An OurKingdom conversation. [History: Thomas Ash > David Marquand > Thomas Ash > George Gabriel > this post > George Gabriel > Thomas Ash > George Gabriel]
I want to make a few points about attitudes to competive markets in response to George Gabriel's post on 'neo-liberal nihilism' below.
The first concerns public attitudes to them. George describes me as saying that public anger at bankers stemmed from violations of free market norms, but it's important to read this the right way. I claimed that the anger stemmed from taxpayer bailouts. These are violations of free market norms, but that fact was not the main cause of the anger. After all, it's not clear that most people care about these norms in general - though open to correction on this point, I'm not aware of evidence that they dislike subsidies for agriculture or car-makers, as they would if they were convinced free-marketeers.
Instead, it seemed that the main cause of public anger was public money being used for pay for bankers' compensation. A sense that this was against the rules of the neo-liberal game we'd been playing (to bankers' benefit) - because, as George says, after privatising profit it socialised risk - may have played a small part. But if so it was small indeed compared to the simple fact that it was our money being used. (Contrary to what many on the left now claim, I doubt that the average taxpayer objects to excessive salaries if they come out of banks' own money, and employers are left to pick up the tab if they prove to have catastrophically over-estimated their employee's financial value.)
So I question George's claim that "the congregation believes in neo-liberalism as a social vision, that fair and free competition will allow those who deserve it to advance in the market in the pursuit of happiness by the sweat of their brows." Even some of neo-liberalism's defenders reject the second half of that claim, if it's read to imply that all the 'deserving' (presumably those who are talented, hard-working and so on) will succeed.
Now, move on to George's own attitude to competitive markets, which I sense many on the left now share. He charges their participants with amoral psychological egoism (or at least he charges bankers with this, though it is not clear how bankers' bidding on assets differs in this respect from the man on the street's bidding for, say, a house to live in). But to talk of amorality is going too far; it would involve lacking any respect for human rights, and though George accuses the bankers' philosophy of commitment to this, I presume he does not seriously mean that bankers woud mug forgetful old ladies if it redounded to their benefit.
In the description of neo-liberalism to which both George and I responded, David Marquand spoke of "the unhindered, rationally calculated pursuit of individual self
interest in free, competitive markets". The restriction of this to activity to the marketplace brings with it many legal restrictions, informed by society's moral decisions. Moreover, the parties to marketplace deals all believe that these deals are beneficial to them, and except in cases of asymmetrical information or rationality all parties should lean towards thinking a deal beneficial to their counterparties: win-win, in other words. This is part of the rationale for encouraging any markets that lack significant negative externalities.
The trades at the heart of the financial crisis proved to be neither win-win nor, to say the least, free from negative externalities. But many of the bankers - certainly those sensitive to the fortunes of firms accumulating inflated assets - did not know that. 'Moral reform' on their part would not have averted the crisis. Granted, we have all read of financiers who sold mortgage-backed securities without a stake in, and so without concern for, their future performance. However, at its worst this is on a par with a making a bet you think you will win, and our regarding this as unacceptably amoral would involve some pretty extreme changes in our outlook - changes which it would take more than a financial crisis to show the desirability of.
Comments
Hmmm: "Granted, we have all read of financiers who sold mortgage-backed securities without a stake in, and so without concern for, their future performance. However, at its worst this is on a par with a making a bet you think you will win".
But surely this is not so. I don't pretend to your understanding of what happened but it seems to the layman that Bankers were making large bonuses out of dealing in securities and then more bonuses out of selling them on, so they took no responsibility at all for the fate of the securities.In other words, they didn't make a bet at all. In a bet you risk losing. They didn't. They cashed in on dealing with securities even when these proved to be worthless. In the end... we who had the good sense to have nothing to do with such a racket had to bail them out. It would only have been on a par with a bet if they were the ones who now had to pay up for what they lost.
George - where is your post?
That's true, so far as my (imperfect) understanding of the situation goes. What I meant was that the bankers' behaviour was plausibly worst if they positively thought they were selling bad investments (as someone making a bet does think), as opposed to having no real opinion or even thinking MBSs were sound. Do you think that sort of behaviour is less acceptable when the seller isn't also taking a risk? That's not an intuition I instantly share; perhaps it follows from some other principle I've missed.
I suppose one potentially relevant disanalogy is that in the case of a bet, it's transparent and expected that the other party thinks your bet is unwise, whereas this isn't so when a banker sells you a 'security' advertised as insulated from (some) bad scenarios. However, there are other cases in which a seller thinks buying their product is unwise (fads, fatty foods and - more relevantly - small-items insurance spring to mind) and most people seem to accept this.
I believe George's next entry in the conversation is coming soon...
First, I am certain many of those involved knew they were selling on unsound investments. They justified this by saying a) everyone else was so they would be foolish not to, and b) by saying, as one on the margins said to me, the quote is not exact but the sentiment is, "in a bubble you make lots of money, it is stupid not to take advantage of this just because the bubble is bound to burst at some point".
This is not at all like a bet. Second, I don't think someone making a bet is like "selling a bad investment". It is someone openly calculating a risk and buying - not selling - their possible winnings at the risk of losing their entire investment.
Thomas Ash argues as a cause for anger " it was our money being used. (Contrary to what many on the left now claim, I doubt that the average taxpayer objects to excessive salaries if they come out of banks' own money, and employers are left to pick up the tab if they prove to have catastrophically over-estimated their employee's financial value.) "
I think this misses the point that banks are not the same as other firms in market economies.
they obtain public money. It is true that there is a way for any firm to obtain funds from the general public; the stock market but that in turn has its own set of safeguards. In addition to raising money from stock markets banks take public deposits, and they have access to liquidity from central banks so they have two additional sources of public funds. It isn't surprising therefore if the public regards banks whether bailed out or not as always dealing with our money.
While public deposits are guaranteed, that is once again with public funds. It is ludicrous for banks to pretend that they are simple market actors when their business models rely heavily on a public confidence which is only possible because of their multiple regulatory privileges.
Andrew, are you disputing my claim about what the primary cause of public anger was, or my claim that the average taxpayer doesn't object to excessive salaries unless they come out of taxpayers' money handed to the banks?Also, can you explain what form the "liquidity from central banks" takes? Is it particularly favourable?
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