Introduction -discuss how capitalism is nevertheless the predominant economic system -mention how its been successful (in

terms of growth, industrialization, poverty reduction, etc.) -segway into the volatility of capitalism in its current form (market fundamentalism) -introduce The Crisis of Global Capitalism and how it attacks the current form of global capitalism as a volatile, unbalanced system (discuss the absence of equilibrium and mentioned Soros attack on homo economicus) -propose Soros idea that an open society will facilitate a more pure form of capitalism as it was originally envisioned -The basic unit for political and social life remains the nation-state. International law and international institutions, insofar as they exist, ar not strong enough to prevent war or the large-scale abuse of human rights in individual countries. Ecological threats are not adequately dealt with. Global financial markets are largely beyond the control of national or international authorities. (xx) -mention the potential for shortfall: vagueness, unoriginality (Keynes beauty contest, all of Schumpeters work, Soros own economic record, hubris, disregard for established and respected theories, etc.) Capitalism as Market Fundamentalism -begin by introducing the central theme of Soros book: capitalism has emerged in a more villainous form, as market fundamentalism -Financial markets are inherently unstable and there are social needs that cannot be met by giving market forces free rein. (xx) -It is market fundamentalism that has rendered the global capitalist system unsound and unsustainable. (xx) Using these two quotations in the same sequence will reinforce Soros position: that not only are financial markets inherently unstable, they are further destabilized by market fundamentalism, as pursued by Reagan, Thatcher, the IMF, and the World Bank. The ideology is not wrong, however, the system through which the ideology is facilitated is unstable -Soros warns that the current global economy could collapse in the same fashion as the global economy during the interwar period -Thus the ascendancy of the profit motive and the decline in the effectiveness of the collective decisionmaking process have reinforced each other in a reflexive fashion. The promotion of self-interest to a moral principle has corrupted politics and the failure of politics has become the strongest argument in favor of giving markets an even freer reign. (xxvi) This is a tremendously bold statement; however, it directly emphasizes Soros commitment to his argument that market fundamentalism is a dangerous evolution of capitalism. Use this as a transitional thought into the next section -There is a prevailing belief that economic affairs are subject to irreversible natural laws comparable to the laws of physics. This belief is false. What is more important, decisions and structures that are based on this belief are destabilizing economically and dangerous from a political point of view. (28) -Economic and social events, unlike the events that preoccupy physicists and chemists, involve thinking participants. And thinking participants can change the rules of economic and social systems by virtue of their own ideas about these rules. The claims of economic theory to universal validity become untenable once this principle is properly understood. (29) -another problem with market fundamentalism and the market mechanism in general is the disproportionality of consequences during collapse: when Wall Street catches cold, the rest of the world catches pneumonia. (124) - Fundamentalism implies a certain kind of belief that is easily carried to extremes. It is a belief in perfect, a belief in absolutes, a belief that every problem must have a solution. It posits an authority that is endowed with perfect knowledge even if that knowledge is not readily accessible to ordinary mortals. (127)

-the current structure of the global capitalist system is unstable for two reasons. 1) A rise in equity prices has created a wealth effect: Should there be a sustained decline in the stock market, shareholders sentiments would be reversed, contributing to a recession and reinforcing the market decline. (130) 2) Mutual funds are providing incentives for herd mentality as opposed to rational thinking: Fund managers are judged on the basis of their performance relative to other fund managers, not on the grounds of absolute performance. (130) -The ascendancy of the profit motive over civic virtue undermines the political process. (208) A Theory of Economic Reflexivity -Soros suggests that there is a large discrepancy between thinking and reality, which determines the outcome of several aspects of human behavior, such as financial transactions (4) -The concept of open society is based on the recognition of our fallibility. Nobody is in possession of the ultimate truth. (4) -There is a two-way connection between present decisions and future events, which I call reflexivity. (xxiii) -Human beings respond to the economic, social, and political forces in their environment, but unlike the inanimate particles of the physical sciences humans have perceptions and attitudes that simultaneously transform the forces acting on them. (xxiv) Instead of knowledge, market participants start with a bias. Either reflexivity works to correct the bias, in which case you have a tendency toward equilibrium, or the bias can be reinforced by a reflexive feedback, in which case markets can move quite far from equilibrium without showing any tendency to return to the point from which they started. (xxiv) -while scientists have a one-way relationship with the natural world, Soros argues that the relationship between participants and the economy is a two-way relationship: Not so in the case of thinking participants. There is a two-way connection. On the one hand, participants seek to understand the situation in which they participate. They seek to form a picture that corresponds to reality. I call this the passive or cognitive function. On the other hand, they seek to make an impact, to mold reality to their desires. I call this the active or participating function. When both functions are at work at the same time, I call the situation reflexive. I use the word in the same way as the French do when they describe the verb as reflexive when it has its subject as its object: Je me lave (I was myself). (7) -Soros also suggests that history is reflexive, as well: Reflexivity is not confined to financial markets; it is present in every historical process. Indeed, it is reflexivity that makes a process truly historical. (8) This suggests a constructivist attitude toward history -Soros discusses indeterminacy, which is just his rewording of imperfect information (9-10) -Empirical studies in decision making have shown that even in matters of individual preference peoples behavior does not conform to the requirements of economic theory. The evidence indicates that instead of being consistent and constant, peoples preferences vary depending on how they frame their decision problems. (45) This is a convincing argument history is replete with poor decision-making based on imperfect information, exuberant behavior, cultural conformism, etc. Open Society as Savior -I argue that the global capitalist system is a distorted form of an open society and its excesses could be corrected if the principles of open society were better understand and more widely supported. (xxii) -traditionally, an open society was defined in contrast to a closed society, which was embodied by the Soviet Union. However, Soros remarks that open society is now threatened by market fundamentalism: After the collapse of the Soviet system, open society, with its emphasis on freedom, democracy, and the rule of law, lost much of its appeal as an organizing principle and global capitalism emerged triumphant. (xxii) Quarrel with this: Soros treats the former values as divorced from capitalism. Despite the fact that crony capitalism is at odds with these principles, it is not fair to say that the collapse of the Soviet Union was followed by a global disregard for democracy and the rule of law. The contrary is much truer. Is Soros saying anything new? The literature is replete with authors trying to moralize capitalism, warning of excess: Smith, Schumpeter, Krugman, Schiff, etc.

-Open society is based on the recognition that our understanding is imperfect and our actions have unintended consequences. All our institutional arrangements are liable to be flawed and just because we find them wanting we should not abandon them. Rather we should create institutions with error-correcting mechanisms built in. (xxix) -To stabilize and regulate a truly global economy, we need some global system of political decision making. In short, we need a global society to support our global economy. A global society does not mean a global state. To abolish the existence of states is neither feasible nor desirable; but insofar as there are collective interests that transcend state boundaries, the sovereignty of states must be subordinated to international law and international institutions. (xxix) The concept of open society is based on the recognition of our fallibility. Nobody is in possession of the ultimate truth. (4) -Open society is always endangered but the threat at this moment in history comes more from instability than from totalitarian rule, more from a deficiency of shared social values than from a repressive ideology. (82) -No longer is there any need to profess moral principles other than self-interest. Success is admired above all other considerations. Politicians gain recognition for getting elected, not for the principles they represent. Businesspeople are esteemed for their wealth, not for their probity or the contribution of their business to social and economic well-being. What is right has been subordinated to what is effective and this has made it easier to succeed without paying any heed to what is right. Needless to say, I see a grave danger here to the stability of our society. (83) Quarrel with this: has it ever been different? History is replete with examples of hubris from the Greeks to the Romans, with moral dilemma from Socrates through Shakespeare to Mill and Marx, etc. -Fallibility gives rise to political and economic crisis. It is in our common interest to avoid such conditions. Here is the common ground on which a global society can be built. It means accepting open society as a desirable form of social organization. (85) -We need to begin the reconstruction of morality and social values by accepting their reflexive character. Doing so will lead directly to the concept of open society as a desirable form of social organization. As fallibility and reflexivity are universal concepts, they should provide common gound for all people living in the world. (90) -A participatory democracy and a market economy are essential ingredients of an open society, as is a mechanism for regulating markets, particularly financial markets, as well as some arrangements for preserving peace and law and order on a global scale. (95) -Soros likens the idea of accepting an open society to the Declaration of Independence: All we need to do is to replace, in the first sentence, These truths are held to be self-evident, with We have chosen to adopt these principles as self-evident truths. This means that we are not obeying the dictates of reason but making a deliberate choice. (95) -perhaps the most convincing argument that Soros puts forth is that self-interested individuals benefit from an open society: We cannot live as isolated individuals. As market participants, we serve our selfinterest, but it does not serve our self-interest to be nothing but market participants. We need to be concerned with the society in which we live, and when it comes to collective decisions we ought to be guided by the interests of society as a whole rather than our narrow self-interest. (96-97) Quarrel with this: while Soros challenges the fundamental belief of many economists, I believe that it is more important to question his unfaith in self-interest, particularly his description of self-interest as narrow (however, Soros could be referring to narrow self-interest relative to society) Critical Analysis -Market fundamentalism endangers the open society inadvertently by misinterpreting how markets work and giving them an unduly large role to play. (xxiii) Are they really? Or is it the contrary? I.e. is human nature primarily fueled by greed and competition, or is it more malleable and humane, as Soros suggests. Try to incorporate former Secretary of Defense, Robert McNamaras quote from The Fog of War: You cant change human nature.

-Equilibrium theory in economics is based on a false analogy with physics. Physical objects move the way they move irrespective of what anybody thinks. But financial markets are actively creating the reailty that they, in turn, reflect. (xxiii) While this is scientifically true, Soros treatment of equilibrium theory is fundamentally incorrect: economists do not regularly disregard distortions, such as asymmetrical information. Further, there exists the possibility of multiple equilibriums. Nevertheless, this may be to the helm of market fundamentalists. General equilibrium theory suggests that markets will stabilize when they reach pareto-optimal levels, which does not necessarily mean that everyone is better off. It is possible for a scenario to exist where 100% of the wealth if held by only one person and this can be considered an equilibrium -I have to confess that I am not familiar with the prevailing theories about efficient markets and rational expectations, I consider them irrelevant and I never bother to study them because I seemed to get along quite well without them. (41) This may be proof of Soros argument -Human beings respond to the economic, social, and political forces in their environment, but unlike the inanimate particles of the physical sciences humans have perceptions and attitudes that simultaneously transform the forces acting on them. (xxiv) Instead of knowledge, market participants start with a bias. Either reflexivity works to correct the bias, in which case you have a tendency toward equilibrium, or the bias can be reinforced by a reflexive feedback, in which case markets can move quite far from equilibrium without showing any tendency to return to the point from which they started. (xxiv) Quarrel with this: challenge Soros unfaith in equilibrium, when he suggests that reflexivity drives toward equilibrium. In addition to this, challenge Soros theory of reflexivity in general: is this not general equilibrium theory? Whats different? General equilibrium theory states that there exists a price for assets; however, does Soros disprove this theory? I dont think he does. Rather, I think he rediscovers Marxs idea of fictitious capital. The problem doesnt seem to be capitalism. Instead, the problem seems to be the financial world, which is turbulent. The turbulence will eventually reach equilibrium (which is dynamic), but it may not be optimal for all participants (which, to Soros credit, may be the defining point of his argument for reconciling the economic with the social) -If people could act on the basis of scientifically valid knowledge, then different investors would not be buying and selling the same stocks at the same time. Participants cannot predict the outcome of their decisions in the way scientists can predict the movement of celestial bodies. The outcome is liable to diverge from their expectations, introducing an element of indeterminacy that is peculiar to social events. (6) Quarrel with this: there exists the possibility of stockholders entering or exiting the market for various different reasons. Not every buyer or seller is interested in the same path to growth. Nevertheless, equilibrium theory does not state that all participants behave uniformly. Quite the contrary. The basis of the general theorem states that several participants will act in their own self-interest (refuting Soros objection of buyers/sellers), in turn producing an equilibrium. Further, the celestial bodies may be just as unstable as the global economy scientists have been wrong countless times before and we are encountering new problems, such as global warming) -But what if price movements themselves change the willingness of buyers and sellers to trade their goods at given prices, for example, because they expect the price to rise further in the near future? This possibility, which is the dominant fact of life in financial markets and also in industries with rapidly advancing technologies, is simply assumed away. (37) Quarrel with this: is it assumed away? Or is this simply disguised as the process of achieving equilibrium? -The development of a global economy has not been matched by the development of a global society. The basic unit for political and social life remains the nation-state. The relationship between the center and periphery is also profoundly unequal. If and when the global economy falters, political pressures are liable to tear it apart. (102) -In some ways, the nineteenth-century version of the global capitalist system was more stable than the current one. It has a single currency, gold; today there are three major currencies crashing against each other like continental plates. There were imperial powers, Britain foremost among them, that derived enough benefits from being at the center of the global capitalist system to justify dispatching gunboats to faraway places to preserve the peace or collect debts; today the Untied States refuses to act as the police

force of the world. More important, people were more firmly rooted in fundamental values than they are today. (125) Quarrel with this: despite the fact that I believe Soros is correct, it is possible that the end of the nineteenth-century version of the global capitalist system produced a global disequilibrium that is still driving towards stabilization Additional notes on fixing the problem -Soros suggests that the global economy needs a confidence boost: Liquidity must be pumped more directly into the periphery. It needs to be done very urgently because Brazil is still suffering from the flight of both external and domestic capital and cannot live with sky-high interest rates much longer. Interest rates inside Korea and Thailand have declined, but the risk premium on the external debt of all periphery countries remains prohibitive. (176) -Soros also suggests the development of an international insurance corporation, titled the International Credit Insurance Corporation or the establishment of a fund that would resupply periphery countries with credit during bust periods: Loan guarantees could be made available to countries like Korea, Thailand, and Brazil and they would have an immediate calming effect on international financial markets. (177) Quarrel with this: doesnt the possibility exist that investors would regard to loan guarantees as a distraction, as opposed to a solution? For example, there exists the potential that emergency loans could produce severe speculation. However, Soros does suggest that this would reduce the likelihood that global powers like the US and the EU would have to lower domestic interest rates. This would allow for a significant buffer zone between boom and bust -Soros suggests regulating the loan programs that the IMF and World Bank pursue in a similar fashion to the way that US banks were regulated after the Great Depression: The guarantees ought to be channeled through authorized banks that would compete with each other. The banks would have to be closely supervised and prohibited from engaging in other lines of business that could give rise to unsound credits and conflicts of interest. The banks would have to be reasonably well capitalized in order to provide a cushion against losses on individual credits. (183) -Currency board, to mitigate against speculation (185) -Let me state the argument. Profit-maximizing behavior follows the dictates of expediency and ignores the demands of morality. Financial markets are not immoral; they are amoral. By contrast, collective decision making cannot function properly without drawing a distinction between right and wrong. We do not know what is right. (208) -Soros hints at the establishment of some form of international order: Democratic states are organized according to the principles of open society at least in principle. A code of conduct is established in the form of laws, which can be revised and refined in the light of experience. The state is under the control of society and not above the law. What is lacking is the rule of international law. How can it be accomplished? Only through cooperation of democratic states that are controlled by their societies. They would have to yield some of their sovereignty to establish the rule of international law and find some ways to induce other states to do the same. Intervening in the internal affairs of another state is fraught with danger, but not intervening may do even more harm. (225) Quarrel with this: how come the nation is so sanctimonious? What about the individual? When does it end?

Soros ends by moralizing the story: he discusses the need for more integration (drawing on the EU, the US, and the UN) and then discusses the impact of disease and drug abuse.