I recently discovered one of the best lectures ever. It's by George Soros and titled "Capitalism vs. Open Society." You can read the transcript HERE.
On Free Markets and Morals: "The distinguishing feature of the market mechanism is that it is amoral: one person’s dollar is worth exactly the same as another person’s, irrespective of how she came to possess it. That is what makes markets so efficient: participants need not worry about moral considerations. In an efficient market, individual decisions affect market prices only marginally: if one person abstained from participating as either buyer or seller, someone else would take her place with only a marginal difference in the price. Therefore individual market participants bear little responsibility for the outcome. But markets are suitable only for individual choices, not for social decisions..."
On Government Interference: "[T]he main policy implication of market fundamentalism, that government interference in the economy should be kept to a minimum, is not as unsound as the arguments employed to justify it. The market mechanism may be flawed but the political process is even more so. Participants in the political process are even more fallible than market participants because politics revolve around social values whereas markets take the participants’ values as given. As we have seen, social values are highly susceptible to manipulation. Moreover, politics are poisoned by the agency problem [Agents are supposed to represent the interests of their principals, but in fact, they tend to put their own interests ahead of the interests of those whom they are supposed to represent]. To guard against the agency problem, all kinds of safeguards have to be introduced and this makes the behavior of governmental authorities in the economic sphere much more rigid and bureaucratic than the behavior of private participants. On all these grounds, it makes sense to argue that governmental interference in the economy should be kept to a minimum. So market fundamentalism has merely substituted an invalid argument for what could have been a much stronger one. It could have argued that all human constructs are imperfect and social choices involve choosing the lesser evil, and on those grounds government intervention in the economy should be kept to a minimum. That would have been a reasonable position. Instead, it claimed that the failures of government intervention proved that free markets are perfect. That is simply bad logic."
Thank you, Mr. Soros. This lecture was amazing.
Update on 6/3/12: from Sebastian Mallaby's 2010 book, More Money than God:
"By now Soros had melded Karl Popper's ideas with his own knowledge of finance, arriving at a synthesis that he called 'reflexivity.' As Popper's writings suggested, the details of a listed company were too complex for the human mind to understand, so investors relied on guesses and shortcuts that approximated reality. But Soros was also conscious that those shortcuts had the power to change reality as well, since bullish guesses would drive a stock price up, allowing the company to raise capital cheaply and boosting its performance. Because of this feedback loop, certainty was doubly elusive: To begin with, people are incapable of perceiving reality clearly; but on top of that, reality itself is affected by these unclear perceptions, which themselves shift constantly. Soros had arrived at a conclusion that was at odds with the efficient-market view...To a disciple of Popper, this [EFM] premise ignored the most elementary limits to cognition." (pp. 85, hardcover edition)
Update on November 9, 2019: I learned Soros supported dissident groups Charta 77 in Czechoslovakia and Solidarity in Poland. Vaclav Havel was one of Charta 77's founders.
On Free Markets and Morals: "The distinguishing feature of the market mechanism is that it is amoral: one person’s dollar is worth exactly the same as another person’s, irrespective of how she came to possess it. That is what makes markets so efficient: participants need not worry about moral considerations. In an efficient market, individual decisions affect market prices only marginally: if one person abstained from participating as either buyer or seller, someone else would take her place with only a marginal difference in the price. Therefore individual market participants bear little responsibility for the outcome. But markets are suitable only for individual choices, not for social decisions..."
On Government Interference: "[T]he main policy implication of market fundamentalism, that government interference in the economy should be kept to a minimum, is not as unsound as the arguments employed to justify it. The market mechanism may be flawed but the political process is even more so. Participants in the political process are even more fallible than market participants because politics revolve around social values whereas markets take the participants’ values as given. As we have seen, social values are highly susceptible to manipulation. Moreover, politics are poisoned by the agency problem [Agents are supposed to represent the interests of their principals, but in fact, they tend to put their own interests ahead of the interests of those whom they are supposed to represent]. To guard against the agency problem, all kinds of safeguards have to be introduced and this makes the behavior of governmental authorities in the economic sphere much more rigid and bureaucratic than the behavior of private participants. On all these grounds, it makes sense to argue that governmental interference in the economy should be kept to a minimum. So market fundamentalism has merely substituted an invalid argument for what could have been a much stronger one. It could have argued that all human constructs are imperfect and social choices involve choosing the lesser evil, and on those grounds government intervention in the economy should be kept to a minimum. That would have been a reasonable position. Instead, it claimed that the failures of government intervention proved that free markets are perfect. That is simply bad logic."
Thank you, Mr. Soros. This lecture was amazing.
Update on 6/3/12: from Sebastian Mallaby's 2010 book, More Money than God:
"By now Soros had melded Karl Popper's ideas with his own knowledge of finance, arriving at a synthesis that he called 'reflexivity.' As Popper's writings suggested, the details of a listed company were too complex for the human mind to understand, so investors relied on guesses and shortcuts that approximated reality. But Soros was also conscious that those shortcuts had the power to change reality as well, since bullish guesses would drive a stock price up, allowing the company to raise capital cheaply and boosting its performance. Because of this feedback loop, certainty was doubly elusive: To begin with, people are incapable of perceiving reality clearly; but on top of that, reality itself is affected by these unclear perceptions, which themselves shift constantly. Soros had arrived at a conclusion that was at odds with the efficient-market view...To a disciple of Popper, this [EFM] premise ignored the most elementary limits to cognition." (pp. 85, hardcover edition)
Update on November 9, 2019: I learned Soros supported dissident groups Charta 77 in Czechoslovakia and Solidarity in Poland. Vaclav Havel was one of Charta 77's founders.
