Why Free Market Capitalism Cannot Work; Why It Is Pointless To
Reform Something That Cannot Work; Why Nobody Believes In Free Markets
Anymore Although We Want To Maintain Appearances; Why It Is Time For A
New Equilibrium State
Fractally speaking, all of our existences are to be determined to a major extent by the Physics of the Big Bang.
For financial economists, this is a pretty large externality to have left out of your risk assessments!
And,
yet, that is exactly how flimsy is the intellectual rigour underpinning
Friedman, Hayek and the Chicago School so mighty in ObamaWorld.
Of
course, all other externalities are stripped out of the pricing system
too, in order that psychopathic growth may be achieved despite the
production of Real Super-Systemic Risk.
Carcinogenic Capitalism.
Occurrences
that have already happened, some in the dim and distant past, are
affecting the dynamics, trends and movements in the financial markets
today.
Behaviouralism and Darwinism are primary
drivers of the financial markets and yet such structures as 'Moral
Hazard' (where market operators take excessive risk safe in the
knowledge that there is no personal downside to such risk) were built
into the very fabric of the free market model.
None of
this Fractal Mathematics, Psychology of Finance or Behaviouralism has
been utilised by regulators, government or the financial system despite
such knowledge having been freely available for half a century -
Mandelbrot, Kahneman and Tversky published in the early sixties.
Benoît
Mandelbrot: "Financial economics, as a discipline, is where Chemistry
was in the 16th century: a messy compendium of proven know-how, misty
folk wisdom, and unexamined assumptions and grandiose speculation."
Through
the provision of a psychopathic regulation-lite template where
individuals were rewarded for public displays of their psychopathy in
action, we should hardly express surprise that the elevation of such
antisocials up the economic, financial and political ladders has
produced systemic psychopathy in the atmosphere of the system.
Short-termism leads to a lack of strategy which increases risk.
Refusal to accommodate externalities produces feedback loops that also engender systemic and super-systemic risk.
And
while these characters were filling their pockets while we were all
still focused on all that smoke and all those mirrors, they were basing
their illusion on prehistoric 'science'.
Neo-classical economics is pre-Galilean in its simplicity. Multi-disciplinary it is not!
Then
there are the chartists and the technical analysts, believing in their
candlesticks and their head-and-shoulder formations, all blinkered to
any Holistic Reality but following the same data, the same prices, the
same (dis)information, plotting the same lines on the same charts
utilising the same off-the-shelf software which, if it were of any Real
value, would be being used in a proprietary trading environment for
isolationist profit. Actually...
Then came the Idiot Physicists - Econophysicists - to spread disaster far and wide.
Holistically
challenged, this new breed of trader possessed all the professional
inadequacies of their predecessors but with a new twist - black boxes.
Algorithmic analysis has grown exponentially in the last decade.
Curiously
enough, this neatly coincides with the onset of the Permanent
Depression which, as we all know, began in 1997, or thereabouts.
Black boxes are perfect for shenanigans.
You feed in the inputs.
You train your black box to recognise patterns in this data.
You mock trade the black box.
You build the black box into your overall trading portfolio.
And cybernetics works, to an extent, but not if any econophysicists are involved it doesn't!
It is all dependent on the quality of the inputs.
There
are many additional issues with relying solely on black box
technologies for trading including different pattern relevance in
different market phases and the impacts of Black Swans, for example.
The
key charges laid on the Chicago doormat are damning in their veracity -
archaic theory, non-multidisciplinary, no Real risk assessment,
unsustainability as a core competency, belief in 'magic' technologies,
an absence of any atmospheric analysis and engendering super-systemic
catastrophe scenarios.
Meanwhile, our Chicago Economist In Chief,
Barack Hussein Obama Himself, doesn't understand the basic concept of
the price-earnings ratio, thinking it is termed the 'profit-earnings
ratio' in a Friedmanian Slip.
This cannot be a good thing.
Before
entirely deconstructing this nonsense, we need to take a closer look at
the Real reasons why such a system can NEVER work.
Gosh! This is pretty exciting for a Monday morning, I can tell you :)
On October 19th 1987, Wall Street fell by 29.2% in the biggest daily decline in a century.
The probability of Wall Street falling this amount is 10 to the power of 50.
Mandelbrot:
"You could span the powers of 10 from the smallest sub-atomic particle
to the breadth of the measurable universe - and still never meet such a
number."
Free market capitalism underprices risk.
In fact, it frequently excludes risk from the equation entirely.
The
outcome of this blinkered approach to all of our Realities is that, in
the words of Mandelbrot: "The odds of financial ruin in a free, global
market economy have been grossly underestimated."
October 19th 1987 simply should not have occurred.
The 2008 Crash should never have happened either.
But
they did and such Black Swans will continue to blight this myopic
system until it is nicely deconstructed and put away in its box, under
the bed.
Fractal Mathematics are the key here, obviously.
Butterflies flutter and hurricanes hit mainly Black areas, only to be ignored as an Unreality by government.
Decisions
are made, systems developed, regulations changed, globalisation
created, insider trading enacted, markets are cornered, monopolies
allowed, cartels fragment, the state gets involved, new financial
markets are established, private markets and Dark Pools established etc
etc etc. Each of these quantums of influence set in process the fractal
future.
Every single quantum Reality impacts on the future market price.
Behaviouralism cuts across all these feedback loops as a further fractal input.
As Slavoj Žižek states: "The problem is today when you have chaos or disorder, people lose their cognitive mapping."
Chaos reigns.
Take volatility.
There were more daily swings of 5% or more in the FTSE 100 in November 2008 than in total since the Second World War.
Were the market hyperrealities really more volatile in November or was Mass Psychology at play?
All fundamental, systemic, regulatory and cybernetic fractals are massively disordered by the impact of the Behavioural.
Although
listed under their sub-sections of Gestalt or Psychoanalysis or
whatever, there is a Darwinian dynamic to the manner in which markets
evolve.
This, of course, brings us back to the 'animal spirits - psychopathy' doublespeak.
And this is why super-systemic risk is being so massively underpriced in the financial system.
While
all of the free market ideologues and their apologists in the seats of
power are shuffling the papers, printing the money, pretending that
there is another boom-and-bust possibility in this game yet (which,
unfortunately, there probably is) and extending this pretence to the
territory of carbon markets and cap and trade schemes, each
fundamentally flawed fractally in their Ponzi capitalism, there are
super-systemic fractals that might just be worthy of closer inspection.
And not just by climate change scientists either...
Fractals are the most worrying aspect of the whole array of worrying factors that make up the subject of climate change.
If
fractals can do 10 to the power of 50 with financial markets when
destabilisation takes hold, imagine what fractals could achieve in an
eco-system that is no longer in a sustainable equilibrium state!
Mandelbrot:
"The two poles of human experience - deterministic systems of order and
planning and the stochastic or random systems of irregularity and
unpredictability."
The latter of these poles dominate the analysis today both in financial markets and in climate change.
Better frame the argument around the issue of bankers and their bonuses then...
Jean
Baudrillard: "These systems, even when they are based on radical
indeterminacy (the loss of meanings), fall prey, once more, to meaning.
They collapse under the weight of their own monstrosity."
Andrew
Haldane describes the inability to judge risk as "disaster myopia" - a
lack of awareness of the network externalities in combination with
misaligned incentives.
But this is merely the first layer of "disaster myopia".
The
feedback loops, the fractals, the super-systemic risk, the quantuming
between different equilibrium states would combine in a second layer -
more "catastrophe myopia" really...
If free market
snake-oil salespeople included the primary and secondary levels of
externality in their pricing system, the entire edifice comes crumbling
down under the weight of its own "monstrosity", a monstrosity based on
inconsequence of intellectual input to the issue at hand.
There is no growth once externalities are built into the equation.
Once
one takes the holistics into account, the trickledown effect, already
entirely illusory, becomes, instead, a Cinderella-fantastic fairy tale
of a neohyperreality.
There is no such entity as a sustainable Ponzi scheme.
And the weight of monstrosity is the gravity.
Every free market capitalist infrastructure is Pure Ponzi - from Albanian peasants to credit default swaps.
And,
because the people who have been receiving excessive bonuses for the
last quarter of a century made the selfish decisions that they did, even
to the detriment of their own lines of offspring (psychopathy again),
we are now in what Sun Tzu might have called the Worst Variety of
Ground.
The fractals yet to be unleashed, the toxicity still to
surface, the mass delusions and engendered mass psychologies yet to
spiral out of rationality, will all come to fruition against the
backdrop of a super-systemic lack of stable equilibrium.
So,
a 'system' that produces negative growth if the externalities are
included, produces this deficiency of utility on a foundation that
spontaneously combusts repeatedly and fractally due to historical
indiscretions.
These foundational externalities have been magnified by the Greed of the Great and the Good of the last centennial quartile.
They
tell us that tax doesn't have to be taxing which, in self-application,
would suggest that the Great and the Good would be more than willing to
return all of their ill-gotten gains so that we all might start to
implement a sustainable strategy that just might provide us with the
remote feasibility of halting man-made climatic change.
Free
market sorts, when still willing to defend their myths, frame their
discussions around new regulation and innovation and growth and other
words that have no directly Real meanings in our lives.
Free
market sorts are enacting massive systemic ructions on the global
financial architecture without any methodology or strategy whatsoever.
Big Butterflies produce Huge Hurricanes.
But
their big thinking always stops short of being out-of-the-box; big
ideas exist within the walled gardens of their illusory system.
We don't need tinkering.
We need deconstruction, thank you very much.
And
sustainable negative growth, economic contraction, stopping breeding,
the promotion of instincts for freedom, those sort of things...
But,
in the meantime, to keep your pecker up, why not wander out into the
spring sunshine and anarcho-happy-slap a banker today...
Arghhhh!!! The minutiae! Don't get wrapped up in the minutiae...
