259 lines
11 KiB
Plaintext
259 lines
11 KiB
Plaintext
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Underground eXperts United
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Presents...
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[ The Crisis of Global Capitalism... ] [ By Eric Chaet ]
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____________________________________________________________________
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____________________________________________________________________
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"The Crisis of Global Capitalism: Open Society Endangered"
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by George Soros, New York: Public Affairs, 1998.
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Reviewed by Eric Chaet
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This is a brief book, but terribly ambitious. Soros is the world-famous
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financial trader, operator of hedge funds, and philanthropist of projects
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intended to further "open societies" all over the world, most famously, in
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the former Soviet Union. He is much influenced by Karl Popper's book, "The
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Open Society and its Enemies", which I have not read, but the main idea of
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which he develops early in this book.
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Two main ideas are 'fallibility' and 'reflexivity'.
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We are fallible. It is necessary, Soros insists, to keep this in mind.
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It is not a matter of despair, but of joy. Things are imperfect, and so are
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we. No point in expecting perfection. Aim for improvement. We want a good,
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but imperfect society, with room for infinite improvement. Those who believe
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they are capable of establishing utopia, e.g. Communists and Magic-of-the-
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Marketplace Capitalists, are the enemies of such an idea, and its resultant
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state, and point of view.
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Reflexivity: there is an objective world that includes what does not
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think, plus those of us who think. Those of us who think are affected by
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the results of our and others' actions. Therefore, the result is never
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exactly what was intended. There is an act on the basis of evaluation of the
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situation; the situation is immediately changed by the action; our--and
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others'--evaluation and subsequent actions therefore change; etc.
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Now Soros applies this especially to finance, an area in which I have
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little experience, and a lot of recent book-learning--enough to make me
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liable to dangerous mistakes. So don't trust me.
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Soros says that there is currently a dangerous "market fundamentalism"--a
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belief that, if the market is not prevented by political obstacles, it will
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find an equilibrium, and everyone will be best off--i.e., utopia. Actually,
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Soros says, equilibrium is never reached, and rarely even approached. And if
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it were not for occasional political intervention, the market and the
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mechanisms upon which it depends would long ago have disintegrated--and it's
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liable to do so, soon, given the prejudice against political intervention.
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Reason is making sense of reality.
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"We cherish false hopes."
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No human thought-construct is timelessly valid. Therefore, the optimum
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course of action may cease to be so later.
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Advantage is in seeing the flaw in the situation, which the market
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doesn't see.
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Advantage is in realizing one's own error.
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Soros says that he is always thrilled to discover he has made an error,
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and what that error is.
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Paradigms are fertile fallacies: they temporarily lead to beneficial
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results.
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A hedge fund, that is, a performance fund, is not subject to regulations
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that mutual funds are subject to. Hedge funds' managers are compensated on
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the basis of their performance at maximizing return on investors'
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investment, not on a fixed percentage of assets managed.
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Networking is not working.
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Knowing one's own fallibility is an advantage in understanding reality, a
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disadvantage in manipulating it. Self-confident charisma is the advantage
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in manipulating it, unfortunately.
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Reflexivity: "a time-bound, irreversible process."
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"Social phenomena may be influenced by theories put forward to explain
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them."
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"...adjusting to a constantly moving target."
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"...when a fast-growing company is undervalued, it may not be able to
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exploit the opportunities confronting it."
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"...rates and fundamentals that they are supposed to reflect are
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interconnected in a self-reinforcing fashion, creating trends that sustain
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themselves for prolonged periods until they are eventually reversed... The
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presence of such long-lasting well-identifiable trends encourages
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trend-following speculation and the instability tends to be cumulative."
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"Participants base their decisions on their expectations, and the future
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they are trying to anticipate is, in turn, dependent on the decisions they
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are taking today."
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Macroeconomic policy-making is influenced by behavior in financial
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markets and exerts influence on them.
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Economic theory has attempted to attribute all manifestations of
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disequilibrium to so-called exogenous shocks.
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"The idea that some values may not be negotiable is not recognized, or,
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more exactly, such values are excluded from the realm of economics."
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"Generally speaking, only individual preferences are included, whereas
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collective needs are disregarded."
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"Each market participant is faced with the task of putting a present
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value on a future course of events, but that course is contingent on the
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present values that all market participants taken together attribute to it."
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Fundamentals: year's earnings, dividends, assets (represented on balance
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sheet).
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Trading in stocks, credit, currencies, commodities.
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Expectations/outcomes.
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Bias/trend. Tend to reinforce one another.
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Is the trend moving toward or away from equilibrium, i.e. the imaginary
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point where expectations equal outcome?
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Boom/bust sequences: Profit potential so much greater than in near-
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equilibrium situations.
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"Even on those occasions when my thesis turned out to be false, I could
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often exit with a profit, because my critical attitude enabled me to
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identify earlier than the others the flaw in my thesis."
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"...stock market, without knowing it is doing it, adopts a thesis, and
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tests it. When it fails, as it usually does, it tries out another thesis.
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That is what produces market fluctuations. It occurs at various levels of
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significance and the patterns produced are recursive..." i.e., "... repeat
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at all scales."
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Near-equilibrium and far-from-equilibrium conditions.
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Near-equilibrium: market texting trivial theses: producing mere
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"ripples," and returning to where starting position.
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Historical significance: far-from-equilibrium: a reflexive thesis
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manages to establish itself. It affects prices AND fundamentals. Tidal
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wave, avalanche, boom/bust. Penetrates deep territory. Does not return to
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where it started.
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"The threshold of dynamic disequilibrium is crossed when a trend
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prevailing in the real world becomes dependent on a bias prevailing in the
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participants' mind, and vice versa."
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Double feedback, i.e., reflexive connection.
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Fundamentalism (fundamental values) / open society (near equilibrium) /
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pure expediency (always seeking social support)
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Static disequilibrium, dynamic disequilibrium.
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Capital (not labor, e.g.) is freest to move.
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Financial markets: range of available opportunities enhanced by being at
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the center of the global economy, rather than at the periphery.
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"In conditions of rapid change when traditions have lost their sway and
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people are assailed with suggestions from all sides, exchange values may
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well come to replace intrinsic values."
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Rise in prices + lower earnings / rise in prices + higher earnings
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International finance: direct investors, portfolio investors, banks,
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financial authorities (e.g., IMF, central banks)
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Portfolio investors: institutional investors that handle others' money;
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hedge funds that employ leveraging; individual investors.
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Institutional investors: measure their performance relative to
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one-another, therefore a trend-following herd.
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"Investors are withdrawing from emerging market [mutual] funds, which
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turns mutual funds into forced sellers."
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"Options, hedges, and other derivative instruments have a similar
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self-reinforcing quality."
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An export-driven economy loses competitive advantage as competitors'
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prices go down.
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Debt v. equity.
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"What distinguishes intrinsic values is that they are worthwhile whether
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they prevail or not."
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"There will always be people who put their personal interests ahead of
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the common interest. This is called the free rider problem."
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Homo Economicus is supposed to posses perfect knowledge of his own needs
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and of opportunities open to him and to be able to make rational choices
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based on the information.
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But people are social animals: cooperation (even altruism), as well as
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competition.
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Society and the state are not identical.
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The state should serve society, not rule it.
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Currently, the state serves, more and more, the needs of the financiers,
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to the disadvantage of almost all of its citizens. Therefore, citizens do
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not esteem the state, and allow it to fail to serve them, just as the
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financiers grow more and more powerful world-wide, and exert more and more
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influence on the state to serve their needs. Democracy imperiled.
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Also, because the state withdraws its regulation of the financiers, the
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financiers accelerate and the acceleration accelerates--further and further
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from equilibrium--til the mechanisms which held the market together can no
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longer hold--and only states are in a position, if they can get themselves
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together individually and organize, to create currently useful new
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mechanisms.
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Likely: world-wide panic, financiers withdrawing investment from the
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periphery, hoarding, world-wide depression. Which has the potential for
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fascist-type national reactions, cf. 1930's, plus the economic suffering of
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the poorest members of each nation, and especially in the poorest nations.
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Much of this is already occurring after financial crises in Mexico,
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Brazil, Korea, Thailand, Indonesia, Russia, and the Ukraine in the 1990's
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--and the unenlightened indifference of those is the most open societies to,
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especially, the blown opportunity to help create an open society at
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relatively low cost, in Russia.
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---------------------------------------------------------------------------
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uXu #589 Underground eXperts United 2001 uXu #589
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ftp://ftp.etext.org/pub/Zines/uXu/
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