Monday, May 14, 2012

Wow, Soros Sounds Like an Austrian Economist

This is really amazing. The point I made in my Fed speech relative to the lack of constants in the world of economic science is pretty much the same point George Soros makes in this clip. He sounds like he has been reading Hayek, Rothbard and Mises.

However, his last point with regard to individuals looking at the world through a "distorted" view of reality, I would argue is more an "incomplete" view rather than distorted , subtle the difference may be.


  1. From what I can recall, Mr. Soros states in his books that he is a follower of Karl Popper, who was a friend of Hayek. From wikipedia:

    "In his philosophy of science, which has much in common with that of his good friend Karl Popper, Hayek was highly critical of what he termed scientism: a false understanding of the methods of science that has been mistakenly forced upon the social sciences, but that is contrary to the practices of genuine science."

  2. I know of many positivists who accept the general idea of a lack of constants in human action, but their hearts are still positivist, because they are trying to rescue it in any way they can, from saying "we can only make general predictions with rough percentages", not truly grasping the fact that even these are based on the constancy assumption as well, and "we are made of physical matter, and every other physical matter can be studied by way of positivism, why not humans as well?", not truly grasping the fact that even if we are physical matter, we are not physically the same matter over time, as we physically change over time as we engage in learning, thus any individual at any moment in time is completely unique to that past time.

  3. I'm not sure why this is surprising, Soros' views haven't changed in at least 5 decades.

    All his trading and activism are inspired by the same philosophy - in his words, he is looking for positive feedback loops between actual events and human overreaction to them (fundamentals deteriorate -> prices go down -> people panic -> fundamentals deteriorate further -> prices go down further etc); i.e. he believes that "fundamentals" aren't really objective in finance, but change based on perception as well. So he trades specifically on the gaps between reality and "perfect knowledge", looking for instances where the market overshoots and goes too far.

    The most interesting example is what you find in his 1987 book, where he documented a period in which he was using his philosophy to predict the economy and traded based on his predictions. His own conclusion was, that in predicting the economy, he has failed miserably in every possible way; but in trading, he was extremely successful in that period - his rational approach to seeking irrationality failed to make exact predictions, but gave him an edge in front-running others.