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.
