Soros on Euro

George Soros, Remarks at the Festival of Economics, Trento Italy - June 02, 2012

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 causes and the extent of that failure.

I believe that the failure is more profound than generally recognized. It goes back to the foundations of economic theory. Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws governing 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.

Divorce

Scenarios

Nostalgia?

The Liquidity Trap

Japan’s Trap – by Paul Krugman (May 1998)

Japan’s economic malaise is first and foremost a problem for Japan itself. But it also poses problems for others: for troubled Asian economies desperately in need of a locomotive, for Western advocates of free trade whose job is made more difficult by Japanese trade surpluses. Last and surely least – but not negligibly – Japan poses a problem for economists, because this sort of thing isn’t supposed to happen. Like most macroeconomists who sometimes step outside the ivory tower, I believe that actual business cycles aren’t always real business cycles, that some (most) recessions happen because of a shortfall in aggregate demand. I and most others have tended to assume that such shortfalls can be cured simply by printing more money. Yet Japan now has near-zero short-term interest rates, and the Bank of Japan has lately been expanding its balance sheet at the rate of about 50% per annum – and the economy is still slumping. What’s going on?