Saturday, October 11, 2008

Bill Moyers interviews George Soros, critic of "market fundamentalism": Americans can no longer outconsume what they produce

Last night (Oct. 10), PBS and WETA presented Bill Moyers’s Journal with an interview of George Soros. The segment was called “Market Fundamentalism and the Madness of Crowds.” The link for the broadcast description is here. And the transcript of the interview is here.

Soros was critical of the ideology of “market fundamentalism”, the idea that markets, without intervention, can always correct themselves from random disturbances because the perturbations are simply statistical outliers that can be modeled. Instead, some of the economic storms are the result of a mathematical runaway (in mathematical analysis, something like an unbounded function racing to infinity).

Soros has a new book "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means". New York: Public Affairs, 2008. His 1998 book (appearing after the Russian and Asian financial crises) had been "The Crisis of Global Capitalism: Open Society Endangered". (Remember Ken Kurson’s (and Walter Russell Mead’s) October 1998 Esquire story with the broken piggy bank cover, “What Did You Do After the Crash Daddy?” discussed here and also at this back issue.

Soros made the observation that the value of houses has been inflated by the availability of questionable credit, and that is one reason why housing values plummeted.

He said that Treasury secretary Henry Paulson was more like “one of them” and that restructuring credit markets requires a fresh perspective. He says it is more important to inject capital into markets than to purchase toxic assets.

He says that efforts to restructure markets should have started several months ago. Now, there is at least some risk of a depression or major lasting damage to ordinary citizens.

He said that, although the American dream is not dead and capitalism is not gone, we are at a historical turning point. American consumers will no longer be able to consumer 6.5% more a year than they produce.

He said that all pure ideologies have flaws. One must be pragmatic. Communism was also a failed ideology. All of them, he said, have the “Principal-Agent Problem” . The Agent tends to view his own interest as the same as his clients but behave in a way to give himself preferences. That was true in Communism (in the Soviet Union, the Communist Party members were the elite). The Principal-Agent problem tends to run wild and contribute to the breakdown of confidence in the markets (as well as the breakdown of ethics in general). All ideologies fail in some way, he said. Ideologies result when individuals do not become socialized properly into sharing at deeper levels with others (in and outside the family), resulting in the need for the legal system and government to eventually compel them to do so.

Soros was, therefore, critical of hyper-individualism. He disagrees that society works best if every individual simply looks out for his own best interests. People tend to think short term. People need to have some sense of common good and underlying psychological or emotional debt to others (karma). In a sense, we all lead subsidized lives. (I remember the article in Mother Jones, June 2004, by Bill McKibben about “hyperindividualism and solidarity” titled “In Search of Common Ground”.)

George Soros (alongside Oprah Winfrey) is often mentioned as a major supporter of Barack Obama's campaign for the presidency.

In a related discussion in the next hour, on Charlie Rose, observers noted that during the financial bubble, talent was employee in the wrong things (financial engineering, that would eventually self-destruct) instead of in creating real wealth by addressing green technologies and renewable energy. Instead of building big houses that ordinary people could not afford, invest in smaller, inherently more affordable housing units with locally renewable energy sources like solar panels.

Moyers also interviewed Kathleen Hall Jamieson, author of “Dirty Politics: Distraction, Deception and Democracy” (Oxford University Press). She pointed out that in campaigns words are brought up in bad faith just to shoot them down (like mentioning Muslims in connection with Barack Obama). She also feels that the debate on issues, especially health care and social security, has been deceptive. Would John McCain really consider cutting social security benefits from existing beneficiaries based on means? He needs to be pinned down in a targeted debate.

Update: Oct. 12

Fareed Zakaria interviewed George Soros today. Afterward, Zakaria interviewed Jeff Sachs (Columbia University’s “Earth Institute” and author of “Common Wealth”), Fred Bergstrom and Sebastian Mallaby. Soros and the three other columnists took the position that the Fed’s allowing Lehman Brothers to fail on Sept. 14 was a tactical blunder that triggered the crisis. The columnists noted that the “Reagan Revolution” is over, that Americans (especially richer ones) must pay more taxes for basic infrastructure, and that foreign debt could seriously imperil foreign policy and national security. Taiwan was mentioned as an example of what is at risk.

Update: Oct 13

ABC Nightline covered the culture of Washington Mutual before it collapsed, including the extreme pressure to look the other way on risks because managers earned money on commissions. Employees who spoke up or were too cautious with mortgages were fired.

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