Making Money

It is important to keep in mind that fiscal management is not just a function of government authority. Our economy, for the most part, is fiscally managed from the private sector by a technical elite recruited from our most prominent business schools where they learn to "make money."

Innovative, risk-transfer products, for example, were introduced to make markets more efficient, but were really designed to more efficiently "make" markets. When applied in conformity with "efficient-markets theory," in conjunction with the Commodity Futures Trade Modernization Act (the government authority needed to make the consequences of "making markets" legitimate and non-retributive), the economy predictably took a nose dive toward a K-wave, depressionary distribution of the risk. All the commercial paper created on demand to support the marginal profit was transformed into a fiscal crisis.

The demand created by CDS's, CDO's, MBS's, and various other RTV's (which are essentially debt instruments) did not take the form of Federal Reserve Notes until the destruction occurred.

Demand for monetary expansion (the central bank buying treasury notes, or swapping risk for government debt) did not occur until the value a free market otherwise efficiently retributes in short order (without the need for government intervention) presented as risk-detriment in late order. Government was supplied "on demand" to responsibly save us from our "selves." Consequently, the debt that could not be paid (remember that want-to-be kings always irresponsibly overextend the rent to satisfy themselves) was monetized--it became a liability of the Federal Reserve System where, in the light of day (in the form of massive budget deficits), it is subsequently being vilified as "too much government." (Notice how the risk of responsibility was "made" to "transfer" and make money that is now being used to bid up commodities, or swapped for risk, "on demand" in dark markets.)

The value to be retributed was turned into public debt, which is financed through the tax code and, by no coincidence, should not be paid by the primary beneficiaries of the detriment. Supposedly, retributing the value (the capacity for consumers to finance the profit, or pay the rent, on demand) is a "moral" hazard because it bankrupts the efficiency of markets (it reduces the supply of capital and causes shortages). This, you see, is what the so-called "efficient-markets theory" really is by technical objective--it "makes money."

Money is not made by adding supply, however, but by reducing demand, or the capacity for each and every one of us to self-determine "on demand." Without the retributive value inherent to demand economics, the theory of efficient markets is transformed into an ideological proposition rather than an empirical measure of well being.

When destruction derives from demand created from the top down, we are all, nevertheless, individually responsible for our fate from the bottom up. Self-determination is transformed into "personal responsibility."

We are all responsible for complying with the self-determination of the "job creators" or suffer the ill effects of non-compliance, which is essentially to work more and more for less and less to a fault (specifically, default, which is the opportunity to consolidate assets into private equity) "on demand." When we then show up at an ER to treat an illness because we do not have the income (the demand) necessary to be well, we are freeloaders.

Since freeloading is irresponsible, we are mandated to buy health insurance that becomes less and less affordable (and more and more monetized without adding supply) on command. We are then stuck with an even more robust price-support system instead of a system that would otherwise control the price by virtue of efficient markets (with adequate income that comes with added supply) on demand.

If we do not properly position ourselves to avoid it, the detriment we suffer is our own fault. That is, if we do not subordinate to the risk and fully assume the position the gods of misfortune intend us to be in, then we will always be entangled in conflict. We will always be consumed, to hear reactionaries tell it, with "class warfare," bemoaning a fate that is easily determined by delivering the "self" to the objective reality of the money makers (whether on the left or the right) who create the jobs we need to deliver us from angst and suffering otherwise expected.

Money is technically "made" by determining an outcome (position of the entangled risk, or the conflict that consumes us) that is easily predicted (expected) by the practical philosophy (the objective identity) of the risk proportion (like the utility of supporting profits without adding supply and employment). It is important to understand that the added money supply does not chase too few goods and cause inflation, as Milton Friedman argues. Quite the contrary, the result is classic overproduction--a lack of demand, which accumulates supply and cures the prospect of shortages.

The current situation with gasoline prices, for example. Now that the "risk mentions" indicate sentiment for price controls--since the oil market is so consolidated that it can support, or control, the price by commanding it to the up side despite declining demand--pop analysts are preoccupied with explaining why supply-demand fundamentals don't always behave as fundamentally expected.

(Analytically, it is important to understand that a price support encourages added supply. Since the supply added resists the support, the price is being paid on command, not demand. Commanding the price is a demonstration--a confirmation--of power that in a free market is limited by demand.

The quantity in command--the retributive value--is the quantity of governance--the tyranny--that the Tea Party, for example, expects to be limited. It is the "limited government" that technically indicates our freedom to prosper by controlling the price to be paid. It is the empirical value--the relative price expected to be paid proportionate to the risk taken--that measures the power of self-determination and thus the limit of personal responsibility.

Price supports can always be expected to be out of control, allowing the producer to sell an accumulating supply at a price that is rising against declining demand. As the supply rises, employment and consumer income falls, due to overproduction, increasing the price we can expect to pay.

We can always expect tyrants to tax more than subjects can pay, and in a market economy the money to be made has to come from somewhere, so we make it to support the price.

As the price commanded increases, the price demanded decreases, resulting in classic overproduction. Pop analysts are trained to ignore overproduction because the value produced is the holy grail of success--pricing power, which requires making money to pay the price and control the risk.)

Trying to control the price of oil on the supply side does not make sense because the price is being commanded, not demanded. Efforts to control the price by increasing supply has failed because there is ample supply.

Rather than too much money chasing too few goods, there is too much fuel at a price consumers can't afford to pay. Instead of inflation as Milton Friedman describes it, we have the classic phenomenon of overproduction.

Pop analysts reluct to mention overproduction because the logical cure is to either command (mandate) the price on the down side, or deconsolidate the command structure. Deconsolidation is to be avoided at all cost because the economy-of-scale, too-big-to-fail proportion is what empowers the corporate with self-determination--the power to command the outcome.

Deconsolidation structures the risk proportion so that price can be controlled on demand. When consumers are empowered with self-determination at the expense of producers, everybody, including the corporate body, tends to behave more responsibly on demand. Producers are more apt to add supply (a marginal product and a distribution of income) to make a profit (rather than inflating the price to reduce demand and add a marginal profit) because, as long as there is an alternative (supply pluralistically added to occupy the same space), a command posture is impolitic if not impossible without a price support. A government mandate, for example, is supposed to ensure we all behave responsibly, like mandating farmers not grow wheat for their own use because it does not support the price, or buy health insurance because it is unaffordable.

In the case of health insurance, the mandate is not considered a price support, but a means of resistance without sacrificing consumption. In other words, the support is provided to add the supply of insureds without adding the supply of insurers. It is structured into an economy-of-scale proportion, which in all probability will be used to support the price of health care to infinity and beyond. The marginal profit will be monetized (the profit will be "made") without adding a marginal product, which is inflationary.

No, this is not a problem of too much money chasing too few goods. This is an organizational problem that health care analysts fail to recognize because it consolidates power and structures it to distribute on command, by mandate, from the top down, not on demand from the bottom up. Instead of being self-determined, we are turned into animals in a Skinner box, operantly conditioned to responsibly (i.e., responsively) act in the image of our masters.

Consolidated capitalism much prefers a mandate because it conserves the command structure. What can be mandated on the down side can be mandated to control price on the up side, which is why Republicans originated the health-insurance mandate they now oppose. Republican opposition is based on free-market principles and ensuring a level of personal responsibility they can somehow self-determine as long as a command structure legitimately occupies the policy space over time.

Maintaining the utility of an economy-of-scale efficiency maintains the command structure and the crises of overproduction that plagues us. It is the disease, not the cure.

Markets are not made more efficient by means of consolidation. Supply, as in the case of oil and gasoline, keeps rising since the market cannot demand it even with more and more money being monetarily added, which instead of reducing inventory supports the price and thus the money to be "made" on command. Since the added supply does not, as we reasonably expect, reduce the price (because futures markets have "determined" it is too risky), the risk being mentioned outside futures markets, in the light of day, is an increasing probability for government price controls, which could possibly include deconsolidation.

Deconsolidation includes alternative sources, and the economic growth that results will not be inflationary, contrary to popular analysis. The growth will fiscally manage the demand destruction (the deflation) that occurs when supply accumulates to be sold at higher and higher prices.

By increasing the distribution of income (by broadening the base, which is the way Paul Ryan refers to his tax increase on the majority of Americans to pay down debt), the crisis of overproduction, and the fiscal crisis, is cured with sufficient income to demand it, and pay it (but not if we broaden the tax base as Ryan suggests, which would be deflationary and add to the debt proportion).

Instead of reducing demand to control inflation, which obviously doesn't work, but broadening the income base (not the tax base), there is less need to make money by monetizing an increasing debt proportion to income. Instead of ensuring futures volatility, the contradiction (the dissonance) of rising prices (inflation) against rising supply (unemployment) resolves.

Preventing a structural correction that resolves the dissonance is what capitalism is organizationally designed to do. It is designed to profit from detriment (deprivation) in the guise of curing shortages. This is why during the Great Depression we were dumping grain in the ocean to support the price when people were starving, and despite the "Great Moderation" we still struggle with, for example, a glut of homes in the face of homelessness, bulldozing entire communities to support the price. The price, however, is the creative-destruction that capitalism claims is our natural condition and from which it derives value to support it in the name of continuous improvement.

The only reason the choice is either deflation and unemployment (overproduction with falling prices) or inflation and unemployment (overproduction with rising prices) is because the marketplace is too consolidated. The cure is to deconsolidate but is never mentioned until it reaches an overwhelming crisis proportion.

Letting the risk go critically gamma and burst before we consider the obvious is not the model of an Enlightened intellect. Quite the contrary. At this point in our history, letting economic risk gain a fully political dimension is to gain, once again, a declining rate of profit. Instead of a New Deal, perhaps at this point, following the Great Moderation, a persistent deflationary risk signals the opportunity for a more genuine free-market structure that provides with less need for government, rather than deprives with more.

We ignore the obvious cure because we have to "deal" with the "new," immediate crisis. We aptly avoid the cure, and conserve the class identity (the Hamiltonian virtue) of the value, by monetizing the accumulated risk proportion--by "making money."

It is no coincidence that Bernanke reiterates a Fed policy that will continue to be "accommodative" for the foreseeable future. Equity prices (and bond prices) get support (which tends to push small, retail investors in to take the risk). There will be plenty of money being made despite the persistent, deflationary risk...for now, anyway.

Accommodative monetary policy indicates an accumulating fiscal crisis--the inability to pay the economic rent because money is being made on command (what Goldman Sachs and Bank of America do by pre-dicting, or self-determining, prices in the future, positioning 99.9 percent of payers to take the risk because most of us are trying to cope here and now--being personally responsible as pre-dicted). Paying the rent on command (rather than on demand, like in a free market) pushes prices up in the face of rising supply, which supports the profit margin by resisting the demand needed to pay it.

When the king overextends the rent, as "We the People" know very well, the price, historically, will be paid. Fortunately, we have the means to deconsolidate the risk without catastrophic consequences, on demand.

An Organizational Problem

Our continuing financial crisis is the latest example of ignoring what is technically an organizational problem being philosophically maintained.

Consolidation of the governing, policy space, both politically and economically, is technically risk-prone, not risk-averse; and philosophically, organizing to avoid the assumption of risk (or to empirically determine a probable outcome) is what the American Revolution (the age of Enlightenment) was all about.

When empiricism--a philosophy of thinking--emerged not as magic tricks, but a verifiable (risk-averse) means of acquiring knowledge, a revolution occured. This Enlightenment led us into an industrial revolution (the technical application of empirical philosophy), and that revolution continues to converge technical and philosophical aspects of sovereign power (organizing for self-governance, or self-determination) to occupy a singular space.

Philosophically, the political-economic interests that supported the American Revolution were technically interested in creating wealth and keeping it from being confiscated by the sovereign. Technically, they organized to protect their interests with a philosophical foundation that is empirically derived--they declared themselves ("We the People") sovereign. This "Declaration" (this thesis of independence that is the working hypothesis of science) essentially converges the "self" and "governance" into a singular space so that our objectives are easily measured and verifiably attainable, or "self evident."

(Occupy Wall Street protesters don't see a verifiable attainment, for example, and so they intend to occupy the policy space that governs the evidence--the profit and loss--of that attainment.

The protest is both prescriptively and descriptively in the spirit of the American Revolution, and the right-wing reaction is how kings reacted to the Declaration of Independence...with indifference at first, until it became self-evident that sovereignty empirically resides, both technically and philosophically, with "We the People." This, you see, is the gamma-risk dimension where the risk ontology obtains as a quantum singularity but paradoxically attains a pluralistic, teleological expression. The expression is a creative process, intelligently designed, much as our founders originally viewed the empirical value, the ontology, of a government designed by consent, or by "objective" of the governed.)

According to original, American Revolutionary thought, consolidation of power is risk prone. When sovereign power is consolidated into the hands of kings the state naturally operates contrary to our objectives--the risk of loss is fully assumed in priority. (The risk of loss is gamma, but when intelligently organized, or pluralized, in the alpha dimension, the reward fully converges with the risk so that power is both normatively legitimate and technically verifiable).

At the time of the American Revolution the debate naturally centered around the role of government authority. The Revolution revolved around determining who is legally sovereign, or self-determined, which is essentially a question of organizational technique that is philosophically derived.

While dialectical determinists argue that the philosophy of risk is technologically "pulled," consider that at the time of the American Revolution philosophy was more concerned with the risk of losing economic value to the sovereign, value that was essentially derived (organized) from the labor of the bourgeoisie (to fulfill the king's objective reality). This is what Adam Smith was referring to when he declared it is the natural right of the business class to make as much profit as it can, and keep all that it makes, because it labored over it. It was a calculus of profit and loss with the sovereign taking more value than risk assumed because the king was, by his divine, insurmountable, singular nature, too big to fail. He could cover his losses, or cause loss and determine his competition, by merely raising the rent; and if his subjects didn't like it, well, they're just "envious"...sound familiar?

Empirically, however, the (envious) bourgeois class, being Enlightened (and prone to revolution), knew that the king's "nature" (his objective reality) was not verifiably singular, but relied on the wealth that its class created to demonstrate power and maintain status (the status quo). It reasoned then that the wealth created is not the wealth and power of kings alone, but "The Wealth of Nations," which is organized by an entrepreneurial class willing to take risk as long as government does not interfere or try to take its wealth. The objective, then, is to devise a mode of sovereignty that is "hands off," and the best way to do that is "hands on"--by declaring your "self" the sovereign.

Hence, government had to be organized to ensure the right to self-determination, which essentially requires a philosophy of risk that ensures the reward is legitimately derived, and thus legitimately kept and used as the private property of the sovereign. There needs to be a philosophy to support the new, organizational technology from which the value of self-determinism derives--the job of managing risk so that the risk-taker can keep, as Smith said, everything the risk-taker labored to earn, but as Smith said, as well, the risk-taker, like the king, is not a quantum singularity.

The right to private property (the right to sovereign power) is organized today to deprive it of others, which demonstrates power. When private equity firms, like Bain Capital, buy up foreclosed homes, it is called "free enterprise." In other words, the corporate body (the collective person, Bain Capital, for example) is legally sovereign and has the power to determine the self, including the "self" of others like the crown did by extension of the rent.

Extension of the rent (the economic risk that inevitably transforms into political risk) is accomplished by organized consolidation of the capital, which is called free enterprise. So, when private-equity firms, like Bain, buy up distressed assets, they are consolidating industry and markets (the quantum) toward a singularity (political risk they react to as "communist" or "socialist") that overextends the rent and forces assets into distress. While it freely demonstrates (enterprises) the power of the sovereign, it arrogantly forgets what objective reality really looks like and diminishes, like the king, that on which it naturally depends.

The risk-taker is dependent on conserving the natural right of others to self-determine, and as soon as that right (his sovereignty) is not conserved, he no longer, by nature, fully assumes the right in the future, but fully consumes that right by his own self-determination. Not only is it foolishly self-destructive (greedy) to consolidate industry and markets, Smith contends, for example, it is a moral hazard (which the greedy psychopathically describe as "class envy" and "class warfare").

If the objective is to avoid the moral hazard--the fully assumed risk--by ensuring free markets, it is necessary to avoid the problem of a declining rate of profit that classical economists referred to. Remember, "the declining rate of profit" is a demand deficiency due to liquidity crises, like we have now, which results from insufficient income to demand the value of labor put into expanding the pie. This pathology of insufficient income (our recurrent risk of default), as Smith said, is an organizational problem, and while today we support the margin (the risk) by monetizing the debt, the problem, and the solution, remains the same.

Demand Economics (Geeks and Greeks)

While classical economic theory posits that labor is the source of economic value, neo-classical theory assigns consumer demand to that value.

The new assignment of fundamental value to the consumer ideologically accommodates conservative philosophy of the risk in a post-industrial environment. Marx's theory of labor value, which all classical economists subscribed, is suppressed to accommodate a theory of value that supports arbitrage of the risk proportion. Market value is not how much work is imparted, but with the extension of credit (inflation, unemployment, and massive debt-to-equity), value is whatever the market is willing to pay for it. That way valuations are legitimately arbitraged (put at risk, remembering that the reward is legitimately commensurate with the size of the risk) without adding supply, exculpating the liability of gaining profit by causing detriment, the Great Recession being the latest example.

Assessing what caused the Great Recession includes, for example, the Community Reinvestment Act in which mortgages were written without the means to pay it. That is, market prices were based on what the market would bear, not the value imparted to labor (what wages and salaries could afford to pay). The entire system was put at risk. The risk proportion was huge, and the reward is proportionally huge (its political value currently estimated at ninety-nine percent of the probable risk assessment and rising). If there is blame to be imparted, Wall Street can claim the geek gods (the technocratic elite) of public and private finance modeled the risk with an inscrutable complexity that can only be described as fateful, but this claim of ignorance is not enough to exculpate the value consumed from risk that is fully assumed.

There has to be a philosophy to explain the legitimate value of the risk proportion. Although equities continue to rise in value, it is not being "expropriated" from labor as classically described, but legitimately "demanded" in the marketplace.

Profits are generated on demand and the supply of money available to demand it legitimately directs the risk according to market forces (the analog to Greek gods on Mount Olympus). Any Socratic challenge to this ontological mythology, you may have noticed, is tantamount to political-economic heresy...it is unpatriotic...it is counter-revolutionary!

We see then how demand economics provides technical support for a classical outcome that is philosophically outmoded. While we no longer consider the rigors of the free market a legitimate means of mass deprivation for the common good, the accumulated supply of money is nevertheless being directed by the top one percent to exact deprivation because consumer markets (the geek gods) demand it.

The power to exact detriment is in the lap of the gods, you see. Wall Street geeks crunch and tweak so fate befalls the weaker links. If success eludes the toil you bear, it is the self you must at first forswear. It's not geeks that put you in the streets, but looters, vandals, and freeloading Greeks.