2012年6月15日星期五

Soros, the statement in the annual plenary meeting for new economic thinking Institute in Berlin, Germany


Speak on the new economic thinking Institute Berlin, Germany, the annual plenary session

Author: George Soros
April 12, 2012


Since the market crash of 2008, economists and the general public are widely recognized economic theory failed. However, on the failure of the extent to which, even in the middle of the participants of this meeting is also no consensus. As Patron of the Institute of Economic Thinking (INET), I am pleased because there is no consensus, does that mean exactly the new Institute of economic thinking on a variety of new economics thinking keep an open mind embody? But I am also another interpretation of the supporters of the financial markets, so I still hope to reach a consensus on this issue.

I think that failure is more serious than generally thought. Failure can be traced back to the foundation of economic theory. Economics tried to follow the example of Newtonian physics. Trying to establish universal and always effective rules to manage the real world. But economics is a social science, there are fundamentally different between the natural and social sciences. Social phenomenon exists in the thinking of the participants, these participants make their own decisions based on imperfect knowledge. This is the economic theory trying to ignore the place.

The scientific method requires a separate standard to rely on an independent standard to judge the authenticity of the scientific theory or set up or not. Natural phenomena include such standards, but there is no such standard social phenomena. This is because in natural phenomena, the occurrence of the facts and the facts of this science expounded independent of each other. The fact can be used as objective evidence, in order to be able to judge the scientific theory is established. The natural sciences to reach a very remarkable achievement.

In contrast, contains will be thinking of the participants in the social events, and these participants have their own wishes. These participants are not aloof observer, but living in the decision-makers, in the event that its decisions will greatly affect the course of events. Therefore, does not exist independent standard for the participants to judge their own point of view whether the establishment of social events. In the case of the absence of independent standards, people can not be based on knowledge of decision-making, can only be based on the inherent bias that exists in reality more or less distorted interpretation to decision-making. Participants in the lack of perfect knowledge or fallibility introduces an uncertain element to the development of the inanimate objects in the operation of the event there is no such uncertain elements. Consequent uncertainty makes social science is difficult to generate rules similar to the Newtonian physics.

Economics has become the most influential social science disciplines, trying to adopt a method similar to the axiomatic method of Euclidean geometry to eliminate this obstacle. But Euclid's axioms closely in line with the fact that the rational expectations theory (the rational mockSubscriber.proxy) and the efficient market hypothesis (efficient market hypothesis) has been far from the truth. Axiomatic method is effective to a certain extent. For example, the theory of perfect competition (perfect competition) assumes a perfect knowledge. But this assumes that only one set up only when used in barter. When used in the production process with a certain distance from the exchange, or in the use of capital and credit process, this assumption became untenable, because the participants in the decision-making related to their vision of the future, but before really happened, the future is unknowable.

I am not qualified to criticize the theory of rational expectations and efficient market hypothesis, because as a market participant, I think these theories are unrealistic, so I never bother to study these theories. My remarks in criticism of these theories, but to comment in detail on these theories, I do not want an affinity for.

Instead, I would like to introduce a completely different financial markets. This is inspired by Carl Popper Karl Popper, he taught me, is very consistent with the interpretation of reality, never reality. This leads me to study the relationship between. I found a two-way contact between the participants' thinking and the participants are in the scene. On the one hand, people trying to understand the scene, which is a cognitive function. The other hand, people attempt to impact on the scene, I will be referred to as an inducement or manipulation functions. These two functions thinkers and thinkers to participate in the scene is two-way connection. In cognitive function, the scene will determine the participants 'views; incentive function, the participants' views will determine the results of the scene. When these two functions operate simultaneously, they interact with each other. These two functions form a circular relationship or feedback loop. I will be known as the feedback loop of reflexivity. In the scene in a reflexivity, because the reality is not an independent, has identified the fact that changes with the participants 'views and decision-making, the participants' views can not be consistent and realistic. In turn, because the future changes with the participants in the decision-making, the participants in the decision-making can not be based solely on knowledge, they must contain some deviation from, or said the speculation on the future.

Fallibility and reflexivity bundled together like Siamese twins. No fallibility of reflexivity, and vice versa is not the case. Even in the absence of reflexivity, imperfect understanding of the people will. In the twins, the fallibility first born. Together, they allow participants produced a deviation between the actual situation on the realistic view of things at the same time also produced a deviation between the expected and actual results of the participants.

It is clear that reflexivity is not found. Others before me recognize reflexivity, but using other terms to refer to. Robert Merton, Robert of Merton wrote that a self-fulfilling prophecy and herding, John Maynard Keynes in the financial market than for a beauty pageant competition, participants have to guess who is the highest percentage of votes. (Annotation: Keynes's beauty contest, guess there on the beauty of the final to win the prize, whether the bonus is not whether to choose the most beautiful, but rather to guess others generally considered the most beautiful who. ) start from the study fallibility and reflexivity, I noticed a problem area, this is the fallacy and misunderstanding of the role played in determining the course of events, this is the mainstream economics tried to ignore the areas. This makes the interpretation of reality is more realistic than the prevailing paradigm.

In other areas, I also developed a rise and fall process model, or characteristics not because of external oscillation caused by the bubble model due to the financial markets by nature. According to my theory, the financial bubble is not a purely psychological phenomenon. Has two components: the trend prevalent in the surge of reality and a trend of a misinterpretation. When the start of the feedback a positive feedback, that is the trend and a deviation from the trend interpretation mutually reinforcing, the bubble will grow. Finally, the rift between the trend and the trend deviation from the interpretation becomes more and more wide, wide to could not survive. After an evening stage, the bias and the trend will reverse, and strengthen each other in the opposite direction as before. The bubble shape is usually asymmetric: the prosperity of slow growth, but the bursting of the trend is a sudden and devastating. That is the reason the use of leverage: the price decline prompted leveraged positions were forced to open.

Although well-developed financial bubbles always follow this pattern, but the size and the duration of each stage of can not be predicted. In addition, the bubble formation process at any stage may be terminated, so well-developed financial bubble is not common.

At any time, there are a variety of feedback loops at work, and some positive feedback, some negative feedback. They interact with each other, resulting in irregular price fluctuations are most of the time, but in a rare scene, the bubble will take full advantage of their potential, tend to have eclipsed all other influence.

According to my theory, as long as the trend tends to in the balance, the financial markets may be a bubble. Because the bubble to disrupt financial markets, so the history is often a financial crisis. Each crisis will cause the regulatory authorities to respond. The central banking system and financial regulations such simultaneous evolution and market. The foam only intermittent, but the interaction between market and regulatory authorities has been continued. The actions of market participants and regulatory authorities are based on imperfect knowledge, the interaction between them and reflexivity. In addition, reflexive and absurd is not limited to financial markets, the characteristics of other areas of social life, especially political. In fact, market and regulatory authorities take into account the continuous interaction of individually cut from the study of financial markets is to go astray. In the hands of the invisible hand of the market and there are a tangible political. We should not pursue the eternal rule and model, but rather put the event on which the background research.

My interpretation of the financial markets to the prevailing paradigm in many ways different. I emphasize that the misunderstanding and fallacy of the impact of the historical process. I think that the bubble is largely unpredictable. The direction and ultimate reversal of the foam can be predicted, but the bubble size and duration of each stage can not be predicted. I think that my conceptual framework as a starting point to the fallibility more realistic. But also a price to pay: must abandon think there is one size fits all can predict the future rules and models.

Until recently, the financial market point of view, academic economists, or either disregard or ignore. Crash in 2008, everything changed. Reflexivity has been recognized, but Imperfect Knowledge Economics (Imperfect Knowledge Economics) has been rejected, the basis of economic theory has still not been I think it is essential for a profound reflection. Reflexivity economics profession has been accepted, they gave up the single-balanced and instead discuss the multiple balance. But that was not enough. Economists must also recognize that market participants, regulatory authorities fallibility. Rely on multiple balance can not understand the real dynamic scenes. We need to study the process of change.

At this point, the euro crisis is very educational. It can be seen, the policy work at some point in another moment, but is no longer valid. Can also be seen misunderstandings and delusions affect the course of history. Euro crisis has an overwhelming impact on the global economy, so my speech will be used to discuss it. I must first issue a warning: discussion would go beyond the scope of economic theory, in relation to political and social philosophy. This case is a perfect example of the reflexive interaction between the authorities of imperfect markets and imperfect. This interaction has been going on, the bubble is only rarely only once. This interaction of such a large impact on that cast a shadow over the global economy, it touches a very rare scene. How can this happen? My explanation is that which relates to a bubble, but this is not a financial bubble but a political bubble. Related to the EU's political evolution, but I have come to the conclusion that the euro crisis could destroy the EU. Why?

According to my theory, a rise and fall process or bubble containing two ingredients: the trends of emerging trends in the surge of reality and a misinterpretation. In the boom phase, the EU is like psychologist David Take Te, David Tuckett said "dream objects", untrue, but extremely attractive. The EU is the instance of an open society, democracy, human rights, the rule of law on the establishment of the National Alliance, in this league, there is no any country or nation to occupy the dominate position.

The EU integration process a small group of far-sighted politicians to act as the vanguard of these people is the practice of progressive social engineering (Carl Popper said piecemeal social engineering) theory. They realize that perfection is difficult to match, so they set up the limited objectives and a firm timetable, and then muster the political will to a small step forward, they are fully aware that a small step forward, but also found new inadequacies, and then need to take another step. This process every step of the success will form a positive feedback, is very similar to the financial bubble. European Coal and Steel Community is gradually transformed into the European Union, a short step to Trinidad.

Germany was the vanguard of this effort. When the Soviet empire began to disintegrate, the German leaders recognize that to be possible under the environment of the Reunification of Germany only in Europe more united, they are willing to make considerable sacrifices for the unity of Europe. Bargaining, they are willing to a little more to get less dedication than other countries, thus helping to reaching an agreement. At that time, German politicians have claimed that Germany did not own foreign policy, Germany, European foreign policy.

, This process culminated in the signing of the Maastricht Treaty and the introduction of the euro. Then a stagnant stage, after the collapse in 2008, turned to enter a process of disintegration. After the bankruptcy of Lehman Brothers, Germany has taken a first step, Angela Merkel Angela Merkel announced, other financial institutions to provide substantive guarantees should be carried out by the States individually, rather than by the European Joint guarantee. Financial markets more than a year later came to realize that Merkel's statement illustrates, indicating that financial market imperfections.

Defects in the foundation of the "Maastricht Treaty", reflects the fallibility of the European authorities. The founders knew the EU's main weakness: the establishment of a monetary union without political union. However, the founders believe that when there is a need to generate political will and taken the necessary steps, in order to form a political alliance.

But the euro also there are some founders also are not aware of other defects, even until now we have not yet fully understand these defects. First of all, without taking into account the fallibility: neither enforcement mechanisms to ensure that the treaty to fulfill, there is no exit mechanism.

"Maastricht Treaty" also assumes that only the public sector will lead to intolerable imbalance in the market have the ability to correct its excessive. "Maastricht Treaty" is intended to prevent the imbalance in the public sector to establish an effective protection (Annotation: refers to the provisions of the budget deficit). The result, after the start of the European Central Bank, as the government bonds as risk-free assets, the banks can hold the bonds do not need to provision for this purpose any reserve. (Annotation: Obviously because of the provisions of the budget deficit, to ensure the public sector does not imbalance, so as the euro-zone countries public debt is risk-free assets.) Which encourages commercial banks are hoarding weak euro-zone countries bonds to earn some rate of return basis points. This led to the eurozone interest rates tend to be consistent, unexpectedly, interest rates tend to lead to national economic performance differentiation consistent. Structural reforms in Germany, struggling under the heavy burden of the reunification of Germany, competitiveness has become stronger, while others enjoyed a housing boom, leading to declining competitiveness. Other countries have to save their own banks collapse in 2008. This creates the situation greatly contrary to the provisions of the Maastricht Treaty (Annotation: refers to the countries in 2008 to save the city of deficit financing, treasury bonds carry the bank's bad debts, contrary to the treaty.), Resulting in a completely contrary to unexpected consequences. Might be considered risk-free government bonds have been shown to contain a huge credit risk.

Unfortunately, the European authorities in the end is nothing to fight pain and no understanding. They are prepared to deal with financial problems, but only Greece is considered the financial crisis, other European countries suffered banking crisis and the competitive differentiation of the crisis also led to the possible balance of payments crisis. The authorities did not understand the essence of the problem, let alone find a solution. So they are just trying to stall for time.

This trick is usually effective. The financial panic subsided, the authorities intervene in behavior but also profit. But this is not the same, and strengthen the disintegration of the EU political process because of financial problems. Founded in the European Union, the leaders are the vanguard of efforts towards further integration of the direction, but after the outbreak of the financial crisis, the authorities became interested in maintaining the status quo. This forces all believe that the status quo can not be sustained or could not bear to stand to the opposite side of the EU. This is to lead the EU towards the disintegration of the political power and political power when the EU's founders is a self-reinforcing. This is what I say political bubble.

The disintegration of the euro area in the beginning of the crisis was incredible: a common currency-denominated assets and liabilities mixed together, the disintegration will lead to uncontrollable collapse. With the development of the crisis, the financial system is increasingly in accordance with national re-arrangements. This trend gained momentum in recent months. The long-term refinancing operations (LTRO) in Spain and Italy, the banks can be profitable and low risk arbitrage, through low-interest loans from the European Central Bank to buy the bonds of their own country's high interest rates. The European Central Bank to hold Greek bonds received preferential treatment will suppress the enthusiasm of the other investors holding sovereign debt. If this were to continue for several years, then you can make the euro area the separation does not collapse, egg rolls child can be turned back eggs (Annotation: This is a metaphor, the EU is like more than one egg mixed up and fry the egg rolls, sub- The home is like egg rolls and then changed back to one egg.), but will result in the creditor countries central banks hold debt of the debtor countries the central bank, these debts will be difficult to recover.

The German central bank has been aware of this danger. Now take action to prevent an unlimited supply of funds to expand, has begun to take measures, which in case of the European Union disintegrated, can losses under control. This creates a self-fulfilling prophecy. Once the German central banks have been wary of disintegration, then everyone will do. The market has begun to reflect this.

The Bundesbank is also internally to tighten credit. If Germany is a fully independent country, then this is the right policy, but other countries are saddled with heavy debt are in urgent need of strong demand from Germany to avoid a recession. If there is no stronger German demand for euro area financial agreements reached in December last year can not be feasible. Heavily indebted countries either can not implement the necessary measures, or even executed, because the collapse in demand and can not achieve their goals. In any case, the debt ratio will rise, and Germany's competitiveness gap will increase.

Regardless of whether the euro can survive in Europe are facing long-term economic stagnation or even make matters worse. Similar things also happened in other countries. Latin America tragically lost in 1982 after 10 years, the Japanese economy stagnated for 25 years, but the shore alive. However, the EU is not a country, so the EU is unlikely to survive. A debt deflation trap could destroy a political alliance set up has not yet completed.

Prospects dark. Sure way to avoid this dark prospect, after all, history is not pre-write set. Now, Europe together because of severe need. This is not conducive to the formation of a harmonious partnership. Just an idea when the EU was a "fantastic thing", a desirable goal, but after becoming a reality, the EU has turned into a nasty things imposed. The only way to reverse this seemingly inevitable fate of the EU to re-create the dream thing for a worthy struggle. The EU has the potential of an open society, can become a model for the rest of the world. All need to do is return to the principles of open society, which requires the authorities to recognize their errors and correct those mistakes. Angela Merkel, there are indications to do so, but the German authorities, especially the German central bank and the Constitutional Court has to go the way the implementation has been proven unworkable law. This makes it supposed to be the cornerstone forward legislation into a roadblock looking for the solution approaches the move does not open. I believe that, even in this late, or be able to find solutions, but will need to change the thinking of the German public.

I can say that the path leading to the solution. First of all, the laws of the management in the euro area failed, fundamentally modified. Clinging to an unworkable situation will only worsen the situation. Secondly, the current situation has been far contrary to the Maastricht Treaty, the need to take special measures in order to return to normal. Finally, the new regulations must take into account the endogeneity of financial market instability.

I have these general principles of interpretation has become a practical advice, published in today's Financial Times (Financial Times), but we do not have time here to discuss that proposal.

All in all, the discussion of the euro crisis illustrates the fallibility and reflexivity provide us with a interesting perspective to observe the process of social change. I am willing to admit that the development of my conceptual framework is still not perfect enough to be used as a new paradigm. But I tend to think that if other people can develop this conceptual framework, it will become a paradigm of new Institute of Economic Thinking along those lines now move forward to do more research, I am very pleased.

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