Reflexivity in Financial Markets--George Soros

Soros attempts to make his philosophy less abstract.  The philosophy basically argues against equilibrium theory as a false paradigm.  Soros argues that studies like economics do not follow natural laws like equilibrium or as he said earlier in a Greek dialectic paradigm.  He said that the proofs provided to support equilibrium are self referential in the sense that they are methodological rather than scientific.  The best argument against this is the reality that men act on their perspectives rather than on pure knowledge.  People make mistakes.

Depending on how much the public buys into a perception can equate into real historical dilemmas, such as the Great Depression, when millions accepted the apparent break down.  In reality, the reasons for the economic slowdowns centered on some false belief that people eventually had to accept.  Banking systems having no collateral, phoney money book keeping, and other gimmicks eventually catch up with the nation that allows them or misunderstands them.  In the 1960s many investors began to make enormous conglomerates.  The big mistake was that the companies had to be bigger.

Real estate investors made similar mistakes, manipulating the values of mortgages and values.  Because of the manipulations and misunderstandings, the market went bust.  Banks in the 1980s made real estate artificially high, misunderstanding that they had made their own bubble that would eventually burst.  A quick look at the fundamentals made it simple to understand, but people refused to do it.

Real estate values tend to have their basis in perceptions than real values.  Therefore, the markets require regulators to protect them.  However, those who hold to equilibrium paradigms do not understand the realities, much like pre-Copernican notions of science.  They will eventually fail.  Too many use scientific method to disprove economic trends--proof that paradigms accepted by so many do not rest on reality.

Reflexivity compensates for the fallibility of economists and their faulty perceptions.  Regulators, using real data, can maintain the integrity of the system.  The current turmoil is a result of realities smacking into what people have erroneously accepted about economics

I find these concepts refreshinbg as they explain the tremendous economic problems surrounding 2008.  The manipulations of the Department of the Treasury and business in collusion and their subsequent decisions with Bush and Obama correctives have not led the nation out of all the troubles.  In fact, it may be just making a new bubble.  I find it interesting,  that up to this point, Spros has not mentioned Keynes, and he has not addressed the reactionary concepts of conservatism. I might suppose that he doesn't think it matters.  Regardless of the business-economic system that a nation uses, whether laissez-faire or Communist, the system will falter if it does not find and react in tandem with reality.  I still see his concept of reflexivity as a healthy form of skepticism.  He doesn't seem to be much of a politician, so I find it strange that he is viewed by so many as the Koch equivalent within the liberal world.  Perhaps the remainder of the text will explain this.