George Soros, one of the world’s most successful investors and boldest philanthropists, has been more perceptive than almost anybody on the economic crisis – warning about “market fundamentalism” and the emerging credit “superbubble” since the 1980s. “The idea that financial market are self-correcting,” Soros writes, “remains the prevailing paradigm.” And it is wrong.
Rather than thinking markets are always right, Soros thinks of markets as “almost always wrong” – and has made billions by trading on this insight.
Now nearing 80, Soros’ observations carry more weight than ever. The new edition of The Crash of 2008: the new Paradigm for Financial Markets is Soros’ 11th book – and his first bestseller. In it he explains his theory and argues that clean energy investments are central to macroeconomic policy.
Soros’ theory – called reflexivity – states that human events are inherently unpredictable because people’s perceptions affect the underlying reality of the situation. For example, stock prices at any given moment more accurately reflect the prevailing bias of the market – greed or fear on the extremes – than the underlying value of the company.
Soros, an early Obama supporter, has generally supported the president’s policies on stimulus, bank intervention, and clean energy legislation. “Energy policy could play a much more innovative role in counteracting both recession and deflation,” Soros argues. “The American consumer can no longer act as the motor of the global economy. A new motor is needed. Alternative energies and energy savings could serve as that motor, but only if the price of conventional fuels is kept high enough to justify investing in them. That might also help to moderate price deflation.”
“Neither energy security nor the control of global warming can be achieved without putting a price on carbon emissions,” Soros writes. “The United States cannot do it alone, but it cannot be done without the United States taking the lead.”