1 Please note the difference in the way I use the words “knowledge” and “understanding.” I do not want to define the difference—because it would get me into no end of trouble—so I will only indicate it. Knowledge is meant to be objective, understanding is admittedly subjective. Knowledge is connected with the correspondence theory of truth and scientific method; understanding is more personal and more biased. I say more biased because knowledge cannot avoid being biased either. Where knowledge is unattainable, we have to fall back on understanding.
2 In the course of this discussion, I shall use the notion of equilibrium in various senses. Here I am referring to “rational expectations equilibrium” which assumes that apart from random deviations, market participants’ expectations conform to an economist’s model. Later I shall use it in the broader sense of perceptions corresponding to reality. Elsewhere I allude to a general equilibrium that assures the optimum allocation of resources. In all these senses equilibrium is unattainable. There is also the simple notion of an equilibrium price which clears the market; that equilibrium prevails in well-functioning markets all the time.
3 Some important thinkers in twentieth century economics, however, recognized that knowledge is imperfect and that this leads to fundamental difficulties in defining economic rationality. For example, in his critique of socialist planning, Friedrich Hayek argued that there is a fundamental distinction between individual rationality and “the utilization of knowledge which is not given to anyone in totality.” See Individualism and Economic Order (Chicago: University of Chicago Press, 1948). For related arguments, see Frank Knight, Risk, Uncertainty and Profit (Boston: Houghton Mifflin, 1921), and John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Harcourt, Brace, 1936).
4 One exception is Roman Frydman. See Roman Frydman and Michael D. Goldberg, Imperfect Knowledge Economics: Exchange Rates and Risk (Princeton, NJ: Princeton University Press, forthcoming 2007). The concept of reflexivity is better recognized in sociology. Alvin Gouldner, in his book published in 1970, The Coming Crisis of Western Sociology (New York: Basic Books), called for a “reflexive sociology”—which subsequently became an influential current in sociology in the 1970s and 1980s—because he recognized that sociologists are important actors in the social and political events they describe, and their engagement in the world changes the processes they study. Anthony Giddens argued that “social science is actively bound up with its subject matter, which in some part it helps reflexively to constitute”. See Modernity and Self-Identity: Self and Society in the Late Modern Age (Stanford, CA: Stanford University Press, 1991). Harold Garfinkel, the most prominent representative of ethnomethodology, has contended that sociologists are like goldfish swimming in a bowl, confidently analyzing other goldfish, without having ever stopped to recognize the bowl and the water they have in common with the fish they study.
See also: An Invitation to Reflexive Sociology by Pierre Bourdieu and Loic Wacquant (Chicago: University of Chicago Press, 1992).
5 My previous books, to which I often refer, are listed at the front of the book.
6 Tor Norretranders, The User Illusion: Cutting Consciousness Down to Size (New York: Penguin, 1999).
7 Antonio Damasio, Descartes’ Error: Emotion, Reason, and the Human Brain (New York: Penguin Putnam, 1994).
8 George Lakoff and Mark Johnson, Philosophy in the Flesh: The Embodied Mind and Its Challenge to Western Thought (New York: Basic Books, 1999).
9 Tivadar Soros, Masquerade: Dancing Around Death in Nazi-Occupied Hungary (New York: Arcade Publishing, Inc., 2001). Originally published in Esperanto, Maskerado Ĉirkaŭ la Morto: Nazimondo en Hungarujo (J. Régulo, 1965 and Rotterdam: Universala Esperanto-Asocio, 2001).
10 For a more detailed account, see my Opening The Soviet System (London: Weidenfeld and Nicolson, 1990; privately republished, 2000), or Underwriting Democracy (New York: PublicAffairs, 2004).
11 Stephen Holmes, “What Russia Teaches Us Now: How Weak States Threaten Freedom,” American Prospect (July-August 1997): 3039.
12 U.S.A. PATRIOT stands for “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism.”
13 Erich Fromm, Escape from Freedom (New York: Holt, Rinehart and Winston, Inc.,1941).
14 Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan, 1932).
15 A four-part series on BBC Television, The Century of the Self, directed by Adam Curtis, produced by RDF Media for BBC Two, 2002.
16 In the last two paragraphs, I have drawn heavily on Harold Koh’s speech to the American Constitution Society.
18 I have since learned that car financing can extend to eighty-four months. This renders car owners’ equity always negative.
19 That was true with regard to North Korea as well. What made military action impractical is that the capital of South Korea, Seoul, is within artillery range of North Korea and millions of South Koreans would be killed before the United States could destroy North Korea’s military power.
20 Amartya Sen, Development as Freedom (New York: Alfred A. Knopf, 1999).
21 George Soros, The Bubble of American Supremacy (New York: PublicAffairs, 2003).
22 George Soros, “Assembling Afghanistan,” Washington Post, December 3, 2001.
23 I took practical measures to back up my opinions. My foundation provided seed money to a working group led by Ashraf Ghani, an Afghan World Bank official, and Barnett R. Rubin, an American expert on Afghanistan, to make plans for a political transition. They played an important role in preparing the Bonn conference and the Loya Jirga, which laid the legal foundations for a democratic state. Ashraf Ghani then became finance minister and we set up a capacity-building fund under his supervision to attract other expatriates to return to Afghanistan and work in the government. Ashraf Ghani lost his job after the elections and eventually the fund ran its course and was not refinanced. We continue to support civil society through groups such as the Foundation for Culture and Civil Society. Of course, these meager efforts were not able to make much difference to the way events unfolded. Ghani is now director of the University of Kabul.
24 Paul Collier and Anke Hoeffler, “Oil Democracies” (University of Oxford, Department of Economics, June 14, 2005, p. 2)
25 This statement is no longer valid, due to the G7 communiqué on April 22, 2006.
26 Robert Kagan, Of Paradise and Power: America and Europe in the New World Order (New York: Alfred A. Knopf, 2003).
27 But private foundations in the U.S., benefiting from favorable tax rules, contribute a lot more than European foundations.
28 Transparency International also received funding from us in its earlier days.
29 Giant field is defined as 30 billion barrels plus. See Roger D. Blanchard, The Future of Global Oil Production (Jefferson, North Carolina: McFarland & Co., Inc., 2005). Also see Matthew R. Simmons, Twilight in the Desert—The Coming Saudi Oil Shock and the World Economy (Hoboken, NJ: John Wiley & Sons Inc., 2005).
30 Andrei Piontkovsky, “Putin’s Plan for Conflict with Iran”, The Jerusalem Post, February 1, 2006.
32 Sergei Ivanov, “Russia Must be Strong,” The Wall Street Journal, January 11, 2006; and Sergei Lavrov, “Russia in Global Affairs,” Moscow News, March 10, 2006.
33 “Russia Helps Israel Keep an Eye on Iran,” The New York Times, April 25, 2006 (Moscow: Associated Press).