The tone this conversation is taking isn't really adding to my interest, and I'm sure you're getting bored of talking to me as well so this is likely the last response you're going to get on this subject:
You started the conversation with a snarky dismissal of entire fields being equivalent to election polling then never backed up your claims. You came in on a hard polemic but didn't support your claims, evaded and then fell back on snide little insults.
Nevermind. You said that the Austrian school's (and the neo-classical school's) model of human behaviour is wrong, I was just trying to see what you understood of that model and why you think it's wrong. If you're not going to do that much, that's cool.
Put the premises of the Austrians into your own words and I will debate your understanding on your own terms. I already said at the start the problem is none of the varieties of market fundamentalism (Austrian, Chicago, Randians, hybrids) are based on what we actually know about human behavior and decision making but rather based on assumptions from a much earlier era.
There's a question one of my history teachers used to like: "What caused the First World War?" If you answered the assassination of Franz Ferdinand, you'd get a C. Not wrong, but not quite right either. You're playing in C territory right now. I like to make this mental distinction between 'causes' and 'triggers'. Causes are the underlying institutional factors that create the conditions for a certain event, and triggers are the black swan events that expose the conditions and start the catastrophe.
So we're kind of having different conversations, you're focused on the trigger (over-leveraged derivatives), and I'm trying to account for the system we created that gave these companies an insulation from the risk they took on (actually encouraged it).
Your flippant dismissal of "banking as an industry is heavily regulated" was debunked when I listed examples of how many specific links in the chain reaction were the result of no regulation.
Radical de-regulation and changing of business models (ratings agencies directly profiting from securitizers) and greed that people like Greenspan and market fundamentalists assumed could never have happened were the underlying institutional causes. All of these factors are what weakened the institutions and created all the underlying conditions for the financial crisis.
Without all this de-regulation and pursuit of excessive greed the Fed's low interest rates couldn't have endangered the entire global economy the way it was endangered.
2. The Commodity Futures Modernization Act of 2000
removed all oversight from derivatives which included reserve requirements, exchange listings and disclosures. This was
a massive de-regulation.
"Due to the deregulatory effect of the CFMA, OTC derivatives were not sufficiently monitored during the run-up to the financial crisis in 2008. 114 Regulators were stripped of their ability to monitor systemic risk or implement appropriate prophylactic measures.115 Christopher Cox, former chairman of the SEC, noted in October 2008 that the OTC derivatives market (in particular, credit default swaps) had become a “regulatory black hole.”
3. From 1975 to 2004 there was a 12 to 1 leverage rule. The five biggest investment houses lobbied to remove that limit. Leveraging up to 35-1 without the old rule was a
big problem for Bear and Lehman.
4. Removal of the Glass-Steagal barrier between commercial and investment banks. Another de-regulation scheme that many commercial bankers I know opposed at the time and believe that barrier should never be removed.
5.
84% of subprime lending was done through mortgage lenders not regulated by the Federal Reserve or the states they were located in. In other words most of the bad lending was not coming from banks but much looser regulated private mortgage lenders.
6. Greenspan
called all these de-regulated financial service products "innovations" and didn't even want them regulated being a firm believer
7."The Office of the Comptroller of the Currency along with the Office of Thrift Supervision,
“federally pre-empted” (blocked) state regulators from reining in lending abuses"
You can't change the facts by ignoring them.
Do you believe the EMH is a falsifiable hypothesis?
We've just spent a week talking about how I believe the US healthcare system is terrible. So you'll forgive me if I'm not impressed by comparisons between one shitty state controlled system versus another.
We're going to have to leave this healthcare thing to one side because in your head, the US healthcare is a good example of a free market system, in everyone else's, it is not.
So you don't believe examples of countries that are both more efficient per capita and better at avoiding the worst unnecessary outcomes have anything to learn from. Sounds very feelings based and biased but duly noted.
One of the funniest bits of cognitive dissonance I always notice from people of your ilk is that a few posts ago you were at pains to show an 'experimental economics' study that showed that people are willing to be self-sacrificial for the rest of the group, and yet not long after you're saying that if we let them do what they want they'll stop caring about each other and turn into a near cannibalistic state of nature - make up your mind.
Well done. You've managed to fit about half dozen logical fallacies into a single sentence while at the same time illustrating the very shallow depth of your understanding of the last 40 years of economics research.
First experimental economics (behavioral econ and neuroecon) study far more than just altruism. In fact studying "people willing to be self-sacrificial for the rest of the group" is not even relevant to any of the points I was making here. What 40 years of research show are the dozens of limits on rational self-interested assumptions or the vague "utility maximizing" assumptions out of market fundamentalist schools of thought. Proven concepts like loss aversion, risk aversion, endowment effect, reference-dependent preferences, systematic overestimating of low probability events, etc, etc have nothing to do with altruism yet they all challenge the assumptions made about people's behavior from the laissez-faire crowd.
For instance
Ultimatum and Dictator games are superb illustrations of inequality aversion. From early Kahneman and Tversky experiments:
"Will subjects sacrifice money to punish a proposer who behaved unfairly to someone else? Yes by 74%"
Oh and before you make he common objection here, the Ultimatum game has been replicated in dozens of cultures and in some cases the monetary amounts were not trivial at all.
Its been replicated enough times that its results are proven theory
So its just absurd to try to reduce dozens of proven phenomenon to intentional self-sacrifice for the rest of the group. This decades of research delves into a variety of different angles that challenge all the foundations of market fundamentalism. Another key factor is that all these experiments show that different people behave differently which is another problematic assumption from some corners of laissez-faire.
Some people do behave like homo economicus but some don't. Some people are more irrational but others are not. Discount factor is a good example of this. Its been replicated in numerous experiments that different people fall on a spectrum of discounting the future. People aren't the same here. This is also clear in the real world. One of the findings of behavioral economics is the very fact that people respond differently depending on circumstances, location, structural influences, emotions, prejudice and prior behavior from others.
Second, despite the hyperbolic phrasing of the second part, its important to note that nowhere have a I ever said that everyone has good intentions. This is clearly consistent with both history and experiments in economics - there are some people who are fair and equitable and there are some people that lack empathy and will screw over anyone and everyone for their own gain. Some people don't even care if people literally die in a fire as long as they profit from it (Enron's burn baby burn). This is part of why regulations are necessary because some people will take advantage in major ways.
Even Alan Greenspan had to admit he was wrong on the general assumption of market fundamentalism:
"I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms"
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,”