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I’m
writing in response to the George
Soros lectures recently given at the CEU and made
available at the Financial Times web site.
I
have a degree in economics and an MBA in Finance, both from
highly regarded schools. It’s been 40 years since I got my
Wharton MBA and it’s taken me almost that long to figure out
that my degree was designed more to help me make money for
people, (many of whom extract more from society than they
contribute to it), than it was to help me understand the
dysfunctional institutions they own or manage.
I
think Soros made some excellent observations during his
lectures and his ambitious attempt to formulate a new economic
theory is noteworthy. I think he’s right that something
needs to change, as most of the economists we hear in the
main stream media operate inside a box that, if economics is
to fulfill it purpose, they will need to escape.
The
problem with almost all economic theory, in my view, is that
it typically makes assumptions about reality which are too
limited, too inaccurate, or too incomplete to be useful in
preventing the kinds of crises we now face. Few economists
that I know of actually address substantively a part of
reality that can readily be observed, although apparently not
by most economists or politicians. This reality, while hidden
in plain sight, somehow manages to escape attention, by those
whose job it is to notice and to appropriately respond.
A
simple mind experiment can make the point: Take any economic
theory, like say, capitalism in America. The theory might
appear to be a useful approximation of how that economy really
works. But if we were to
include all the rules, laws and regulations that describes the
context in which the theory works in the US... and transplant
that entire economic system, say, into some other society,
like say, Tunisia... it’s not necessarily going to work
there the same way it works in America.
The
underlying culture in which the system operates will determine
how, or if, the system will work as postulated. The variables
that make the difference aren’t usually thought of as part
of the study of economics and yet it’s those variables that
determine how the economy will work. In my view, that
illustrates why the study of economics is still immature as a
discipline. Soros is right to look for a theory that
encompasses deeper philosophical understanding.
To
put it another way, I say that the culture and the general
state of consciousness of the people who participate in an
economy will determine how it works. Without understanding the
people, their culture, and their state of mind, the theory is
precluded from offering up the information we need to predict
how that economy will perform, or if it is likely to be
sustainable. By the same token, any theory will break
down over time in any culture where the state of consciousness
is evolving, whether it evolves for better or worse. For an
economic system to work efficiently it needs to be in tune
with the people, and the economic and political reality in
which it exists. Of course, to complicate matters, not
everyone in a particular culture will live in the same state
of consciousness as everyone else in that culture.
So
what is a state of consciousness? I am not going to try to
offer a rigorous definition, but for my purpose here, let’s
say that for any individual it is a state of being that has
evolved from a confluence of one’s upbringing, education,
learned value system, life experience, economic status, and
the immediate social environment in which one lives and
participates.
In
some societies the state of consciousness of the people are
more homogeneous than in others. In the US, the country is so
big and the population so diverse as to race, religion,
ethnicity, and economic status, that how one might be expected
to respond to external stimuli will be different than what you
would expect in a more homogeneous culture.
But
the state of consciousness is more than the attitudes by which
individuals live; it’s also the "space" in which
all participants live… the traditions, language,
formalities, and values that are celebrated in its media and
entertainment for example—the common experience that most of
the participants have that help shape their state of
consciousness and make them identify with the group or groups
to which they belong. Are you a member of the working class or
are you a member of the corporate elite? Are you college
educated or a high school dropout? Is your skin white, black,
yellow, red, or brown? Is your first language English or
something else? What is your religion? What are your political
leanings? Did you have an advantaged or a disadvantaged
childhood? Are you healthy or ill? What do you value? What do
you believe in? Who are you anyway?
What
does this have to do with economics? Well at some level,
everything. Let’s consider the economic realities of the
last couple of years…
After
the stock market crash in 1929, it appeared obvious to
American politicians and economists that the Glass-Steagall
Act would be helpful in preventing certain abuses that brought
on the 1929 crash and which otherwise might allow a repeat
performance of the debacle some time in the future.
But their wisdom and experience, and the fact
that the Act seemed to accomplish its purpose for quite a few
decades, did not prevent a new class of participants from
doing away with that law. The folks who removed the law from
the books were of a different mindset, a different state of
consciousness, if you will, than those who were responsible
for its original enactment.
Was
Glass-Steagall about economics or something else? Whatever it
was, I think most economists would agree that its repeal
recently helped bring the economy to its knees. The economic
theory put in place by one group to handle a perceived threat
in the decade of the 30s, all of a sudden became irrelevant in
another, or so it was said. The repeal, I would argue, was not
a function of any new interpretation or understanding of
economic theory; but it was evidence of the deterioration in
the state of consciousness of those who were its advocates, as
well as those who allowed it to happen. One notices the
same kind of deterioration in the apparent repeal of habeas
corpus. Some might argue that that's another matter
entirely, but I don't think so. I'm talking about the
prevailing state of consciousness in which we all live, which,
in my view, is degrading.
Any
economic theory, for the most part, is a set of agreements
that exists between all the parties participating in the
economy who intend to employ it. The theory does not describe
immutable laws. It only postulates what will happen if all the
participants accept and agree to the rules of the game and
then play the game according to those rules. It breaks down
when some participants break the rules in an attempt to take
advantage of those who continue to play by them. Even the law
of supply and demand won’t work as postulated if some
participants can surreptitiously bribe politicians to skew new
legislation in their favor, or if one country can simply take
what it wants from another country by force. The US, for
example, even though international law prohibits it, has done
just that on any number of occasions. It’s how
things work across a wide landscape of human
activity and renders a lot of political and economic theory
moot.
The
most recent debacle in the global economy was predictable, but
not necessarily because one understood economic theory. It
was, in fact, easily predictable by any observer who knew and
understood the rules of the game, and was also in a position
to observe how many participants were attempting to “game”
the rules. The system was brought down by a general culture of
corruption and fraud, including the bribing of elected
officials, and an entrenched system designed and employed by
powerful people to efficiently corrupt the morals of
subordinates who work for them. Corruption, fraud, deceit and
general dishonesty is and was the state of consciousness
prevalent in that culture. That’s what brought the economy
to its knees... at least it looks that way to me, given my
state of consciousness.
So
I say, that no theorist will be able to develop an economic
theory that can predict or prevent such a breakdown unless
that theory takes into account the prevalent culture and the
state of consciousness of its participants (and also takes
responsibility for it). It’s not a function of economics as
one usually thinks of it; it’s a function of
integrity….the integrity of the system design itself and the
intelligence, integrity and trustworthiness of those who are
its participants.
In
fact, I predict or conclude, that there is no economic system
that can work or will work in a sustainable manner if it
doesn’t address and help repair this aspect of reality,
because whenever a system appears to be working smoothly,
there could emerge those who will have an incentive to
“game” the system for their own benefit and when their
strategy begins to work and others join in, eventually too
many participants will become too important to be prosecuted,
too sly to be caught, too dangerous to be opposed, or too big
to fail. And their behavior will eventually cause a systemic
failure of the system as a whole.
I
see no intrinsic reason why communism, socialism, or
capitalism can’t work, other than for the fact that for any
of them to work as postulated, the people who participate in
the system must arrive at that state of consciousness that
will allow it to work. It’s not something that can be forced
at the point of a gun. Participants must be willing to gladly
follow the rules of the game. If too many don’t follow the
rules, the game will eventually collapse and all the
participants, except perhaps for a few, will lose.
So
if you want an economy to work, you have to make sure that all
the participants are personally aligned with and prepared to
follow the rules. And I postulate that the people most likely
to follow the rules will be those who perceive that the game
is fair, inclusive, compassionate, and allows every
participant to express the full measure of his or her
abilities so that participation results in a rewarding
experience. Economic and political tools and strategies must
be imagined and employed by economists and politicians that
can make this happen. These tools will be at least as
important as classical fiscal and monetary policy is. Right
now, instead of this, the US currently employs propaganda and
deceit in an attempt to fudge the system. But all that
creates, is a population lost in illusion.
When
you don’t make sure that everyone can succeed (which is to
say, that everyone is able to enjoy their basic human rights)
then there will be turmoil and cheating… and when there’s
enough turmoil, deceit and cheating going on, the system will
break down into boom and bust cycles which periodically will
wreak havoc on the economy, if they don’t collapse the
economy altogether, which is what I think is happening right
now in the United States. You can't fool Mother nature. Nature
is a system that works in perfect harmony with itself and is
the very definition of integrity. We should take a hint.
Markets and everything else actually do tend towards
equilibrium, which in our case probably means collapse, but as
far as nature is concerned, time is of no consequence. We’ll
get to equilibrium in the long run. Unfortunately for humans,
as Keynes pointed out, “..in the long run we’re all
dead.” And maybe that could happen to a lot of us, sooner
than we think.
So
economic theory is incomplete to the extent that it fails to
take into account the state of consciousness operating in the
economy. I predicted the eventual economic collapse which I
believe we are now still experiencing after taking note of the
enactment of Bush’s tax policies, and after seeing the
breakdown in the rule of law, the lack of criminal
prosecutions of war criminals, the undermining of habeas
corpus, the enactment of the treasonous Patriot Acts, the
illegal wars in Iraq and Afghanistan, the breakdown of
international law, and also after learning that people were
buying homes for no money down, or otherwise obtaining
mortgages by way of so called “liar” loans, etc. I
wasn't yet aware of how ubiquitous derivatives were.
There was enough corruption and hypocrisy in plain sight for
any conscious person to conclude that this system is unstable
and must eventually collapse.
Every
well informed thinking citizen knew and still knows that there
is excessive corruption and dishonesty in government… every
economics professor worth his or her salt knew that Bush’s
tax policies were intellectually bankrupt as soon as they were
postulated; every bank loan officer knew that the applications
they were filling out were dishonest, and most people who
applied for a “liar” loan knew they were lying to get
something they would not get if the process was handled
honestly. And yet how many people in government or in
leadership positions in any sphere of life spoke up about any
of this dishonesty publicly?
Experience
would have informed any honest economist or politician who was
involved in the decision to remove Glass-Steagall, that it was
imprudent to do so, and yet all that experience and knowledge
didn’t make a difference. Why? It wasn’t a failure of
economic theory. It was a failure of our national character.
It was a failure of people unwilling to take responsibility
for their own integrity. It was that failure of character that
determined the reality that we now have to live with. You
can’t fix an economy that’s broken by invoking classical
fiscal or monetary policy when the problem is systemic
personal and institutional corruption every place you look.
And so economic theory as we now practice it —
which is to say
in the absence of being aware of, or taking responsibility
for, the culture in which it exists —
will not be able to
predict what the economic future holds for that economy or
what to do about economic setbacks when they occur… if the
reason they occur is because of the evolving culture and
consciousness of its people.
Now
the theory Soros proposes doesn't appear currently to include,
although it might one day lead to, the development of the
tools I suggest we need. We know what those tools are; we just
don't think of them as tools of economic policy. If
Soros' economic theory doesn't lead to enlightened social
policy, I would have to conclude that his economic theory
probably won’t offer any more help than any of its
predecessors. Soros admits his theory is incomplete and he's
right. Maybe his philanthropy will go into areas that offer promise in this respect.
Economics
describes a closed system of interrelated and multi-layered
agreements, not immutable natural laws of physics. If you want
an economy to work, you first need to make sure that all the
participants understand the rules; that governments are set up
to insure that the rules are followed; and that everyone who
participates in good faith will grow and prosper as human
beings, sufficiently so as to inspire them to want to play by
the rules. When everyone is playing by the rules, you will be
able to predict what the outcome might be when external
forces, such as unexpected resource shortages, natural
disasters, and other phenomena impact the system. When
everyone is playing by the rules, the intelligent and
honorable application of fiscal and monetary policy will
probably work.
I
might suggest that as people change in consciousness over
time, the economic systems in which they live, (if one expects
such systems not to collapse), will have to change with them.
The Chinese economy, for example, has partially morphed from
its own version of communism into a working capitalist system
of sorts. Eventually, it will have to raise the standard of
living of a great many more of its people or perhaps face
unstable political unrest. That political unrest is already
being felt by the Chinese leadership. Maybe we will see
a political transformation where Chinese citizens begin to
acquire much more of their basic human rights. (What I mean by
basic human rights is nicely described in the Universal
Declaration of Human Rights and I encourage every
world citizen who wants to understand economics... and how
current economic and political theory and policy is failing us
and them... to read that document.)
To
recap... the set of agreements by which people live together
is to a large extent what we call the economy. The economy
must continue to change with the people and their state of
consciousness if it is to succeed and that means it might have
to change significantly from one time frame to another. It is
unhelpful to associate such words as communism, socialism,
capitalism or any other kind of “ism” with negative
connotations. It’s not any particular system per se that is
destined to fail, but the prevailing level of consciousness of
participants and their leaders (and also external forces) that
will determine if it can succeed.
To
illustrate the point, some Christian fundamentalists talk
about and look forward to the day when Jesus will sit upon a
throne as a king and rule over all mankind. Such people are
advocating for a benevolent dictatorship, believing they
understand what life would be like under such a regime. They
also presume that Jesus, if there is a Jesus, would approve of
such an arrangement and want to serve in such a capacity — a
highly questionable presumption at best. One must ask if
these people have totally given up on democracy, believing
that democracy and/or capitalism are failed systems that will
never work satisfactorily for humanity as a whole. These
same people, and others too, believe that same thing about
communism and socialism.
In
my view, (and apparently in Soros' view as well) for
capitalism to work, there needs to be a separation between
commerce and the state, much the same way that church and
state must be kept separate in a democracy for the political
system to maintain its integrity.
In
my view, to be sustainable, it might very well be necessary
for any economic system to be flexible enough not to get
permanently stuck in some theoretical ideal state. For
example, the theoretical construct of say, capitalism, must be
allowed to transform itself in such a way as to allow all
participants in the system, over time, to enjoy a higher
minimum standard of living and a more expansive set of human
rights when the economy can universally support the higher
standard of living in a sustainable manner.
Thus,
in my view, it is socially preferable for the system to insure
that everyone's minimum
standard of living will rise when it becomes possible, rather than to
allow the system to get to the point where some people become
fantastically wealthy at the expense of others who are forced
to live like serfs. (Now this might offend some people
who believe that pure capitalism must never be allowed to
stray from how it was originally and rigidly conceived.)
But I believe we need to allow capitalism to transform itself
into more workable arrangements as economic realities
evolve. This is going to require that citizens be more
flexible and open minded in order to respond more effectively to
the changes around them if we hope to avoid some very
unpleasant economic results in the future.
If
we want the discipline of economics to succeed... if we want
to discover or create an economic theory that will work...
then that theory will have to include an understanding of the
state of consciousness of participants and their society.
If
we want to live in a higher state of consciousness than we now
live in, we will have to act accordingly. We will have to
change, as individuals and as a people. We must, for example,
teach our children how to be responsible citizens, which is to say,
compassionate human beings who truly value intellectual
integrity. But we can only teach what we truly understand
ourselves.
For
a society to advance, its citizens must grow as people.
Educational opportunities must improve, the political system
must foster fair elections. In short, people must be
encouraged to grow intellectually and spiritually. As people
grow, the economy will need to change, and it will change,...
to match their higher level of consciousness. If too many
members of society refuse or otherwise fail to place a high
value on intellectual integrity, that society will be hard
pressed to succeed by any objective measure.
For
what it’s worth, it looks to me like capitalism is dying…
at least in America. It’s morphing into fascism and so far,
unlike Soros, I don't see the Obama presidency offering any
relief. The American economy cannot survive the amount of
lies, deceit, and corruption that exists at so many levels of
society, especially in government and business. Anyone who
doesn’t see what’s going on possibly doesn’t want to see
it. A lot of people don’t want to see it because they are
still benefiting (or think they are benefiting) from the level
of corruption and ignorance that persists because of them.
Whatever economic framework policymakers decide to install
will be a reflection of their state of consciousness.
This, of course, also describes how American foreign policy
works. One might ask what theoretical framework are they
adhering to?
People
are not all born equal. Some have advantages others do not
have, including natural ability, money, education, experience,
powerful mentors, etc. Under raw capitalism certain people
eventually might be able to dominate others to the extent of
making slaves or serfs of them. We seem to be headed in that
direction. But that state of consciousness will only lead to
social turmoil, terrorism, corruption and a police state, as
the wealthy elite and the disenfranchised underclass wage war
against one another.
What
we need is an economy and a matching economic theory that dovetails nicely with
democracy, and offers real tools and incentives to help people
become more enlightened human beings, so that in the end
people might actually be able to live together in peace.
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