George Soros: Europe in Deflationary Debt Trap, Unlikely to Survive

By on April 22, 2012

George Soros - Quantum FundGeorge Soros recently delivered a speech at the Institute For New Economic Thinking (INET) conference in Berlin. Soros spoke of the challenges facing European nations and how they got into a crisis situation.

Soros said that ever since the crash of 2008 there has been a widespread recognition, both among economists and the general public, that economic theory has failed, but there is no consensus on the extent of that failure.

Soros said the failure is more profound than generally recognized. It goes back to the very foundations of economic theory. Economics tried to model itself on Newton’s physics. It sought to establish universally and timelessly valid laws that govern reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore, according to Soros.

Soros stated scientific method needs an independent criterion, by which the truth or validity of its theories can be judged. Natural phenomena constitute such a criterion; social phenomena do not. That is because natural phenomena consist of facts that unfold independently of the scientific statements that relate to them. The facts then serve as objective evidence by which the validity of scientific theories can be judged. That has enabled natural science to produce amazing results, according to Soros.

Soros continued his speech further discussing the reasons behind the failure of economic theory (the most influential of the social sciences), the efficient market hypothesis (‘so unrealistic that I never bothered to study it’), the ideas of fallibility and reflexivity, the results of his analysis of financial bubbles (not purely psychological phenomenon and unpredictable), and Europe which is a political bubble and not a financial one and destined to collapse due to a deflationary debt trap.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>