5. The issue of the rationality of the agents
The idea of “endogenous” explanation of the crisis is quite problematic for the Austrian paradigm. In the Austrian School’s view the market is a "spontaneous order" and if something is wrong it is due to the “exogenous” intervention of an external agent (either the State or Central Bank). In the market, if there is no intervention, the agents should behave in a “rational” way, or at least constituting a “rational order”. “Human action is always rational”, writes Ludwig von Mises, the great master of the Austrian School (18).
However, there are important paradigms of economic theory that put into question this view. Among them we have to Behavioral Economics, Neuroeconomics and Experimental Economics. According to these approaches economic agents are not rational subjects who make decisions carefully calculated but rather are systematically conditioned by a set of purely subjective perceptions (optimistic or pessimistic), emotions, neurobiological factors, cognitive biases, group behavior, contexts of moral hazard, etc.
Several leading economists have studied the current crisis based on this perspective. One of them is Robert J. Schiller, recently awarded the Nobel Prize in Economics, who in his book Irrational Exuberance gives an interesting explanation of how the financial bubbles are created. He focuses particularly on the behavioral patterns of the agents and their expectations of future asset prices. If asset prices begin to rise, then less sophisticated investors will enter into the speculative scheme and they will believe that prices will continue to rise continuously. Then there comes a time when expectations are not met and the “irrational exuberance of optimism” becomes an “irrational exuberance of pessimism” with the consequent entropic effects on the market that involves this kind of perception.
Thus, one finds in Schiller’s analysis a very interesting “behavioral” correlate of the Minsky’s approaches because, as McCulley says: “Humans are not only momentum investors (…) but also inherent both greedy and suffering from hubris about their own smarts. It’s sometimes called a bigger fools game, with each individual fool thinking he is slightly less foolish than all the other fools” (19). It seems this one, and not the Austrian vision of “spontaneous order”, a better description of what has happened in the financial markets in recent years.
Is true that some Austrian economists predicted the crisis, but this is an example of being right for the wrong reasons or at least too simplistic reasons. We do not want to detract Austrian contribution about how central banks can influence the generation process of “financial bubbles” and “fictitious economies” but we want to prevent that this contribution lead us to reach conclusions as extravagant as saying that the “exogenous” state intervention is the only explanatory factor in the crisis and that the crisis in no way put into question the optimality of the free and unregulated market.
In fact, as we have seen, there are very relevant endogenous factors that have much greater explanatory power regarding the generation of the “financial bubble” such as those related to the Minsky’s financial instability hypothesis, the dynamics of the monetary aggregate M3, the complex derivatives, toxic assets, excessive speculation in the housing markets, the role of rating agencies, cognitive biases, the “irrational exuberance” of the agents, deregulation and moral hazard environment generated that should be considered for a coherent and consistent explanation of the crisis and the generation of better judgment elements for its solution.
Thus the current crisis is a highly complex phenomenon that cannot be properly approached from a unidirectional perspective. For this reason this paper has taken into account several paradigms of economics such as Neo-Ricardianism, Post Keynesianism, Behavioral Economics and Experimental Economics. In fact, in order to analyze the phenomenon is not only necessary to do so from a perspective multiparadigmatic but also from a multidisciplinary perspective taking into account the contributions and developments in other social sciences such as Sociology, History and Political Science. Moreover, this problem should be approached even from a transcendent philosophical perspective for a more solid and enduring civilizational reconstruction of the economic system. But that is something that goes beyond the scope of this article and might be a matter for a later one.
18) Ludwig von Mises, La Acción Humana, Unión Editorial, Madrid, 1980, p. 45.
19) Paul McCulley, “The shadow banking system and Hyman Minsky’s economic journey”, Global Bank Central Focus, May 2009.
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