A Billionaire on a Mission Financier and philanthropist George Soros says the U.S. is on a perilous path--and he's putting his money where his mouth is
By Ron Insana; George Soros

(MONEY Magazine) – Until recently, if you heard the name George Soros you'd have thought of the man who made a killing "breaking the Bank of England" in 1992 with a bet against the British pound--and reaped billions by making other prescient bets on the direction of world stock, bond and currency markets. But mention the Hungarian-born financier's name today, and many people think of a man intent on spurring change in the political capital of the Western world, Washington, D.C.

Soros' efforts to foster open societies and free markets outside the U.S. have generally made him popular in Washington. But his stance these days will make him welcome only in Democratic circles. His newest book, The Bubble of American Supremacy, suggests that the U.S. is about to suffer a serious decline because of the Bush administration's foreign and economic policies. That, and his donation of millions to so-called 527 groups--named for the section of tax law that governs them--associated with causes dear to Democrats (see page 48), is sure to create even more of a stir than his market-moving calls of the past have.

INSANA: What bothers you about the President's economic policies? It appears that the economy is growing, thanks not only to low interest rates from the Fed but to the tax cuts as well.

SOROS: The policies are very shortsighted, particularly in going from a budget surplus to a budget deficit. The tax cuts might have some beneficial effect in stimulating the economy in the short term but are bound to have very negative effects in the medium and the long terms.

What we have is a profitable but jobless recovery. And the reason for that is that we have used tax cuts as the major incentive for recovery. Tax cuts don't create jobs, especially when new investments go abroad.

Q. You're alluding to offshore outsourcing, which is a political hot potato. Congress is moving toward passing laws that would encourage job creation at home or penalize companies that move jobs overseas. Is that a good idea?

A. It has political appeal, but it's a very shortsighted policy because international trade and globalization bring greater benefits than losses. However, the losses are real, and it is the job of the government to create more jobs than are being lost through globalization.

Q. You've given a lot of money to groups that people associate with pursuing Democratic causes. How would, say, John Kerry create jobs?

A. I don't know what he'll do, but I'll tell you what I think he should do. He should reverse the tax cuts for those who earn more than $200,000. It will reduce the deficit and make money available for stimulating job creation.

A TOUGH 2005

Q. And how should that money be used?

A. Well, there's not enough support from the federal government for state governments, so state governments have had to cut services, and that should be reversed. There should be more money for education, and there could be subsidies for developing alternate sources of energy so that we would create jobs and reduce our dependence on Middle Eastern oil.

Q. Are you seeing any economic imbalances in the U.S. or elsewhere in the world that concern you?

A. I'm totally convinced that 2005 will be a much more difficult year economically than 2004, because everything has been done to pump up the economy for the elections. And there will be adverse consequences in the subsequent years.

Q. The U.S. stock market has lost some ground in recent weeks but is still up significantly over the last 15 months or so. Is a bubble brewing again?

A. I don't want to overuse the term "bubble." The market may be fully priced, but it certainly is not as far from equilibrium as it was in 2000.

Q. And what about China's spectacular growth? Is that sustainable?

A. China has encouraged very rapid growth and purchases of raw materials in order to pre-empt protectionist pressures during an election year in the U.S. Capital spending in China represents something like 44% of the GNP [gross national product], and that's untenable. That's one reason why 2005 is going to see a slower growth rate.


Q. You have been known most of your life for your views on financial markets. Why are you now spending so much money to make your views on politics equally well known?

A. I believe the Bush administration is taking us and the world in the wrong direction. The doctrine of unilateral pre-emptive action is not the platform on which Bush was elected. If he now endorses its application in Iraq, then we will have to accept responsibility and live with the consequences. If we reject the Bush doctrine in the coming election, then we can claim it was a temporary aberration brought on by the shock and trauma of Sept. 11, and we can resume our rightful place as a powerful but peace-loving nation.

Q. If indeed the Bush doctrines were rejected, what do you think the appropriate course of action would be?

A. First of all, we cannot make the war on terror our sole or even primary objective for foreign policy; we have much greater responsibilities. If we are the dominant power in the world, the problems confronting us cannot be solved without American leadership and a more multilateral foreign policy [on the part of the U.S.].

The U.S. should think of using military force as a last resort. It ought to do a lot more intervening in a constructive and affirmative manner, reinforcing countries and regimes that are moving toward democracy and market economies. There, we are not offering enough incentives, and we don't sufficiently empower the countries that are trying to improve [the lives of their citizens]. There's a lack of balance between carrots and sticks--not enough carrots.

Second, where you need to use sticks, you need to do it on the basis of some legitimate and well-established rule or agreement. You cannot do it in an arbitrary and unilateral fashion because that destroys the international order, weak as it is.