms the risk of liability into an exculpatory ontology.

The risk gains an exculpatory value despite having been deliberately executed with current value always having been derived from the certainty of future value. The loss confirms a cultural expectation of a free-market (alpha risk) ontology--that the most fit survive, and the least fit fail.

The exculpatory value is culturally endowed. It is not a free-market endowment since the value is derived from reduction (transformation) of the legitimate alpha risk.

Bad timing of certain risk has no exculpatory value if the position of investors is the determining variable at any particular time, dependant on the present value of a hidden, derivative risk destined for certain failure based on the false expectation of a too-big-to-fail coefficiency.

What is too big to fail becomes so massive that it collapses under its own weight. The result is one huge failure that is easily prevented by pluralizing the risk (maximum distribution of the alpha risk), not consolidating it.

Bernard Madoff, for example, built an economy of scale based on a false coefficiency: the more consolidated, the more value produced. The bigger the fund grew, the better to generate profit without risk. The risk, however, was just being transformed into a gamma dimension to create the value.

Madoff's victims popularly believed the risk was being reduced when it was really increasing with the consolidation of their capital. They popularly believed that alpha risk was in full operation when it was actually being accumulated into an economy-of-scale, gamma-risk, crisis proportion.

Popular understanding has been cultivated to accept the compatibility of free-market economics with economies of scale.

Free-markets legitimately operate with unimpeded alpha risk. Economies of scale operate to minimize the alpha-risk ontology.

Combining economic consolidation with a free-market legitimacy has been such a successful application of power, however, it seems invincible. It is an organization of capital that seems, especially to the power elite, to be the pinnacle of human development. The success supports a false sense of being beyond liability.

Many conservatives realize there is a false sense of security. Neo-conservatives recognize that conservative philosophy loses a convincing relevance as a sustained zero-sum accumulation demands a distribution.
Issues like "the war on terrorism" keep conservative philosophy relevant.

(Security analysts need not wonder why it was necessary to secure Iraq before finding Bin Laden, who has, apparently, slipped away, securing a popular culture of conservative relevance for some time to come.)

Since, however, national security does not directly address the discrepancy between what the combination of free-market economics and organized economies of scale promise and deliver, the tactic of invoking the salience of national security has a limited effectiveness for transferring risk into a different policy space.

Scarcity of resources is, and will continue to be, the issue at the forefront of maintaining the relevance of a conservative, utilitarian philosophy and the contradiction of a free-market/economy-of-scale-efficiency. Sovereign debt will also be a hobbyhorse, being narrated into a false sense of crises for the application of conservative philosophy.

While scarcity is a product of an economy of scale, resisting alpha risk and growth, conservative philosophy falsely attributes scarcity to too much growth. Thus the need for the economy-of-scale efficiency, and the ability to take "the big risk" to innovate.

Characteristically post hoc, the conservative argument posits the big risk allows for innovation, and growth, in a proportion alpha risk cannot provide. Actually, it impedes it. What is innovated is management of the risk, proportionally transforming optimal alpha-risk innovation, growth, and stability into beta and gamma risk volatility.

Resource scarcity and debt crises rely heavily on derivatives markets. Derivatives are both the means and ends of maintaining a relevant conservatism.

Derivative investment both consolidates the marketplace and inflates prices on a limited supply, causing the crisis that popularly demands treatment (populist reform) from the oligarchs that cause it, keeping conservative philosophy relevant.

Participation in derivative markets is also a cultural icon of wealth and the administration of power well in excess of government power. Being a member of the corporate body is to be a member of the ruling class that transforms a naturally pluralistic identity into the iron law of oligarchy.

With both Democrats and Republicans continuously casting cyclical problems into iron-law solutions, politics has become a farce of popular culture, rather than an application of finesse, in which fallacy rules over reason.

Most political argumentation is grossly absurd, full of passe' palaver that attempts to justify the nobility of a "useful" deprivation; whether it is the Republican application of capital formation, or the Democratic application of behavior modification for a clean and healthy, puritanical lifestyle, freedom is evermore captive to an arrogant application of power.

We should patriotically resist befalling the fate of want-to-be tyrants bent on the utlility of providing by means of deprivation.

When we have our next economic crisis, "and we surely will," and go marching off to the war on terror, at least we will be well adjusted, healthy and happy?

Transferring risk is not limited to complex investment vehicles and consolidated organizational technologies. It is also a function of identity and popular culture.

We thrive where pluralism abounds in the realm of pop culture. It is an oasis in a world in which utility is increasingly defined as a monolithic economy of scale--WalMart, health care, insurance, financials..., usefully absorbing the probable risk of change we really need into an ephemeral world of fleeting tastes and preferences, giving the appearance of a pluralistic ontology.

Pluralism is transformed into the perception of a chaotic, mob rule; and in the practical, non-idealistic world of politics and government, power always chooses oligarchy over ochlocracy by the dictate of a wise aristocracy, if not by the popular consent of the governed.

The conservative argument reduces to essentially this: where popular consent is constitutionally endowed, whether by nature or by law, the populace chooses the security of consolidated risk over a pluralistic condition of fundamental uncertainty.

Whether the populace likes it or not, recognizes it or not, the elite rule by popular consent (from the fundament). Oligarchy (the accumulation of risk into a manageable condition) is an "iron law" ontology. It is, according to conservative philosophy, a categorical imperative, dictated by nature.

Just as the elite rule from the fundament, the financial instruments for the application of power are "derived" from the fundament to give security to what is fundamentally unsecure and unstable. Derivative markets enable price security, for example, giving stability to the marketplace, providing a predictable margin of profit to transform productivity into capital for investment and growth.

The reason derivative transformation of risk is not considered rigging the market is because it is accomplished by means of market mechanics. A "dark market" loses that market legitimacy, however.

A market is by definition free and openly accessible so that it operates with a legitimate alpha-risk ontology. Transforming the alpha risk means the legitimacy of the process is compromised, and that loss of legitimacy is filled with a regulatory authority to prevent, but more likely to manage, an abuse of accumulated power.

Regulated gamma-risk accumulation gains the legitimacy of a due process. The legitimacy is then transformed into the collective legitimacy of a free-market process, post hoc. Just referring to derivatives as a market ("the derivatives market") invokes the image of a collective ontology needed to be considered a market phenomenon, whether it actually is or not.

A zero-sum will have the legitimacy of due process nevertheless, tranferring the risk of liability into the the public policy space (the phenomenon popularly described as "privatized profits and socialized losses").

The post-hoc legitimacy of risk transformation through derivative markets is highly questionable. According to conservatives, however, it does not matter if derivatives operate in dark markets because access is highly specific.

The use-value of derivative markets is highly specific in both function and capital requirement. It requires, and accomplishes, an economy-of-scale efficiency. Making it more visible and accessible, conservatives argue, would defeat its purpose of stabilizing markets, which is the point in question: will deconsolidation of the capital and re-transformation of the risk into an alpha state prevent the very instability derivative markets purport to stabilize?

Regulating derivative markets, according to conservatives, is to disrupt the natural order of things developing into more complex and more stable forms; and deconsolidation of the risk would be nothing less than catastrophic.

Popular demand for reducing the systemic risk (losing a job or reduction of net worth) will result in regulation (a re-formation) that does not deconsolidate (re-transform) the risk. When crisis occurs, "and it surely will," regulation will be fallaciously argued as the cause, post hoc, rather than the lack of a free market the regulation measures.

Regulation indicates transformation of risk and predicts the form a crisis is likely to take (deflationary, recessionary, stagflationary, single or double dip, etc.), as well as the regulatory arbitrage (reform or innovation) of the risk that will occur in sector spaces over time.

The error of fundamental attribution occurs in two ways. First, regulation is caused by (is a measure of) a lack of a free market. Second, regulation enables the continued accumulation of risk, falsely argued to secure economic stability and growth, which causes the problem.

Risk is transformed into the perception of a false security, induced into a lack of pluralism that is the source of economic crises and insecurity that will surely occur if we let oligarchs accumulate and manage it in the gamma, rather than the alpha, form.

The iron law of oligarchy is actually more plastic than we are induced to believe. Its rigidity is a cultural myth that elicits the value of our vices, to be managed and controlled, rather than our virtues, to be the self-ruled expression of freedom in its natural state.