3 ms·

George Soros: Why I agree with (some of) Friedrich Hayek

14 points by markkat 15y ago

CWuestefeld 15y ago
Soros is fighting the wrong battle. Friedrich Hayek is generally regarded as the apostle of a brand of economics which holds that the market will assure the optimal allocation of resources... [and] whose two main pillars are the efficient market hypothesis and the theory of rational expectations. This is usually called the Chicago School No. Hayek was of the "Austrian school". The "Chicago school" came later [1]. It's really the philosophy of the Austrians that's he's objecting to. The Chicagoans arrive at many of the same conclusions, but do so not through philosophical inquiry, but through extensive reliance on mathematics and metrics. Much of what we see in modern econ derives from the Chicagoans. Anyway, I don't think that he adequately rebuts Hayek. As Mises shows in Human Action, the human mind is a black box, and we have no way of knowing its motivations (frequently even our own). Therefore, it really isn't possible to say definitively that a person is not behaving rationally, and really the best model we can make (in the real world) is to assume that they are. But even that doesn't matter. Because Soros conflates the Austrian and Chicago school, and only mentions the Austrian philosophy, he completely fails to rebut the Chicago arguments. So he hasn't really done anything to discredit a laissez-faire approach to economics. [1] See especially discussion of Milton Friedman, https://secure.wikimedia.org/wikipedia/en/wiki/Milton_Friedman https://secure.wikimedia.org/wikipedia/en/wiki/Milton_Friedm...
- cagenut 15y ago
  yea it was really bizzare to see soros himself goof up austrian/chicago at the top of page 1. maybe its just one of those cases where the popular definition has drifted in the decades since he first internalized them, but still, makes for a confusing piece that some editor should have nudged him on.
- danielsoneg 15y ago
  I think there's a couple things happening here - First, you're right - he's fighting the wrong battle with regards to the field of economics. The Chicago School is most definitely Not the Austrian School, and I think much of the field of actual economists would agree that market fundamentalism is wrong. But I don't think this is a real attempt to rebut the field of economics itself - this is fundamentally a political piece. Soros isn't an economist - he's a smart guy, he's a savvy investor, he's politically and philosophically acute, but he's not an economist. What he's attacking are political philosophies, not economic theories, and at this point, the ghost of Hayek casts a longer shadow in politics than economics. Maybe it's been happening for a long time, but the horseshit that's being peddled under the brand of economics in political circles is a big problem in the current political environment, and much of it derives from a fairly easy-to-understand set of works that pushed the market doctrine. He's arguing against bullshit economics, not actual modern economics, even if he doesn't know it.
cturner 15y ago
I agree with Soros in his general feelings about market structure risk in the current system. I would like to see him engage his intellect with the long term pattern that has seen nation states constantly grow more powerful. I take an interpretation of history that says part of the reason Europe emerged is because it lacked a concentration of power. Power and flowed around many aristocrats and one Catholic church. Later, the church split, giving yet more opportunity for power shifts, and evolution. These days the tension is between many corporations and a few very powerful nation states. Evolution is healthy, but we're in a long period where nation states have an inevitable growth. The amount of tax they collect as percentage and in real terms grows over time. The reach of states into our freedom grows over time. It's easy for governments to create child institutions. But the evolutionary guards on state instutitions are very weak. They tend to grow larger and less efficient, and are difficult to reform and abolish. They can't go backrupt (except by taking the state down as well). So government just grows and grows. A dynamic has emerged where governments can take on risk for corporations, and share it around to the people. It's easy to see this in the context of the bank crisis, but it's much better established than that. National works projects are the same thing. They're generally a poor use of money, but the loss is spread around and nobody has incentive to call out mistakes. When they're a success, governments look good. So there's motivation to engage in risk. It is business as usual for governments to engage in moral hazard. Our structures and narratives don't equip us to defend against this. The current structure of the banking system is only one aspect of this.
- CWuestefeld 15y ago
  I agree with much of what you said. It's slightly off topic, but your statement Power and flowed around many aristocrats and one Catholic church makes me think of Neal Stephenson's book Anathem [1]. A core theme of Anathem is a society in which science and technology are pursued in monasteries that keep themselves aloof from "secular" society. Government power and religion then interact with a much different dynamic. So the role that the church played historically in mitigating the power of monarchs is, in this world, played by the scientists. I don't think that Stephenson develops the idea far enough to start drawing any conclusions, but he does inspire enough thought that it's quite an interesting read. [1] https://secure.wikimedia.org/wikipedia/en/wiki/Anathem https://secure.wikimedia.org/wikipedia/en/wiki/Anathem

14 points by markkat 15y ago

Soros is fighting the wrong battle. Friedrich Hayek is generally regarded as the apostle of a brand of economics which holds that the market will assure the optimal allocation of resources... [and] whose two main pillars are the efficient market hypothesis and the theory of rational expectations. This is usually called the Chicago School No. Hayek was of the "Austrian school". The "Chicago school" came later [1]. It's really the philosophy of the Austrians that's he's objecting to. The Chicagoans arrive at many of the same conclusions, but do so not through philosophical inquiry, but through extensive reliance on mathematics and metrics. Much of what we see in modern econ derives from the Chicagoans. Anyway, I don't think that he adequately rebuts Hayek. As Mises shows in Human Action, the human mind is a black box, and we have no way of knowing its motivations (frequently even our own). Therefore, it really isn't possible to say definitively that a person is not behaving rationally, and really the best model we can make (in the real world) is to assume that they are. But even that doesn't matter. Because Soros conflates the Austrian and Chicago school, and only mentions the Austrian philosophy, he completely fails to rebut the Chicago arguments. So he hasn't really done anything to discredit a laissez-faire approach to economics. [1] See especially discussion of Milton Friedman, https://secure.wikimedia.org/wikipedia/en/wiki/Milton_Friedman https://secure.wikimedia.org/wikipedia/en/wiki/Milton_Friedm...

cagenut 15y ago
yea it was really bizzare to see soros himself goof up austrian/chicago at the top of page 1. maybe its just one of those cases where the popular definition has drifted in the decades since he first internalized them, but still, makes for a confusing piece that some editor should have nudged him on.
danielsoneg 15y ago
I think there's a couple things happening here - First, you're right - he's fighting the wrong battle with regards to the field of economics. The Chicago School is most definitely Not the Austrian School, and I think much of the field of actual economists would agree that market fundamentalism is wrong. But I don't think this is a real attempt to rebut the field of economics itself - this is fundamentally a political piece. Soros isn't an economist - he's a smart guy, he's a savvy investor, he's politically and philosophically acute, but he's not an economist. What he's attacking are political philosophies, not economic theories, and at this point, the ghost of Hayek casts a longer shadow in politics than economics. Maybe it's been happening for a long time, but the horseshit that's being peddled under the brand of economics in political circles is a big problem in the current political environment, and much of it derives from a fairly easy-to-understand set of works that pushed the market doctrine. He's arguing against bullshit economics, not actual modern economics, even if he doesn't know it.

cturner 15y ago

I agree with Soros in his general feelings about market structure risk in the current system. I would like to see him engage his intellect with the long term pattern that has seen nation states constantly grow more powerful. I take an interpretation of history that says part of the reason Europe emerged is because it lacked a concentration of power. Power and flowed around many aristocrats and one Catholic church. Later, the church split, giving yet more opportunity for power shifts, and evolution. These days the tension is between many corporations and a few very powerful nation states. Evolution is healthy, but we're in a long period where nation states have an inevitable growth. The amount of tax they collect as percentage and in real terms grows over time. The reach of states into our freedom grows over time. It's easy for governments to create child institutions. But the evolutionary guards on state instutitions are very weak. They tend to grow larger and less efficient, and are difficult to reform and abolish. They can't go backrupt (except by taking the state down as well). So government just grows and grows. A dynamic has emerged where governments can take on risk for corporations, and share it around to the people. It's easy to see this in the context of the bank crisis, but it's much better established than that. National works projects are the same thing. They're generally a poor use of money, but the loss is spread around and nobody has incentive to call out mistakes. When they're a success, governments look good. So there's motivation to engage in risk. It is business as usual for governments to engage in moral hazard. Our structures and narratives don't equip us to defend against this. The current structure of the banking system is only one aspect of this.

CWuestefeld 15y ago
I agree with much of what you said. It's slightly off topic, but your statement Power and flowed around many aristocrats and one Catholic church makes me think of Neal Stephenson's book Anathem [1]. A core theme of Anathem is a society in which science and technology are pursued in monasteries that keep themselves aloof from "secular" society. Government power and religion then interact with a much different dynamic. So the role that the church played historically in mitigating the power of monarchs is, in this world, played by the scientists. I don't think that Stephenson develops the idea far enough to start drawing any conclusions, but he does inspire enough thought that it's quite an interesting read. [1] https://secure.wikimedia.org/wikipedia/en/wiki/Anathem https://secure.wikimedia.org/wikipedia/en/wiki/Anathem