

George Soros: Why I agree with (some of) Friedrich Hayek - markkat
http://www.politico.com/news/stories/0411/53885.html

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CWuestefeld
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_Friedm...](https://secure.wikimedia.org/wikipedia/en/wiki/Milton_Friedman)

~~~
danielsoneg
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.

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cturner
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
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>

~~~
cturner
Thanks for the tip. I've had Anathem sitting on a shelf for months, but didn't
get past first couple of pages. Need to get into it.

~~~
jokermatt999
It gets much easier after the first 100 pages or so. Once you get used to the
vocabulary, it's more enjoyable.

