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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. My
view is that his observations are not only insightful, as they
obviously contributed to his success in
business, but I think his theory, once expanded, will be helpful in preventing
another debacle like the one we’re going through now.
In any event, he’s right that something needs to change, as most of
the economists we hear from in the main stream media operate
inside a box that would best be dismantled. I think he made that point as well.
The problem with almost all
economic theory, in my view, is that it typically makes
assumptions about reality which are often too limited, too
inaccurate, or too incomplete to be very useful in preventing
the kinds of crises we now face. Few economists that I know of
actually address substantively what I believe is perhaps the
most important aspect of reality that we need to address. This
is true even though the part of reality of which I speak can
readily be observed, although apparently not by most
economists or politicians. These variables are hidden in plain
sight and somehow escape attention, most often by those whose
job it is to understand them.
Here’s the problem as I see
it, and a short and a simple mind experiment can make the
point: Take any economic theory that attempts to describe an
economic system… like say, capitalism in America. The theory
might appear to be a useful approximation of how economic
reality works. But then, let’s assume we include all the
rules, laws and regulations that provide the context in which
the theory works in the US and transplant the entire economic
system, say, into some other society. It’s not necessarily
going to work in other places the way it works in
America.
The underlying culture in which
the system operates will determine how, or if, the system will
work as conceived. The variables that make the difference
aren’t usually thought of as part of the study of economics
and yet they determine how the economy will work. In my view, that
makes the study of economics 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 general state of consciousness of the people who
participate in an economy will determine how it works. Without
knowing and understanding the nature of the people, and their
state of consciousness, the theory is precluded from offering
up the information we need to make an economy prosper in a
sustainable way. 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 people and evolve as
their state of consciousness changes. 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? 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…
At one point in our history it
appeared obvious to American politicians and others that the
Glass-Steagall Act was going to be useful in preventing
certain abuses that otherwise could adversely affect people
and the economy. But their wisdom and experience, and the fact
that the Act was put into law, did not prevent a new class of
participants from doing away with that law. The folks who
removed the law from the books, live in a different state of
consciousness than those who were responsible for its original
enactment. Was Glass-Steagall about economics or something
else? Whatever it was, its repeal recently helped bring the
economy to its knees. The economic theory put in place by one
group to handle a perceived problem at one point in time, 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; it was
simply evidence of the deterioration in the state of the
prevailing social consciousness. One notices the same
kind of deterioration in the apparent repeal of habeas
corpus. Some might argue that that's another matter
entirely. 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 exist 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 game. 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 state of consciousness of its participants. 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 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 wreak havoc
on the economy, if they don’t collapse the economy
altogether, which is what I think is happening 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, but as far as
nature is concerned, time is of no consequence. We’ll get to
equilibrium in the long run, even if it takes eons.
Unfortunately for humans, as Keynes pointed out, “..in the
long run we’re all dead.”
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 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.
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. Fortunately, his philanthropy appears to be
going into areas that offer promise in this respect. I'm
probably not saying anything he hasn't thought about, although
he probably conceives it in different terms or words.
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 everyone's minimum
standard of living to rise when it becomes possible, 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 surfs. (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.)
How capitalism might transform itself could be determined
through an honest democratic process where every participant's
point of view has the same weight and is informed by a mature
state of consciousness, which is to say, when the moral and
intellectual capacity of each citizen and the integrity of the
system allows each citizen to formulate an enlightened view
about his or her own self interest in relation to society as a
whole. 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 decent
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 surfs 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 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.
______ Individual acts
of heroism open cracks in a failing system and let in some
light.
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