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"You need a new approach with different methods and also different criteria of what is acceptable."
Billionaire philanthropist and Democrat bankroller George Soros in a short (but telling) interview with the Institute for New Economic Thinking said we need to change the way we think about economic policy and start over again “from the ground-up.”
"Economic theory has to be rethought from the ground up, because the prevailing paradigm of the efficient-market hypothesis*, rational-choice theory**, has actually run into bankruptcy very similar to the bankruptcy of the global financial system after Lehman Brothers," Soros said.
He went on to argue that economists have it all wrong because they try to produce “theories that behave like laws in Newtonian physics,” INET explains.
Soros doesn’t believe this possible.
"[E]conomics has been trying to come up with universally valid laws similar to Newtonian physics, and that is an impossibility," he said.
"You need a new approach with different methods and also different criteria of what is acceptable," Soros said, adding that any new economic thinking should focus on “real-world policy questions” rather than mathematical equations.
He concluded by stressing that the international community must develop new ways of thinking about economic policy.
That is "primarily directed at the economic departments of universities, but it has to also address the burning policy issues," he said.
*Definition of the “efficient market” hypothesis:
An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.
** Definition of “rational-choice theory”:
An economic principle that assumes that individuals always make prudent and logical decisions that provide them with the greatest benefit or satisfaction and that are in their highest self-interest. Most mainstream economic assumptions and theories are based on rational choice theory.
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(H/T: MoneyNews). Featured image screen grab.
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