George Soros on the financial crisis

Excerpts from an interview with George Soros by Bill Moyers. The Big Picture has the full written transcript. Read the whole thing. Video on PBS

How to revitalize the world economy

GEORGE SOROS: You see, for the last 25 years the world economy, the motor of the world economy that has been driving it was consumption by the American consumer who has been spending more than he has been saving, all right? Than he’s been producing. So that motor is now switched off. It’s finished. It’s run out of — can’t continue. You need a new motor. And we have a big problem. Global warming. It requires big investment. And that could be the motor of the world economy in the years to come.

This idea is increasingly being championed by business as well as greens. Upgrade the grid. Make it smart. Go to renewable energy. Long run, it will save money and create a multitude of new jobs in the process.

On neocons and socialism. (Soros lived under both fascism and communism and has little use for ideologies, including those of the free marketers.)

GEORGE SOROS: These market fundamentalists are making the same mistake as Marx did. You see, socialism would have worked very well if the rulers had the interests of the people really at heart. But they were pursuing their self-interests. Now, in the housing market, the people who originated the houses earned the fee.

And the people who then owned the mortgages their interests were not actually looked after by the agents that were selling them the mortgages. So you have a, what is called an agent principle problem in socialism. And you have the same agent principle problem in this free market fundamentalism.

BILL MOYERS: The agent is concerned only with his own interests.

GEORGE SOROS: That’s right.

So how do we protect against a small entrenched minority running countries based primarily on their own narrow self-interest? It happened in the USSR, and is happening now in the US and China.

  • DJ

    There’s always the Mao Solution: Shoot’em all. (Over 10% of China’s population was eliminated under Mao’s rule, making him the worst mass murderer in history by far. So much for kinder, gentler Socialism.)

    But seriously, in Adam Smith’s theory of capitalism, the system could not be divorced from morality. It was not about greed. An educated populace, graduated income tax, and a strong and healthy economy would all be included in self-interest.

    Sadly, we’ve become a nation of legalism: if it’s legal (or if I can do it without getting caught), it must be okay. Though many of us have morality as individuals, we have completely lost our societal morality. As Soros observes, without that, it matters little what system we adopt.

    Let’s skip the arguments about where our morality went (though I believe the Dems played a big part in that process) and look at how we get it back. You may not like the answer, since for most people morality is based in religion.

    I’ll readily acknowledge that not all religion is based in morality, and not all religious members take their religion seriously. What we need is a spiritual revolution that brings back into focus the responsibility each of us has to our neighbor and our community. (That’s contrary to family values.)

    Impossible? It’s happened before in this country, and it’s happened often throughout history.

  • Hi Bob,

    Quick mention: When Moyers puts the videos online, it always has a complete and easily printed transcript below the video. The wonders of publicly-financed media. They encourage people to go back and re-read spoken statements if it contributes to understanding. The profile link for their guests often has some very interesting background and links as well.


    (Just thought I’d point it out for those who are opening a Big Picture and a PBS window to follow along)

    – From a long-time Bill Moyers Journal Viewer (Reader)

  • Not-so-quick response to DJ now:

    I’m glad you brought up Mao, but I think you’re mis-characterizing his rule somewhat (please correct me and my 2nd-year University Chinese History recollection):

    The deaths that resulted from Mao’s rule is a PERFECT example of the agent principle problem, as I understand it. And perfectly analogous to the role a mortgage broker might have played in today’s bubble.

    Mao killed (relatively) few people at the barrel of a gun or in a public ideological lynching. What he did was enact policies based on a poor understanding and poor theory, which were then supported by misinformation and the desire for agents on the ground to provide pleasing information that would make them appear successful in that policy’s implementation, in the face of an entirely contrary reality.

    When Mao’s Great Leap Forward tried to enhance grain and steel production, the inefficiencies of the localized production and the limits of the environment (quality ore, fertile land, sophisticated farming and industrial techniques) left regions far short of their goals, but to please Mao and meet expectations, the local leaders / government officials faked productive agriculture by transplanting all the regions rice into one field that would be observed by the higher level officials. To reach goals of iron production, household iron golds were smelted down (say, pots and pans) to create poor ore that would then be used to make almost useless pots and pans.

    Which led Mao to believe he had 10x (or whatever) more grain than he had, and stockpile this massive surplus while leaving no grain left for the villagers to consume. Which led, of course, to the death and malnutrition of millions of Chinese.

    Sorry for the lengthy reply, but your reference to Mao I thought was a perfect example of how we got in this mess and the contribution of the simple individual. Really, it’s a perfect analogy.

  • DJ

    An estimated 10-15 million Chinese were executed by Mao’s regime, mostly before the Cultural Revolution. Another 10 million died as a result of extreme conditions in forced labor camps. I wouldn’t describe 20-25 million deaths as a “relative few,” even in China.

    But beyond quibbling about numbers, I would say that Mao’s approach in certain situations was (a) effective and (b) far beyond the scope of morality. For example: China had a terrible problem with opium addiction (thanks to the lovely Brits). Mao solved that problem by using “draconian measures”: killing dealers and traders (and those merely suspected of doing so), and imprisoning literally millions of addicts. That did eliminate the problem, but at what cost?

    As to the starvation you allude to, while 30 million Chinese starved to death, Mao’s government shipped 2/3 of its grain to the USSR. You can blame that on crooked (or incompetent) underlings, but Mao himself was quoted as saying of the deal, “Half of China may well have to die” in order to make China a military superpower. Not the man I’d like running MY country.

  • Thanks for the reply, DJ. Seems my memory was faulty: I had recalled something closer to about 4:1 in terms of deaths due to famine and deaths due directly to Mao’s will (you might disagree with the definition there, but I’m sure you know what I mean all the same).

    Seems like it ends up closer to about 1:1.

    And now that I re-read your comment and mine, it does seem like I’m trying to absolve Mao, which hadn’t crossed my mind. What I was trying to make a point of was the contribution made by individuals beyond a dictator that make failures of this scale possible. It always felt like hand-washing or simply oversimplification to me when we, as we often do, speak of an era of crime or stress as being attributable to one personality that hijacks the wills of millions of regular people.

    And the Great Leap Forward, I do feel, provides an excellent historical analogy to the mechanisms of the mortgage crisis that, arguably, started the broader economic crisis.

    Furthermore, the point I wanted to make was that all the lessons of dictators I feel is rendered useless if we ignore the manner in which willing and unwilling populations found it in their best interests to comply.

    Hopefully this addition clarifies my messy previous comment. It was hammered out in haste when your reference to Mao struck me rather suddenly.

  • DJ

    “It always felt like hand-washing or simply oversimplification to me when we, as we often do, speak of an era of crime or stress as being attributable to one personality that hijacks the wills of millions of regular people.”

    Indeed. Hitler was elected. Though as with most extremists, elected and otherwise, his rise to power was made possible by bad economic conditions. This financial crisis will have effects far beyond foreclosures and lack of consumer credit…

  • Ugh, now you’ve mentioned something that’s really been depressing as of late: If the recession is as deep and long as I fear it will be, and considering the amount of race-baiting and scapegoating of immigrants that’s already become commonplace over the past few years in the GOOD times, I really fear what we’ll see when Americans start getting hungry. I’m not sure if having the First Black President will make the subject even more prominent or if his ability to speak on such issues (and the pressure those around him will place upon him to speak on such issues) will help defuse it.

    That last point you made is much more disheartening to me than Mao or George Soros’ comments, strangely.

  • DJ

    I think you overestimate how good these times have been. For the working class in America (which I admit I do not belong to), especially in rural areas, it’s been getting bad for some time.

  • I am neither working class, residing in a rural area, or even American, so you could very well be right.

    Nonetheless, I think people in 2009 will be looking back at 2006 as a relatively good time.

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