David Marquand sends in the following response to Thomas Ash's OurKingdom commentary on his recent Guardian article. Below, Thomas Ash responds.
I'm afraid Thomas Ash has misunderstood what I was trying to say. I said the notion that economies were driven by the calculating pursuit of individual self interest lay at the heart of the neo-liberal view of economic behaviour, which has dominated policy making since the late-1970s. I can't see how Ash can dispute that. It's central to the thought of both the two great neo-liberal thinkers, Friedman and Hayek. It's equally central to the thinking of Mancur Olson, probably the chief champion of the Rational Choice school of social science. (See his Logic of Collective Action.)
But the fact that some people took out mortgages they couldn't realistically afford, or borrowed more than they could realistically hope to pay back, doesn't in any way prove that they were not abiding by the neo-liberal view. People who took out excessive mortgages because they thought house prices would go on rising, or borrowed excessively because they thought their incomes would go on increasing, weren't failing to calculate their interests rationally, in the light of the information available to them. They were getting the calculations wrong!(And, of course, they were in good company.)
The real point, of course, is that the neo-liberal view is simply wrong. Markets don't work in the way neo-liberals said they work. They don't because of what Goerge Soros calls reflexivity. People make their calculations on the basis of what other people are doing - or rather of what they think other people are doing. The result is that upswings turn into bubbles, and downswings end with bubbles bursting. Which enabled George Soros, and in his day, Maynard Keynes, to make lots of money.
Just to clarify, I wasn't disputing that neo-liberalism often involved this model of economic behaviour. Nor was I implying that people taking on unaffordable debt weren't pursuing their self-interest. (I do think they were failing to calculate their interest rationally. That's another debate; even if it were true that subjectively rational actions proved mistaken, as clearly happens sometimes, this problem would affect any system.)
The definition of reflexivity you give concerns a way "people make their calculations", hence it fits any 'rational choice' model of the way markets work which allows for less than perfect rationality. Of course, I'd accept that this is one of many reasons that markets have sub-optimal outcomes, though not that this by itself entails that neo-liberalism is the wrong choice for a society.
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