Productivity Gains

Recessionary trends reduce both purchasing power and net worth of consumers.

Readily apparent is that reduction of buying power makes for a worsening crisis begging for a technical correction. What is not so apparent is what happens to the net worth.

Reduction of purchasing power has a very near-term, deflationary effect, reducing inflationary pressure by reducing demand. As prices fall, monetary assets appreciate in a zero-sum relationship. Losing monetary assets--losing a job or a house that was leveraged into cash--by liquidation under deflationary pressure prevents participation in the benefit.

Reduction of net worth has a longer term effect that disconnects, and disassociates, the cost with the benefit. Net worth just seems to evaporate, and that is the way it is described by the vast majority of economists and analysts that have access to popular media outlets, reinforcing the apparent and popular understanding of it. However, the understanding is an affirmation and not a confirmation of the phenomenon.

Now that the Dow has retraced to 10k, the big question is, "What needs to happen to get the retail investor back in the market?"

When retail investors had a job, savings went into the house and the stock market. Where did all that value go?

Throughout the period of conservative resurgence small investors were told that trickle-down economics would trickle (retail) into an individual's retirement account and appreciate the value of homes. Small investors subsequently fell to the macro-economic reality of the business cycle. Rather than sharing in the wealth, they were providing it to be consolidated.

Sharing in the accumulation phase of the cycle, the retail investor was marked to market as the wealth to be accumulated, not to accumulate wealth. What would have happened if Social Security funds would have been put into the market, as conservatives strongly advocated, prior to the Great Recession as well?

The promise of sharing in the wealth by investing in it before it trickles down is not only seductive but also provides the productive incentive to generate the income to invest. It is the perfect retail marketing scheme evolving from a distrust of trickle-down economics touted to provide the greatest good for the greatest number. Wages and salaries can be leveraged into wealth rather than providing mere subsistence. That would give credibility to the beneficence of accumualting capital. Capital formation is then not simply an expropriation of value produced by labor.

Rather than being alienated from the wage and salary earner, productivity is value gained by labor in the form of capital. The value is being verifably appropriated, instead of expropriated, as the value of labor's investments tick up. The value is being reinvested for continuous accumulation (not economic growth) rather than retributed by a gamma-risk distribution, stabilizing the cyclical macro trend and avoiding crises. Socialism? No need for that. Free-market economics? No need for that. Consolidation of capital, industry and markets benefits everyone...it is the model of maximum efficiency!

The new and improved model of capitalism is a touted utopia with labor sharing in the capital gained.
Neo-conservative reconstruction is to demonstrate that the classical model of capitalism can be modified to be veridically utilitarian. That it is not verifiably utilitarian, but systematically yielding a highly exclusive benefit, is the perennial problem of capitalism and the systemic risk to be managed. Managing that risk is in full mode at this time with an estimated retributive value of approximately $10 billion by the year 2010.

The retributive value has been accumulating since the dawn of capitalism. Perennial (cyclical) liquidity crises keeps the capital consolidated and functions to mitigate the declining rate of profit, preventing deconsolidation and resisting the natural tendency to free-market pluralism.

If capitalism does not consolidate (accumulate) into "too big to fail," the capital will reorganize (resolve) into small, pluralistic entities that are both capable of succeeding and not too big to fail the system into a crisis mode if some do. The systemic risk is managed by process of a pluralistic, continuous improvement.

Since the improvement (the correction) is not allowed to happen, the declining rate of profit technically presents as productivity gains. The declining rate of profit is borne by wages and salaries--income that is not technically considered capital gained, but its primary cost. Distribution of the cost determines the accumulation--to whom the benefit accures.

In a consolidated marketplace, the cost accrues as a debt, and the benefit accrues as a profit. The result is the jobless recovery we have now with the declining rate of profit being absorbed by the vast majority of consumers in the form of reduced wages and salaries and working more for less--productivity gains.

The expropriation is described as "capital formation." The loss of net worth is gained in the form of productivity gains. Each member of the family having to work two or more jobs to pay the profit margin, like it has been for twenty years or more, will be considered an improvement over massive unemployment.

Expropriation of the value--the zero-sum distribution of net worth from the bottom to the top income class (the constant, non-pluralistic accumulation of wealth and power)--appears as an unconnected cost and benefit. The cause and effect appears disconnected so it cannot be rendered a function of a problem/solution resolve.

Rising wages and salaries and full employment is considered to be the problem, therefore it is not the solution, which is what we have now. It is no accident.

The only reason the stock market is a leading indicator of recovery, and employment is a lagging indicator is because the capital gained (the consolidation of net worth--the formation of capital) has deliberate priority over employment (purchasing power and equitable distribution of net worth). It is what capitalism is intended to do and is supported in every way right down to the classification of wage and salaried employees.

Why is it that the controversial compensation of too-big-to-fail institutions are considered "bonuses" and not a typical laborer's wage or salary? Why is a medical doctor's pay considered in a different class than a typical laborer's fee for service? It is because it has an elite status with all the rights and "privileges" of achieving that status. Chief among the privileges is the exercise of power that is emblematic of status, like tyrannizing liberties, or expecting to be paid whatever fee is commanded for service in the name of public health.

The reason health care reform is so difficult is not because health needs to be determined a right or a privilege, which reduces to a matter of opinion, but whether it will be provided at an accumulative, and fully verifiable, cost. It is a struggle for economic power and political dominance.

The stakes for preserving the empirical measure of status are very high, as well as the costs for the vast majority of The People in which the choice is health care or bankruptcy and no reason to believe reform will change a system that supports accumulation over a distribution of power.

Relinquishing economic status is to relinquish and share power. The medical profession does not want to be subjected to the rigors of free-market economics because it "crudely" relinquishes status by disinflating the price (the profit) and the probable accumulation of wealth that confers status and power (health as well as wealth).

Health insurance companies want a special monopoly status and be allowed to consolidate to prevent free-market competition because a free market model means the firm MUST be pluralistically accountable in every possible aspect of public propriety. The firm is accountable on demand, which is a function of pluralism, rather than dictate the market on command, which is a function of elitist authority.

As long as the healthcare sector can function without being subjected to the rigors of free-market economics, it is more able to command the bid. The bid is whatever the provider asks and accountability becomes a function of litigation with high monetary awards from the deep pockets of the market's commanders.

The need to sue to get what the free market is likely to otherwise affordably provide indicates command economics and an elitist model in operation, not the failure of free-market economics.

Free-market pluralism provides accountability in the fullest and most immediately direct measure. It is inimical to market tyranny, holding would-be tyrants directly and immediately accountable by consumer bid in the marketplace.

Ensuring free-market economics provides tort reform beyond the consumer being left with no recourse, which only benefits the market providers--the economic elite--and will do nothing to control costs for consumers, only adding to the profit margin, and power, to command the bid on the bottom line.

In a free-and-open unconsolidated marketplace with no barriers to entry, a business enterprise, or a doctor, that has achieved a high status of profitability in the marketplace is an entity that consumers both want to do business with and invest in. Both can happen at the same time with the most direct, immediate, and easily verifiable accountability--exactly what litigious elitists, busily defining what is a right and a privilege, do not want.

One model is democratic, the other authoritarian. Which one do We choose to ensure freedom and liberty for all beyond the ephemeral determination of what is a right and what is a privilege?

A person does not have the right to, or the privilege of, anything if it is unaffordable. This is what a free-market economist refers to when describing and explaining the ontology of the distribution of power. Nature is completely ignorant of the right thing to do. There is nothing profane. All it knows is the truth. All We have to do is find it. There will be found the peaceful prosperity We are All looking for; and for the people that are more concerned with engineering the truth to a self-satisfaction than finding it, it will find you, much to your dissatisfaction. It is self-correcting, oblivious to propitiatory gestures and retributive rituals either ancient (like making sacrifice to the gods of providence) or modern (like retributing accumulated value in the form of a public debt).

The right to health and wealth is only verifiable by doing it, and the means to ensure it is the maximum pluralism, the maximum possibility beyond structured probabilities, free-market economics provides.

Interdependence of Banking Firms and Systemic Risk

Treasury secretary, Geitner seeks to broaden his bureaucratic power to control systemic risk--the interdependent dimension of the financial sector that has been engineered to extort value by consolidating (leveraging) the capital under the guise of spreading the risk.

Interdependence is argued to be a way to spread the risk in order to be able to afford taking the "big" risk to promote economic growth that being "small" does not afford. As it turns out, of course, the argument is nothing but a fraud. The "big" risk is but a systemic risk generally imparted to The People disproportionate to their share of the reward. In other words, it is an unjust enrichment perpetrated by a fraud, and as long as the risk is to be bureaucratically managed to protect "the system" from failure, perpetration of the fraud is not a crime, and the expert, elite perpetrators do not go to jail for fraud.

The interdependence of bank firms, and other financial entities, is argued to be a necessary condition of the sector independant of organizing to be "too big to fail." The financial sector's interdependence is necessary to produce the risk/reward ratio necessary to turn wealth into capital. The "natural" result is being too big to fail. Buying into this argument results in the byzantine bureaucratic measures we see unfolding to control the inherent, the "natural," systemic risk of ensuring the survival of what needs to sytematically fail.

Since private wealth, personal or corporate, is not likely to become capital (money to be invested) until solicited with a favorable low-risk/high return ratio, the bureaucracy is busily organizing to lure private capital toward the public good--economic growth. The lure, the incentive, to not remain illiquid and produce the public good, private-sector wealth is turned into capital with a disproportionate reward-to-risk legitimized by being organized into a public-private partnership that is too big to fail. The disproportionate reward is the empirical value of the problem--the risk--to be resolved. Satisfying the value causes the problem, and like borrowing your way out of debt, the problem can appear to be the only solution.

Supposedly, the leveraged return of inter-bank finance is an innovative means of forming the capital (the liquidity) needed for economic growth with a return that is disproportionate to the risk. The "big" dimension of the capital is argued to be a way to create capital (money to be invested rather than just saved or horded) when it is really a way to consolidate it by being so big it cannot be allowed to fail, or to actually take the systemic risk it causes. The result is a big reward with no risk. The disproportion is empirically expressed as an economic crisis and refered to as management of the systemic risk.

Being too big to fail, so the argument goes, allows the firms to have the capital reserves necessary to survive the crisis, the inefficiency, organizing to be too big to fail causes. The crisis, then, necessitates the need for what causes it (the capital reserve of too big to fail).

The interdependence argument, in addition to being a tautological legitimacy of the most absurd proportion, is especially deceitful and pernicious because it relies on the argument that what ails us is a necessity beyond good and evil despite the invocation of "moral hazard" whenever solutions are most likely to put the public good before the primacy of private profit with the result always being the value judgement that what supports a private sector benefit is good and what provides a public benefit is always likely to be bad. To bring the value judgements into a practical "resolution" without jeopardizing the status-quo organizational tautology, there is a tendency to resolve with a public-private organizational technology designed and implemented with the best and brightest elitist, technocratic expertise.

It is time to quit listening to the "revolving door" experts of the public-private partnership of power and let The People rule. This is how We do it.

Organize this current crisis of the economy and the financial sector into the means to prevent it, not cause it!

A national bank is clearly needed to finance the priority of government: ensuring a free and unconsolidated marketplace that will not tolerate "too big to fail" and the extortionists it rewards and maintains.

The National Bank funds small banks. If a small bank fails, it ceases to exist without systemic risk. It is not consolidated because that causes the problem, the systemic risk, of "too big to fail." The depositors of the failed bank are insured and are free to redeposit among the alternatives. No one bank or syndicate is solicited to buy the bank. The customers (The People), the depositors, fund the success of the other banks instead of, as taxpayers, financing "too big to fail" and the means of their extortion, which not only increases the need and the expense for government with a typically regressive tax burden, but reduces the funding (their savings, the capital, the distribution of dollar votes) that rewards the success of NOT being "too big to fail" and the ability of the sovereign, The People, to rule.

The national banking system adds to the number of existing small banks by busting the large, too-big-to-fail banks into small banks with an equal number of equity shares. The banks lend to each other as a standard business practice, and so become interdependent for the purpose of pluralizing the marketplace, i.e., allowing capital to easily flow into profitable industries and markets, controlling inflation and unemployment without trading them off like we do now into a crisis dimension. Less capital is held in reserve and more is available for economic growth, making the capital optimally available to prevent the systemic risk.

The interdependency of the banks is profitable by being pro-growth which naturally hedges, or spreads, the risk so that failure of one WILL NOT cause the failure of others. Failure of a bank will be by the choice, the democratic legitimacy, of its customers, not the determination of a bureaucratic elite and political gaming. The People rule!

Hedging the risk becomes a function of promoting economic growth, not by just investing new markets, but by investing profitable existing markets as well. Without investing in growth, the bank cannot be profitable...that will most assuredly promote growth! The sheer number of businesses and possible profit opportunities is the incentive to hedge with growth rather than create a leveraged interdependence that will expose the firm to the probability of complete failure that will be allowed to occcur with the depositors, not the bankers, at no risk of loss with the full faith and credit of the national bank...and The People rule!

Where bank interdependence has been argued to spread the risk only to be used to extort The People into accepting terms it would not accept if it were a free market, instead of the tyranny of a consolidated (interconnected) capital, it can be a function of ensuring a free and unconsolidated marketplace as best can be had so that the risk is not the fear of detriment (systemic crisis) but the promise of always promoting a peaceful prosperity.

Instead of destruction of the American dream, we have the means to ensure it.

Understanding Liquidity Crisis and the Measures to Correct for It

February 21, 2009

The current state of our economy is liquidity crisis. The capital has been allowed to become so accumulated, consolidated, that the economy can neither be sustained or expanded. The result is negative growth, massive unemployment and the declining rate of profit (falling prices following the stagflationary phase of the post-monetarist, Keynesian business cycle).

The profit (the pricing) that creates capital can no longer be sustained (the deflationary phase of the cycle) because that value has been accumulated and not pluralistically, systematically, redistributed by economic means of a free and unconsolidated marketplace. In order to return to profitability (for your 401k to gain rather than lose value to the accumulation of capital into the private property, the ownership, of a few plutocrats) the capital must be redistributed--recycled.

The lack of pluralism, the lack of a free-market economics, is the systemic economic risk, or instability, we are experiencing that comes with the accumulation of wealth and, therefore, power.

In order for the economy to move out of liquidity crisis (the deflationary phase of the business cycle), redistribution of the capital (the distribution phase of the business cycle) MUST occur. It is a necessary condition. Nothing else will suffice.

This description has been the "economics" of our current crisis.

The "political" description of the crisis is entirely a function of who owns, and therefore controls, the capital and the ability, the means and measures, to correct for liquidity crisis. For the plutocrats, this is a function of how much the non-elite are willing to suffer, or sacrifice, for the accumulation of the capital into the ownership, the controlling hands, the command, of the elite. The more the elite can make the non-elite suffer without retribution (loss of the value accumulated) measures the amount of political power and the amount of value that must be retributed in order to minimize the systemic risk-to-value obtained, or the retributive value.

The trick, the political process, is to go through the distribution phase of the business cycle without giving up ownership of the capital to the non-elite, or minimizing the retributive value. This is accomplished mainly by arguing that government--the means of retributing ownership of the capital--is the problem and not the solution so that the distribution phase of the cycle does not become an event of economic re-distribution that eliminates the reoccurrence of liquidity crisis.

Retributing the value at the distribution phase very simply minimizes the probability (the risk) of the massive liquidity crisis, the systemic risk, we are now experiencing. It forms the basis for pluralizing the economy so that it is not dependant on any one economic entity that holds us ransome to gargantuant bailout values (the amount of value to be retributed) like we have now.

Fully retributing the value obviates all the other complex political means and measures we are now engaging to preserve the current system, the ratio, of risk-to-reward.

Keynesian measures preserve the current risk/reward ratio. It is a political measure, not an economic one. That's why there is a general sense of dissatisfaction with the current mode of stimulus measures: it serves to redistribute value politically rather than retribute it economically for a fair-and-equitable exchange of value that makes for economic stability or low-to-no systemic risk.