April 16, 2011
The Soros Plan to Remake Global Finance
George Soros is right; the world's financial system does need to be reformed, but just not in the way he and his collectivist cohorts envision.
So moved by the ongoing financial crisis, Soros felt compelled to take action. The world has suffered as a result of "unfettered" financial markets and Soros decided now is the time to rethink how the global economy and markets should function.
"The entire edifice of global financial markets has been erected on the false premise that markets can be left to their own devices, we must find a new paradigm and rebuild from the ground up. I decided to sponsor INET to facilitate the process. I hope others will join me," Soros said when announcing his initial funding of the Institute for New Economic Thinking (INET) in 2009.
This implies aggressive market intervention measures carried out by policymakers and regulators had little to do with creating the crisis. As we have come to learn, numerous government policies leading up to the crisis were extremely speculative and, with the benefit of hindsight, categorically irrational. And, they remain so today. So, it is intellectually dishonest to heap the lion share of the blame on markets and private investors when even the medium of exchange was profoundly manipulated by regulators.
Anyway, so began Soros' quest to correct the "deficiencies in our outdated current economic theories" which facilitated the seemingly inadequately named "Great Recession." INET's goal is to inspire "new economic thinking" and encourage "research funding, community building, and spreading the word about the need for change" in order to guide regulatory reform and government policy changes.
The primary purpose of their research seems centered on designing a singular global financial architecture intended to "account" for the "imperfections in individuals" and "bring the economy to a balanced, efficient equilibrium."
High on INET's agenda is to overcome the "prevailing thinking, that the economy is an idealized system of perfectly rational, optimizing individuals and institutions." This view just drips of elitism and yet the vast majority of INET's star economists and policymakers did not forecast the current financial crisis.
It should come as no surprise there is disagreement along ideological lines over what actually brought about the crisis. What is undeniable however, although collectivists will never concede it, in one fell swoop the crisis effectively invalidated their central planning economic models.
But, such blind loyalty to failed policies should come as no surprise since many of INET's highly esteemed participants wholeheartedly believe in the fallacy of a positive multiplier effect from government "stimulus" spending despite Japan's and United States' repeated failed attempts.
With an obvious predisposition for government based solutions, it is predictable much of INET's attention remains focused on the supposed failings of an inherently flawed free market system while ignoring government interventions that distorted and eventually destabilized the markets. In their envisioned world order, regulations and structure is the corrective remedy for "fallible" regulators and market participants that "frequently fall below the standard of being perfectly rational."
The core theme is that government is the channel through which all change must occur. Unmanaged markets are deemed ineffectual in meeting the demands of the fast paced global economy of the 21st century.
But, governments and regulating institutions have proven to be utterly incapable in preventing a financial crisis and pathetically susceptible to lobbying efforts. Furthermore, policies have encouraged risk taking by removing the consequences of failure with bailout schemes.
History shows political agendas inevitably influence policymakers to alter financial regulations and push for credit expansion. These policy schemes create abnormally large investment bubbles that eventually collapse and ripple through the financial market. The size of the "malinvestment" at the time of the collapse determines the level of chaos created.
The point being, government intervention, intentionally or not, perpetuates overinvestment well beyond what would normally occur in a free market. The resulting damage to the economy and the temptation to authorize taxpayer funded bailouts is exponentially greater because of the exaggerated size of these bubbles. Therefore it seems absurd to entrust elitists who have been consistently wrong in their economic forecasts to build a financial system that centralizes power on a global scale.
So-called "new economic thinking" will likely be nothing more than repackaged expansions of Keynesian policies dependent upon central banks, fiat currencies, government "investments," and countercyclical measures. The key difference is the practical abolition of sovereign borders allowing wealth to be distributed globally according to the dictates of a single global banking authority.
There is little reason to presume INET members will experience an "emancipation of belief" and work to reverse the government-centric policies largely responsible for the crisis. Instead, the failures to date are excused as the consequence of under application of Keynesian principles. Or as Nobel Prize winning economist Paul Krugman regularly rails about in his columns; Washington simply did not spend enough to stimulate the economy.
It is even suggested this new economic thinking has the potential to "enable a better world" and may help with "solving climate change, poverty and inequality, and driving sustainable growth in the long run." Forming a global banking consortium with such lofty ambitions is obviously a cause for concern.
Predictably, the estimated costs associated with redistributing wealth away from the world's production centers is likely to be greatly discounted. As is typical of public intellectuals, they will fixate on an unrealistic world vision.
Avoiding a catastrophe after tethering together the global economy with a cumbersome financial structure is improbable in the long run. Any banking crisis created by ill-conceived policies of global bureaucracy, a scenario that seems inescapable, could easily be multiple factors larger than the current one. At the first indications of a looming financial disaster, the system will likely fracture and result in a near collapse of commerce as nations are left with few, if any, alternative sources of credit.
As evidenced by the dilemma facing Euro nations, tensions between conservative and liberal nations could easily escalate as demands for austerity measures go unheeded. Milton Friedman's initial prediction the Euro would not survive a major financial crisis will certainly be put to the test as worsening debt issues strain the economies of member states.
This year's annual INET conference held in Bretton Woods called the "International Political Economy at the Crossroads" most likely will turn out more plans to establish a global architecture that overshadows the free market and restricts financial innovation.
The time has come to question the need for behemoth economic institutions. As far as I am concerned, Soros is consumed with rehashing failed collectivist aspirations that will undermine individual prosperity and market stability.
Today's technology offers the opportunity to completely rethink our arguably outdated concepts regarding mediums of exchange and trade. The preferable course of action is to move toward decentralizing the global economy and financial markets to avoid the systemic risk and moral hazards of a central planning bureaucracy and too big to fail banks.
Unless we are willing to explore options that empower individuals and at least question the validity of central banks, fiat currencies, manipulated interest rates, and stimulus spending, we are left with unremitting government policies seizing more control of financial markets and the economy. Certainly there must be something more sensible and imaginative than establishing a global financial oligarchy.