Why Economics Failed [George Soros]

- [Announcer] Behind the invisible hand of the market lies the visible hand of politics. Instead of pursuing timeless laws and models, we want to study events in their time-bound context. We need to study the process of change itself. (light music) There has been a widespread recognition, both among economists and the general public that economic theory has failed. I believe that the failure is more profound than generally recognized. It goes back to the very foundations of economic theory. Economics tried to imitate Newton's physics. It's so to establish universally and timelessly valid laws governing reality, but economics is a social science and there is a fundamental difference between natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economics has tried to ignore. Natural phenomena consists of facts that occur independently of what anybody says. Social sciences by contrast, have thinking participants who have a will of their own. People base their decisions, not on knowledge, but on an inherently bias and to a lesser extent, distorted interpretation of reality. Economics, which became the most influential of the social sciences sought to remove this handicap by taking an axiomatic approach, similar to Euclid's geometry, but Euclid's axioms closely resembled reality. On the one hand, people seek to understand the situation. That's the cognitive function and the other, they try to make an impact. I call that the causative or manipulative function. The two functions connect the thinking agents and the situations in which they participate in opposite directions. In the cognitive function, the situation is supposed to determine the participants' views. In the causative function, the participant views are supposed to determine the outcome. When both functions work at the same time, they interfere with each other. The two functions form a circular relationship, or feedback loop. I call that reflexivity. In a reflective situation participants' views can't correspond to reality because reality is not something independently given. It's contingent on the participant's views and decisions. The decisions in turn, can't be based on knowledge alone. They must contain some element of bias or guessed work about the future because the future is contingent on the participants' decisions. The future can't be known until it has actually occurred. The idea that laws or models of universal validity can predict the future has to be abandoned.

Channel: New Economic Thinking

Views: 71,638

Rating: 4.3167539 out of 5

Keywords: soros, George Soros, inet, institute for new economic Thinking, Reflexivity, inet animates, theory of reflexivity, economic theory, economics, social sciences, george soros bank of england, financial crisis, reflexivity in economics, reflexivity explained, reflexivity (social theory), Nick Alpha, Matthew Kulvicki, #inetanimates, new economic thinking, economics lecture, economics in comics, economics major, economics explained, education animation, Ryan Scammell, george soros

Id: 21RC3JLxCmw

Length: 3min 52sec (232 seconds)

Published: Wed Oct 28 2020