Soros on American Fallibility

George Soros has assigned himself a daunting mission. "Changing the attitude and policies of the United States remains my top priority," he writes in the introduction to his latest book, " The Age of Fallibility " ( PublicAffairs ). The billionaire investor is set on convincing Americans to renounce the idea of a "war on terror" because he believes that an "endless" war against an invisible enemy is counterproductive and dangerous. He argues that since the attacks of September 11, the Bush administration has suffered from a kind of infallibility complex which impedes progress and obscures reality.

While Soros has promoted political change around the world—particularly in the former Soviet Union—he hasn't yet succeeded in his quest to crack the conservative hold on American politics. He spent more than $25 million trying to unseat president Bush in 2004. Despite that defeat, the Hungarian-born philanthropist is encouraged that American public opinion has turned against the administration's policies in Iraq and says he will throw his support behind the Democrats in this fall's midterm elections. NEWSWEEK's Susanna Schrobsdorff spoke to Soros about American foreign policy, oil and the American economy. Excerpts:

NEWSWEEK: You say that the main obstacle to a stable and just world is the United States. That's a pretty strong statement.

George Soros: Yes, but it happens to coincide with the prevailing opinion in the world. And I think that's rather shocking for Americans to hear. The United States sets the agenda for the world. And the rest of the world has to respond to that agenda. By declaring a "war on terror" after September the 11th, we set the wrong agenda for the world. This is something that people in America find difficult to understand because war seems like the natural response.

Why is a "war on terror" the wrong response to the attacks on the United States?

First of all because when you wage war, you inevitably create innocent victims. When you wage war on terrorists who don't announce their whereabouts, the danger of hitting the innocent people is even greater. We abhor terrorists, because they kill innocent people for political goals. But by waging war on terror we are doing the same thing. And the people who are on the receiving end see us in the same light with the same negative attitude as we have towards terrorists. It's also a threat to our democracy. Because when you wage war, the president can appropriate for himself excessive powers. He can call anyone who criticizes his policies unpatriotic. That undermines the critical process of an open society and that is how we made this tremendous blunder of invading Iraq.

Polls indicate that American public opinion on Iraq has changed.

People in America now realize that the invasion of Iraq was a disaster. But we still think that the war on terror is the natural and obvious way to deal with the terrorist threat. But it's a counterproductive policy that has done untold damage to our standing in the world and to ourselves. No outside power, or alliance of powers could really endanger our dominant position, but our own stupidity can do it and has done [it].

You've gotten some flak for comparing Republican election tactics to Nazi propaganda. Do you consider yourself patriotic?

Yes. I chose America as the country I want to live in. America has set certain standards of behavior which we have lately abandoned. But those values attracted millions of immigrants and we need to recapture them.

You spent tens of millions of dollars working to defeat Republicans in 2004. Are you planning to spend as much on this fall's elections?

I will put in the maximum that is legally permitted. It's very important to recapture at least one of the two houses [of Congress]. And I'm also supporting "America Votes," which is an association of several civil-society organizations—the three main components of which are environmentalists, women's organizations and trade unions.

Are you supporting any particular candidate in the next presidential election?

I think '08 is a long way away. By '08 hopefully a constructive agenda will emerge. The Democrats have started talking about the idea that there are some common goods that need to be provided through the political process and that we can't rely on the market mechanism to allocate resources. What I'm advocating in the book is that we have to apply this internationally. If we want to be the dominant power in the world, then we have a unique responsibility to consider the common needs of humanity in addition to pursuing our national interests.

Democrats in Congress are pushing for a timetable for the withdrawal of U.S. troops from Iraq. Do you think that's wise?

It think it's probably unwise to have a specific timetable, because while we must withdraw as soon as we can, we must withdraw in an orderly fashion. We are sitting on an insipient civil war. And it could actually deteriorate into a regional war which could then destabilize the whole Middle East.

Isn't the Middle East already pretty unstable?

Not only is the Middle East unstable, but the whole world order has been shaken as a result of the Bush administration's policies. They have taken a nationalist approach and nationalism is spreading throughout the world. It is a very unstable world.

How is this situation affecting the global economy?

We are facing a global energy crisis which is very complex because it has many ingredients, starting with global warming and the peaking of oil discoveries. And there's the dependence of many of the major industrial countries on sources of energy from politically unstable areas of the world and the behavior of some of the energy rich countries like Iran and Venezuela and Russia exploiting the high price of oil and their control of the supply. So we are in fact in a global energy crisis. That instability has certainly added $20-$30 to the price of oil.

What's the biggest threat to the health of the American economy?

The puncturing of the housing bubble is the most immediate danger. U.S. households have a negative savings rate because of the double-digit appreciation in houses. That created equity that people have been withdrawing [in the form of home equity loans and cash-out refinancing]. They withdrew $900 billion last year which is an amount even larger than our trade deficit. People spent some of that money because they feel rich, and excess spending by U.S. consumers has been the main motor of the world economy. Now the music has stopped. House prices have stopped rising at such a rapid rate. They may in fact fall temporarily because of the rise in interest rates. That would cause a worldwide slowdown. With falling house prices, consumers will feel the need to increase their savings. The savings rate is about 5 percent lower than normal now. When you go back to a normal savings rate, then that 5 percent falls out of the economy, causing the slowdown.

Is there nothing we can to let the air out of the housing bubble more slowly?

It's a little bit like a Greek tragedy. It just has to unfold, then you can take measures. Right now you have inflationary pressures building up and that is forcing the Federal Reserve to keep raising interest rates, and the more they raise rates, the more house prices will be depressed. The Federal Reserve is aware of this and is not eager to raise interest rates, but they can't avoid it.