The New York Review of Books recently published George Soros's testimony to the Senate about oil prices. I'm going to excerpt a bunch of it below. His analysis is important to me for the following reason. Soros is in essence saying that markets are irrational, and that people are herd animals. The markets don't seek "equilibrium," rather, they reflect large intellectual/social trends and then abruptly those trends must be corrected by a new form of thinking. But it takes a lot to change the thinking. Subprime collapse, for example.
In my streetcorner intellectual way, I gather that Soros is heavily influenced by Karl Popper's theories about the basic uncertainty of knowledge, also by Thomas Kuhn's ideas, as expressed in his classic, The Structure of Scientific Revolutions (1962). I'm on page 18 or so of the Kuhn, but I can see that it holds that science is essentially a social process, that scientists go in for intellectual trends, they build their ideas on certain large accepted premises/assumptions; and that heterodox ideas go a-begging until the orthodox ideas no longer explain things, or fall apart, or the insurgents finally are able to batter down the castle doors. The claims of Truth and Objectivity in these processes are so much pious self-justification.
Now let me excerpt the Soros, before going on to the application of the idea to my hobbyhorse, Israel/Palestine:
While I am not myself an expert in oil, I have made a lifelong study
of investment bubbles as a professional investor. My theory of
investment bubbles, explained more fully in my recent book, The New Paradigm for Financial Markets,
is considerably different from the conventional view. According to my
theory, prices in financial markets do not necessarily tend toward
equilibrium. They do not just passively reflect the fundamental
conditions of demand and supply; there are several ways by which market
prices affect the fundamentals they are supposed to reflect. There is a
two-way, reflexive interplay between biased market perceptions and the
fundamentals, and that interplay can carry markets far from
equilibrium. Every sequence of boom and bust, or bubble, begins with
some fundamental change, such as the spread of the Internet, and is
followed by a misinterpretation of the new trend in prices that results
from the change. Initially that misinterpretation reinforces both the
trend and the misinterpretation itself; but eventually the gap between
reality and the market's interpretation of reality becomes too wide to
be sustainable.
The
misconception is increasingly recognized as such, disillusionment sets
in, and the change in perceptions begins to influence the fundamental
conditions in the opposite direction. Eventually the trend in market
prices is reversed. As prices fall, the value of the collateral used as
security for loans declines as well, provoking margin calls. Holders of
securities must sell them at distressed prices to meet the minimum cash
or capital requirements, and such selling often causes the market to
overshoot in the opposite direction. The bust tends to be shorter and
sharper than the boom that preceded it.
This sequence
contradicts the conventional view, which holds that markets tend toward
equilibrium and deviations from the equilibrium occur in a random
manner…
We are currently experiencing the bursting of a
credit bubble that has involved the entire financial system and, at the
same time, a rise and eventual fall in the price of oil and other
commodities that have had some of the characteristics of a bubble. I
believe the two phenomena are connected in what I call a super-bubble
that has evolved over the last quarter of a century. The fundamental
trend in the super-bubble has been the ever-increasing use of
leverage—borrowing money to finance consumption and investment—and the
misconception about that trend was what I call market fundamentalism,
the belief that markets assure the best allocation of resources.
Israel/Palestine. Richard Witty recently assailed me for my urgency in pushing the counter narrative, the Nakba narrative, in opposition to the Jewish narrative of Palestine and Israel. He didn't deny the truth of the narrative but he was saying, You are being a bombthrower when the goal here is to have dialogue and mediate between the two positions, Israeli and Palestinian. You shouldn't just jump on one narrative, you should bring people together.
The way I interpret Soros's comments is that this type of mediation is extremely difficult in a situation where two belief systems/ideologies about history/prices are so at odds. There's no such thing as equilibrium, there are only bubbles and corrections. And hopefully in the end they approximate some truth. My sense of the Jewish narrative about Israel/Palestine is it's a bubble that's no longer sustainable in view of the reality. It's worn out. The wild idealism of the Zionism of 100 years ago has played out into the reality of apartheid on the West Bank. Zionism is also undermined internally, in the crisis in Israel's soul described by two independent reporters I trust: Ian Lustick and Avraham Burg. And in our country neoconservatism is played out, after it was The Ideology of the last 25 years. (Read David Bromwich in NYRB, a piece I'm going to pick up soon.)
What I'm getting at is that some large new idea needs to come along and correct the mistaken last idea. You don't mediate with the old shell of an idea. Its adherents are dug in. And that large new idea must take into account the important facts that have come to light in the west in recent years, the checkpoints, the Nakba, the Jewish exclusivism. Who will build that idea? Burg is trying.
The way I see is that the only way two opposing schools of thoughts can come to some sort of understanding and meet in middle ground is for them to have more or less equal exposure to the public. Until one side is overly exposed and the other is crushed by the voice of opposition we will have no equilibrium or mediation of any kind.
A big fan of your blog btw!
"You shouldn't just jump on one narrative, you should bring people together. "
That's a utopian dismissive summary. I said that you should simultaneously hold both narratives, conflicting or harmonious. You are not a market price. You are at best a proposer, second best a witness without bias.
Burg holds both views. He is still a Zionist. Ask him.
I'm glad you're learning about dialectic, bias (bubble and rumor and propaganda), the construction of attitude and limited range of skillsets (Kuhnian paradigm), the relationship between positive feedback loops (bubbles) and equilibrium feedback loops (fundamental market theory), and the relationships between zero-sum (expulsion), negative-sum (war) and positive-sum (peace) interactions.
You are still wrong in thinking of Zionism (the idea) as racism.
Now that you live outside of urbanity, you should note that people naturally tribe up (that its a good thing, that the concept of rigid universalism is a dogma, rather than charitable attitude in first person, "I"/"we")
I also said on multiple occassions that the effort to understand the experience of the nakba was important for Jews to be fully Jews, fully human.
And, that that would result in more effective politics, by individuals, communities and states.
I also said that if that change in Israeli consciousness (which DID largely occur in the early 90's), was not accompanied by a similar change in consciousness on the part of the Arab and Palestinian world (as rationally difficult as that was), that it would fall to naught.
But, to conclude that Oslo for example was basically a failure, an inevitable one, is to INVEST in cynicism, in hopeLESSness.
The significance of informing Jews of the nakba is that, to inform. To the extent that that information is conveyed in ANY way as browbeating, it would FAIL to inform.
On markets.
One urge by gold standard advocates is that money supply is kept relatively constant, excepting the credit offered by one entity to another.
In ironic contrast, the "conservative" monetarists introduced sufficient money supply so that there was "air" to feed the few hundred bubbles that started and still exist.
Bubbles are everywhere. For example, Soros' picking the oil bubble is important. But, irony of ironies, food commodity prices rise and fall nearly parallel to oil now. (It is part of my job to contract for commodities for my employer.) We used to think that a large part of that was the extent that acreage was dedicated to fuel crops. But, as the price of grains adjusts daily parallel to oil, rather than seasonally (as would be the case if acreage was the determinant of the supply/demand equilibrium), we determined that speculation has been driving the grain markets in particular.
Grain prices have declined 25% in the last two months, similar to oil.
I'll bet that there is even some observable effect in gold, which is conventionally thought of as pricing contrary to GDP growth, but as a commodity experienced BOTH bubble and fundamental.
What is real wealth is a more important question?
Not the price of a house, the price of a security, the price of commodities in speculative markets.
Use value.
What Soros is describing is the study of "chaos theory", one area of which is the study of the intersection of controlling algorhythms (logic, paradigms).
The clearest example is the interaction between matter as it changes between states. For example, the interaction of solid matter with liquid, or the thermo-dynamics of the boundary (and intersection) of water and ice.
In the marketplace, the intersection between systems dominated by positive-feedback loops (bubbles and busts) and negative feedback loops (market equilibrium).
Those intersection fields don't fit into trend analyses on spreadsheets, or computerized commodities trading based on either contrary or trend-riding models.
Its an attempt at control and prediction where prediction is otherwise impossible.
Not magic, but science. You know scientific alchemy.
Observed at least. Where is that electron?
Soros is dead right. If you doubt the effect of preception and reality and the human component in the market you have never noticed the time lag in the public response..usually running about six months..to both bubbles and bursts.
BTW witty is full of shit, Phil is right on applying this to Isr-Pal.
Witty plays the same tired game Isr has played for 40 years….talky,talky, whine,whine, facts on the ground and more facts on the ground, string it out and string it out some more in the interest of 'debate' about peace…and all the while gobble up more Palestine land. It's pure bullshit and a liar's transparent game and we all recongize it for what it is.
Bring people together witty?…you are the most sick and dishonest poster on here….you can't bring people together when one is occuping the others land and starving their people and killing their children and burning their crops and cutting down their olive trees, and preventing drugs and medical care from going into Palestine for the sick and dying and assassinating their freedom fighters,,,yep freedom fighters..got that witty..FREEDOM FIGHTERS.
I guarentee you that if I were a Palestine and you stole my land and killed my children I would spend every day building bombs and every day of my life killing Israelis. You are a flaming nazi and hopefully you and the Israelis who are part of this will get exactly what the nazis got.
"The way I interpret Soros's comments is that this type of mediation is extremely difficult in a situation where two belief systems/ideologies about history/prices are so at odds."
That would suggest a two-state solution, not ANY flirtation with a single-state.
But, then the next question is how to relate to minorities? Should Israel accept Arab minorities or expel them? And should Palestine accept Jewish minorities or expel them?
American's views are emotional, more oriented towards anger than reconciliation. I don't see that that gets anywhere.
Contrary to his ranting, I am NOT suggesting Jewish advantage. I'm suggesting a basis of remedy that values current residence, of NOT forcefully displacing residents from homes, as a principle.
NOT forcefully, or indirectly, forcing Palestinians, and NOT forcefully or indirectly forcing Jews.
At some point, the goal should be to reduce the range of the pendulum swings, rather than exacerbate it.
One point about the Soros thesis, is that the reason the current financial situation is so compelling is that the volatility has gotten out of hand.
The relationship between positive-feedback systems (bubbles, rumors, isms) and negative-feedback systems (market equilibrium, confirmed knowledge including diverse interpretation, acceptance of the other) is apparent in ALL social institutions. Its always playing in markets, always playing in politics.
One thesis of making it evident, is to emphasize the equilibrium over the bubble, the reconciliation over the ism.
When you, American, don't distinguish between Zionism that is moderate (seeking enough, but NOT expansion) and Zionism that is immoderate (seeking all), you ignore Phil's and Soros' thesis.
American,
Do you know the work of Khalidi? The vibe?
He is assertive, but conciliatory at the same time.
Same as the progressive ZIONISTS that led Israel to Madrid and Oslo.
"The fundamental trend in the super-bubble has been the ever-increasing use of leverage—borrowing money to finance consumption and investment—and the misconception about that trend was what I call market fundamentalism, the belief that markets assure the best allocation of resources"
Wait wait.
Classic AmericanGoy style – re-read the last sentence there.
…"market fundamentalism, the belief that markets assure the best allocation of resources"…
The man just called capitalism an irrational (and by definition, not working) system.
I tend to agree with him.
Markets are not free – they are the product of human beings, millions of us poor schmoes, of hedge funds schenanigans, of government rules and relaxation of said rules, of sensationalist media and people like Cramer who manipulate stocks because idiots listen to him.
Weiss:
"Now let me excerpt the Soros, before going on to the application of the idea to my hobbyhorse, Israel/Palestine"
Uh… wut?
soros saying markets are irrational is not equal to him saying they aren't working. they work the way they work.
soros saying markets are irrational is not equal to him saying they aren't working. they work the way they work.
'What Soros is describing is the study of "chaos theory" '
True, but it touches on a whole host of interrelated theories. The most obvious perhaps is Nassim Nicholas Taleb's Black Swan theory, itself derived in part from the work of the fractal man, Benoit Mandelbrot. Basically, the future in unpredictable based on study of the past. Taleb's example is the turkey that is fed for 1000 days, each of which strengthens the conviction of it's stats dept that Farmer Brown cares deeply for it's well-being. On day 1001, the turkey has a surprise.
A bourse full of turkeys, looking up with cow eyes at Farmer Brown, the market, who despite years of yawn-inducing predictability, suddenly runs amok (maybe something he ate)
But it's Heisenberg's Uncertainty Principle too – the counter-intuitive notion that the observer must have an effect on the observed, and that if position can be stated, velocity can't and vice versa – all this has a weird analogue in the dance between prices and the trends they are meant to reflect, this impenetrable interconnectedness itself part of the reason for such mass confusion.
I have a feeling network theory, with it's tipping points driven by interconnected hubs or mavens, operating independently of any user control, might tie in too.
But what it really took me back to are the words of Richard Feynman, from lectures he gave in the 50's:
'' The scientist has a lot of experience with ignorance and doubt and uncertainty, and this experience is of very great importance, I think. When a scientist doesn't know the answer to a problem, he is ignorant. When he has a hunch as to what the result is, he is uncertain. And when he is pretty darned sure of what the result is going to be, he is in some doubt. We have found it of paramount importance that in order to progress we must recognize the ignorance and leave room for doubt. Scientific knowledge is a body of statements of varying degrees of certainty — some most unsure, some nearly sure, none absolutely certain… Now, we scientists are used to this, and we take it for granted that it is perfectly consistent to be unsure – that it is possible to live and not know. But I don't know whether everyone realizes that this is true. Our freedom to doubt was born of a struggle against authority in the early days of science. It was a very deep and strong struggle… If we take everything into account, not only what the ancients knew, but all of what we know today that they didn't know, then I think we must frankly admit that we do not know. But in admitting this, we have probably found the open channel.'
Certitude is the enemy of progress in science, and of stability in markets. It's a pity then that politics nowadays has so narrowed the range of acceptable opinions that prospective officeholders have to bristle with certitude about everything to even dream of getting to first base. Doubt is death in the politics of an uninformed electorate. Obama, a natural doubter (praise the Lord), has had to learn the value of certitude (real or apparent).
Feynman again:
'It is our responsibility as scientists, knowing the great progress and great value of a satisfactory philosophy of ignorance, the great progress that is the the fruit of freedom of thought, to proclaim the value of this freedom, to teach how doubt is not to be feared but welcomed and discussed, and to demand this freedom as our duty to all coming generations… The writers of the Constitution knew of the value of doubt… The fact that you are not sure means that it is possible that there is another way some day. That openness of possibility is an opportunity. Doubt and discussion are essential to progress.'
Hear hear. But then Feynman went on..
''The United States government, in that respect, is new, it's modern, and it is scientific.'
The contrast between this sunlit technocratic upland and the cool empiricism that preceded it is itself an emblem of Feynman's dictum of doubt. Feynman died in 1988. Would his confidence in the United States government have lasted, would he have thought its recent conduct 'scientific'?
I doubt it… but you never know!
In the end, the behavioural scientists might go as close as anyone to explaining why so many smart people acted like deer in the headlights for so long – because they were making big dollars and everyone else was doing it.
I was going to try and drag this back somehow to I/P, this blog's self-proclaimed raison d'etre – but I am out of puff. Sorry Phil.
When you, American, don't distinguish between Zionism that is moderate (seeking enough, but NOT expansion) and Zionism that is immoderate (seeking all), you ignore Phil's and Soros' thesis.
Posted by: Richard Witty | November 02, 2008 at 09:35 PM
>>>>>>>>>>>>
AT
Show me where this is any such thing as "moderate" zionism. Zionism as defined by you and all other zionist is that Jews are a 'nation", a distinct ethnic group who God deeded a land to.
You are a idiot…your think there is such a thing as a "Jewish people'….there are Chinese jews, European jews, S. Africian Jews, Arab jews….there is no such thing as a 'nation of jews"…there is only a 'religion' of jews made up of a collection of religious of all races.
You are not a "people" witty you are a religious group.
The zionist cult has convinced you that you are some special breed ..apart from the rest of humanity….you aren't.
Jackie Rose was right in her book.."The Question of Zion"…when she said that zionism attracted people that were drawn to victimhood as an identity because it made them 'special' in the way they could never be on their own….it gave them an identity, elevated them above the rest of the population. For you, your victimhood and identification with Israel and zionism elevates your mundande everyday life and gives meaning to your life that you can't find in your everyday existance.
I could almost, but not quite, feel sorry for you witty….ignorance born of egotism and a refusal to be fully aware human being, leading to grasping at any thing that will make you more than you actually are is after all is a self chosen state of mind.
Your family who died in WWII isn't special, any more than the 25 million Russians who died in WWII are special, any more than the Americans who died in the Civil war are special, any more then the victims of the many holocaust thruout history are special.
You and your jewish victimhood are in fact nothing in the great scheme of mankind and history but whiners and the lowest form of opportunist and parasites. You have no ethics, no morality , no connection to the world of universal human beings.
I have said this before but let me repeat it..if jews are only for themselves why should anyone else be for them?
They shouldn't and they aren't. And that is only human nature… to insure the survival of the majority of the world's people. You have pitted yourself against everyone in the world who is not a jew…that is a losing stragety.
More's the pity that you have learned nothing in 21 centuries.
"a distinct ethnic group who God deeded a land to."
That is NOT what I said ever. Stop talking to yourself, please.
"if jews are only for themselves why should anyone else be for them?"
That is entirely accurate. If you bother to quote the actual Hillel statement, there is a second statement, that both rabid form of Zionists omit and critics omit.
"If I am not for myself, who will be for me? And, if I am only for myself, what am I?
True.
Don't forget the often related statement, do not do onto others what you would not want done to you.
Interesting to view the history of political anti-semitism and philo-semitism throughout the ages as analogous to an economic "correction" in a capitalistic world, viewing "capitalistic" in the broadest general terms, that is, as opportunism and arbitrage.