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Reflecting on Soros
Mark A. Goldman                                      Revised:  11/7/09, edited 10/23/2011

Im 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, “ 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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