Yves here. I’m featuring the key portion of a post by Varoufakis, which is his rough reconstruction of the conclusion of an unscripted talk before the Caledonian Club in London on “Global and European Recovery: What Will it Take?”
By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his blog
Ladies and gentlemen, the world after 2008 cannot be made sense of in the language and by means of the narratives that preceded 2008. We are in uncharted territory now and we need to create a new discourse.
Before 2008, we based our growth on what turned out to be a global Ponzi scheme; a global surplus recycling mechanism that was bound to buckle under its own hubris. Aided and abetted by what I term toxic economic theory (a particularly pernicious form of ideology), the US, Britain and the Eurozone were pretending to be living the dream of some Great Moderation – when the reality could not have been more immoderate.
After 2008, Post-Credit Crunch, both Europe and Britain turned to Ponzi Austerity, pretending that growth will come when new debts are created on condition of more income-sapping, universal austerity – hoping to free-ride on growth that comes from America or Asia. Alas, it won’t happen. Europe cannot eschew its responsibility to help restore global growth.
However, while designing the Recovery, we better beware: The return to growth should not come at any price. What grows matters. We want growth in sectors that generate good things that humanity needs more of and a deep deflation of the toxic sectors that make life nasty, brutish and short – from physical pollutants to real estate bubbles and toxic derivatives.
We must aim at the mobilisation of idle savings into medium to long-term investments that serve genuine human needs – rather than producing new bubbles for the purpose of dealing with the ill effects of previous bubbles that burst disastrously. None of this will be accomplished by markets caught up in an equilibrium of fear that is reinforced daily by universal austerity. Equally, none of it will happen unless public investment takes markets seriously.
Lastly, permit me to finish on a note appropriate to the great debates that take place in this fine building concerning this country’s role in Europe and with regard to your attitude to the Eurozone – to the currency union whose on-going disintegration is threatening to push us all into the mists of a long Winter of Global Discontent.
Like many of you here tonight, who happen to share a Eurosceptic disposition, I too think that we Europeans created a monster in the form of the Eurozone. And just like Mary Shelley’s Dr Frankenstein, whose intentions were not all bad, we now find ourselves unable to control our creation, the euro – a vicious beast that is wrecking our neighbourhood with reckless abandon.
But my message to my Eurosceptic friends, of both the Left and the Right, both here in Britain and in my own country, is this: Beware what you are wishing for. For the cruellest God is the one who grants us our wishes.
We may wish that inane Euro-loyalists get their comeuppance; that they learn their lesson the hard way, watching their ill-conceived Euro perish. But, tragically, if this happens, the pain will spread far and wide and the vast majority of victims will be outside the Eurozone and will suffer far more than the Eurocrats ever will.
If we fail to fix the Eurozone, Europe will most probably inflict, for the third time in a century, an unnecessary calamity upon humanity. My great fear, and conviction, is that, today, Europe’s worst enemies are the Euroloyalists who profess to serve and to believe in it. Not the Eurosceptics. Europe needs Eurosceptics, or better Eurocritics, to be at its centre. To stop deluding themselves that they can sit this one out.
After all, no economy is an island.
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This a very sad piece about a very ugly reality. It is written beautifully, concisely and truly. Yanis, you have my vote on Tuesday.
“Europe will most probably inflict, for the third time in a century, an unnecessary calamity upon humanity”.
Europe is not anymore central enough to trigger a World War. Neither WW is possible either.
However if what he fears is fascism, then yes: it is penetrating deeply fed by the megacrisis…
But we must ask ourselves anyhow: can authoritarian unimaginative fascism offer any solution? In the 1920s and 30s fascism used Keynesian recipes to get out from the crisis, what in the most dramatic German case unavoidably required war to grab some colonies in Russia, etc.
Today war, major war, is not an option, and Keynesian inflationary policies, in spite of all the nostalgic chore, is dead because, as Keynes himself kenw well, it borrowed from the future, a future that in his memorable words “would take care of its own affairs”.
That future is now.
And this future needs urgently new economics and new politics, which must be eco-socialist. Capitalism is predatory and has already reached its global limits, with no realistic hope of expanding our limited Earthly ecosystem any time soon.
The only way that Europe can bounce from this disaster with no end in sight, is by developing an eco-socialist revolution and changing the terms of the game altogether. Otherwise it will remain in persistent and sharp decadence with terrible effects on all us.
No fascism and no war can solve that.
He is not saying a world war. He said “calamity”.
Europe is the biggest economy in the world, and a disorderly breakup of the Eurozone would have devastating economic consequences.
There’s also no such thing as borrowing from the future, but let’s not spoil his fantasy.
Ben Johannson said,
“There’s also no such thing as borrowing from the future, but let’s not spoil his fantasy.”
True. There is no such thing as borrowing from the future. But cheap oil is gone (a free lunch from god). Keynesian stimulus won’t bring back growth (need cheap oil for that).
see more at:
http://www.economic-undertow.com/2012/10/08/mother-of-all-free-lunches/
mansoor h. khan
One does not have to look far to find evidence of depleting fishing stocks, accelerated extinctions of species, water shortages and atmospheric changes to realize that we are using up natural resources at a rapid rate…. cough “borrowing from the future” or as I like, to put it bluntly… killing the future for not only our species… but… most of the rest of the living stuff on this Earth.
“Let’s start with the rationale. The argument is most fully developed by US economist Duncan Foley, but is also made by Nick Stern of the LSE. The starting point is that in advanced economies successive generations tend to get better off over time. For example, at the depths of the 1930s depression Keynes observed that despite the general gloom, he was confident that 100 years in the future, people might be eight times better off in real terms. And indeed average GDP per capita in the UK is now already about 5 times what it was in the 1930s. By extension, we would normally expect future generations to be better off than us in GDP terms.
However, the sting is in the tail, i.e. the “GDP terms”. GDP takes no account of the running down of ecological systems on which the economy depends, sometimes referred to by economists as “natural capital”. By pumping CO2 and other GHGs into the atmosphere, we are running down the natural capital of a stable climate and sea levels, at a rate we do not fully understand. Thus once we take climate change into account, we can expect future generations to be a lot less well off than we thought.
The converse of this point is that, if we in this generation mitigate climate change, we will allow future generations to have a higher standard of living than they would have if we did nothing. We are very slowly beginning to do this, with policies being introduced to encourage us to invest less in conventional capital (e.g. fossil fuel power stations) and more in investments that effectively maintain natural capital (like renewable energy).
At the moment we are paying for these more expensive investments through reduced consumption, in the form of higher energy bills. If instead we were to borrow a certain amount of money from future generations (who will have to repay through their taxes) and use this money to pay the extra cost of renewables, carbon capture and storage and so on, then the theory says it should be possible to make both our generation and future generations better off. Politicans often focus on the fact that incurring public debt burdens future generations. But destroying the natural capital of a stable climate will burden them even more.” snip
http://politicalclimate.net/2010/10/19/borrowing-from-the-future-long-and-a-bit-heavy-going/
Natural Capital Committee???
http://www.defra.gov.uk/naturalcapitalcommittee/2012/03/21/defra-appoints-dieter-helm210312/
“In the first three decades of the post-war world, the (mainly Keynesian) state was concerned with managing the business cycle, organising transfers from rich to poor and providing public services. Following the crisis of the 1970s, a shift of focus to efficiency and mass privatisation, the nature of the state changed to a mainly regulatory role. But, argues Helm:
“In the second decade of the twenty-first century…the key challenge is not only to deal with the immediate issues of debt and the deficits, but also the wider issues, from pensions and care for ageing populations, through to the environment. Not only is it widely agreed (at least politically) that current debt levels and deficits are unsustainable, but the provisions for future pensions and health, and the protection of the atmosphere and biodiversity have moved from being specialist interests into the mainstream… They share one key feature: they are all long term and intergenerational in character. The economic borders of the state….are currently not designed with this intergenerational perspective to the fore.” snip
http://politicalclimate.net/2012/03/27/the-politics-of-the-sustainable-state/
Skippy… Khan you and Ben need to expand your knowledge base… seriously.
Skippy.
Thanks for the Coaching. I will study and think about this stuff more.
Mansoor
Please don’t attempt to pander to me with those, canned responses.
Skippy… loath telemarketers… especially the theological ones.
We’re not “borrowing” from the future. We’re actually “Stealing” from the future.
Thanks skippy….
So, skip – what do you think of Herman Daly’s stuff on ecological economics and all?
He said…
On January 14, 1994, Herman Daly, Senior Economist in the Environment Department of the World Bank resigned after six years of work at the institution. He invited a number of World Bank economists and the press to a farewell speech in which he prescribed that the Bank take “a few antacids and laxatives to cure the combination of managerial flatulence and organizational constipation giving rise to such a high-pressure internal environment” and to improve interactions with the external world he prescribed “new eyeglasses and a hearing aid.” We present the entire speech below…
http://www.whirledbank.org/ourwords/daly.html
As a graduate student, Daly believed that growth would solve mankind’s problems, but three experiences radically transformed his outlook. He studied under the economist Nicholas Georgescu-Roegen (1906-1994), whose book The Entropy Law and the Economic Process (1971) explained the decisive economic importance of the second law of thermodynamics (the entropy law) in a closed system, the availability of useful energy always declines. Georgescu-Roegen argued that the economic process transforms natural resources into waste — that is, transforms matter-energy from a state of low entropy into a state of high entropy. Georgescu-Roegen’s great contribution, Daly observes, was “reuniting economics with its biophysical foundations.” Teaching in Brazil in the late 1960s, Daly observed explosive population growth firsthand. Reading Rachel Carson’s Silent Spring was also influential.
http://www.thesocialcontract.com/artman2/publish/tsc1303/article_1138.shtml
Skippy… Um… At least his Vanderbilt Ph.D gave him – some sway – in an other wise group think environment.
The problem seems to be letting go of – dead – ideology… hell paramedics give it a go too 90 year old’s, just for show… the morbidity rate is just too high and even if you can resus, its only temporary. 12 leads don’t lie, if the heart is too damaged, its just a matter of time, cascading effect occurs through out the body. Its just done for the kids and on lookers…. sigh….
PS. Everything will be *tried*… until the stench is just to overwhelming to suffer… even if done… in the name of love…
There is: destroy a jungle now, let your grandchildren suffer for it.
For example.
When he said “for the third time in a century” I read World War, what else would be “the third time in a century”? Maybe he implies some other sort of comparable calamity but the two others are clearly WWs and the tragedies related to them like millions death in battlefields or death camps.
“Europe is the biggest economy in the world”…
Not for long.
“… and a disorderly breakup of the Eurozone would have devastating economic consequences”.
You mean financial consequences. Why can’t we discern anymore between finance and the real economy, for which finance isn’t but a tool?
The solution is still socialist because only with social planning (and not market chaos and speculators’ greedy motives) we can overcome the difficulties implicit in such unavoidable outcome.
I don’t see how bankruptcy can be avoided, only delayed. Once a state enters the IMF spiral of ever-growing interest service the situation has two solutions: bankruptcy by its name or bankruptcy by some other name, with the aggravation that, if true bankruptcy is not declared, the state is never freed from its unpayable burden, like happened to Haiti, trapped for centuries in eternal debt with their former masters.
So the better solution for Europe and the World is sudden total bankruptcy and start anew with a planned economy.
He said catastrophe. War is a subset of catastrophe. He suggests that the breakup of the Eurozone would be comparable in effects to WWI in terms of consequences. The sort of depression that a disorderly collapse of the Eurozone would cause has been estimated to result in losses that are devastating, and I’m sure that would involve a lot of death in the end, although mainly of old, poor, and infirm people, not strapping young men (and civilians in the wrong place) as in war. Look at what is happening in Greece now and tell me that’s not a catastrophe. Now scale that.
Yanis might also be meaning an economic calamity.
1. Great Depression
2. Great Recession
3. The Next BIG thing
Just saying doesn’t have to be a war, but then I don’t think that war is impossible on a large scale either… it just takes a bit more to ignite it.
But isn’t the stipulation still: No haircuts to banks?
@Yeves
Yes Yeves but it needs to be done.
We can no longer afford to subsidize the cartel and their great scheme to export euro capital to the Brics and the rest.
The crisis has exposed Europe for what it is , perhaps too late yes but we don’t need this dastardly machine – the machine needs us.
Yves, you might want to serve this on the side:
http://www.counterpunch.org/2012/10/24/the-dark-age-of-money/
Completely disagree. The break-up is exactly what needs to happen.
No matter what happens [generally speaking], has little effect on the over-all trend.
Agreed. The calamity IS the eurozone. It needs to be broken up.
1. Europe doesn’t have to be the most important economy in thw world, to cause a global calamity, any more than Austria-Hungary needed to be the most important economy in Europe, to become one of the major contributors to the Great War. Nothing breeds worse conflict than a still-mighty power that feels itself slipping.
2. Major war, unfortunately, is not at all unthinkable in our time. There is no longer any global balance of power. The Western Bloc are the only countries able to project power globally, and wars have actually become cheaper and easier for them to fight over the past two decades.
e.g. the Iraq War cost only about three trillion–Bernanke simply printed all of that, and in how long? A year or two? To devastate a significant sovereign state like Iraq, actually cost wealthy US taxpayers next to nothing! As for the aggressor’s casualties, for the scale of the action, and the population of the aggressor nation, they were negligible. The people of the USA inflicted a death toll of more than 50:1 on the Iraqi people, and basically got China to pay for it. The Vietnam debacle soured the American people for a decade, but the Iraq War unfortunately has had little such effect.
Even a bankrupt Europe feels well rewarded bombing Libya (it feels so good, and makes a welcome distraction from the Euro crisis). So now the Eurocrats plot to help Nigeria invade Mali. These are minor wars, to be sure, but as the Western Bloc continues to project power here, and there, and almost everywhere, tempted further and further by the cheap easiness of it all, conflict with Russia, China, or India is bound to arise.
But none of those countries is a first-rate power today. Western Bloc leaders, still with their triumphalist 1990’s sense of global leadership entitlement, might well be tempted to see how far they can push.
Remember that the generation of statespersons who went through the Cold War have passed from the scene. The current generation of Western Bloc leaders have never felt the fear of doomsday. Their mental culture is fermented mix of Friedman and Fukuyama.
So we have reason to fear.
If there is no nuclear balance of some sort, then it can’t be said to be a major war nowadays but unilateral bullying, because one side can always resort to nuke the other flat.
“The current generation of Western Bloc leaders have never felt the fear of doomsday”.
Are you telling me that they are all under 30 or something? I am 44 and I grew up with true fear for nuclear war, which was perceived as the most direct threat to life as we know it. Obama or Romney are quite older than I am and so are most “Western Bloc leaders”, mind you (there’s this strange fad that if you’re not near retiring age you can’t be the boss, it seems).
“Their mental culture is fermented mix of Friedman and Fukuyama”.
Friedman may be but Fukuyama is too modern for having made more than a passing impression on people my age or older.
What I meant is that none of our current batch of leaders has been in the stomach churning position where any mistake on his part could result in sudden disaster. That’s the sort of thing that taught Western leaders to be so much more cautious in most foreign policy matters than they are today. It’s why even a Reagan, considered a sabre-rattler at the time, was so much milder in his actual conduct of foreign affairs, than Obama–who in our time is considered a relative dove.
Do not underestimate the aggressiveness of today’s Western Bloc leaders. Their experience has tended to teach them that war is cheap and easy.
Prof University of Athens?
I thought Yanis Varoufakis Abandoned that position and migrated to the US West Coast earlier this year?
The bio on his site isn’t clear about his current appointment, but this bio, from a speech he gave a few weeks ago (at Columbia) says otherwise:
Yanis Varoufakis, is Professor of Economic Theory at the University of Athens and Visiting Professor at the Lyndon B. Johnson Graduate School of Public Affairs at the University of Texas at Austin. He is also an In-House Economist with Valve Software.
http://www.modernmoneyandpublicpurpose.com/yanis-varoufakis.html
This bio at the conference site is not clear at all. It has him currently at U. Texas, Austin at the top. Then, further down where it describes his affiliation with U. Athens, he’s described as currently being the Director of the Political Economy Department. Then in addition he is listed as an economist for Valve Software (a gaming-development company).
That’s some pretty impressive multi-taksing, but it still doesn’t make much sense (how can he be in charge of an economics department at U. Athens while simultaneously being at U Texas, Austin?)
There my be a reason why rationalists are so cold-hearted:
http://www.eurekalert.org/pub_releases/2012-10/cwru-era103012.php
But we can’t rule out foolishness and studpidity either.
Thank you for this – I found it to be experientially true, in medicine – developing empathy for one’s patients can get in the way of doing what is “medically”, as in scientifically indicated, best for them …
It is a fine line to walk – mistakes can easily be made on either side, but if you can’t have a surgeon, e.g. who is both a nice gal/guy and good with his/her hands (very rare in my experience) and have to choose between a ham handed sweet heart and a technically expert SOB, i would pick the latter any time …
Wisdom is BOTH empathy and analytic reasoning, well-balanced. HIstory shows that personal suffering and learning deeply from it is what makes this possible. The mature, wise human being is a complex thinker who permits empathy to temper the usual “heartless” crassness of stark “rationalism.”
This is why, throughout history, wisdom is valued more highly than intelligence alone in fully civilized nations, where “leadership” is NOT “dominance.”
It’s a terrific idea, but it terms of political reality it’s wildly utopian.
It would take something like a violent revolution to get enough public control of the financial system to force investment in sustainable, humane and economically meaningful projects. Power concedes nothing without a struggle, and the financial aristocracy are not about to allow democratic control over these decisions – from their point of view it’s class suicide.
His main point seems to be that the eventual return to European Growth should ideally be enginereed to be Good European Growth as opposed to Bad European Growth.
The same distinction applies to European Austerity.
The Good European Austerity is the one demanded by the northern European States to their sick southern European brother States, while the sick southern European States insist on mostly applying the Bad European Austerity.
In the USA the dynamics is simpler: Americans have a political dynamics overwhelmingly dictated by a single social process, a Soft Class Warfare, so all austerity is class-war oriented, i.e. Bad.
Growth is not a solution because it isn’t possible. You cannot organically grow your way out of a credit collapse at a rate which exceeds the rate of credit contraction.
We have pulled forward demand for 30 years. There must now be a contraction, and without it there cannot be growth.
There is an answer and it is called “financial collapse.” The nature of this collapse is that those who are leveraged must, by definition, be obliterated. Leverage (when it is long) is merely an expectation of prolonged growth. “Stability” at this time is therefore merely a code word for protecting the positions of leveraged players.
Stability is now the enemy of a healthy economy, because it can only be achieved at this time through artificial means — and the net result of “stability” is to perpetuate the leveraged growth of institutions who are parasitic to the real economy. We will, and must, have an epic collapse.
The longer the Fed and ECB attempt to stave off the collapse through “stability,” the more the healthy economy is damaged by the growth of leveraged players — and the worse the ultimate collapse will be.
That it is coming is a certainty. The only question is when, and corollary to “when” is how large the blast-radius will be.
Aussie F:
You are entirely correct about political realities. However, violent revolutions don’t have a good historical record either. How to Bell the Cat is a continuing problem, but we must keep trying even in little ways. From little acorns…
Greece is in imminent danger of a humanitarian crisis. That is Europe today, suffering from a return of Brüning’s nightmarish policies.
Indeed.
Go ahead, Yanis, Yves, and help (1) create and establish a new and humanly meaningful economic measure of healthy growth, one that doesn’t increase with, e.g., growing sales of anti-personnel landmines and consecutive hospital bills on maimed victims (as is currently the case).
Oh, and help (2) ban all financial speculation on maize, rice, and wheat to seriously start fighting starvation of children on the globe (according to the UN’s WFP, we are killing one child every 6 seconds by completely needless hunger today).
And, please, help (3) establish a kind of Job Guarantee Program for hiring workers off the bottom at a fixed minimum wage to eliminate the human devastation inherent to joblessness for those able and willing to work (e.g., get as many of them as possible to work in the field of renewable energy). We, as a society, really can’t afford idle workers in a state of global emergency, can we?
That’s just three quick and easy to establish initial demands for the sake of humanity. If we can bring Curiosity to Mars and waste billions on meaningless election campaigns and trillions on the survival of bankrupt SDI’s we should be able to bring basic health, food, and dignity to people quite easily. We have the means, we can start these initial measures tomorrow, we only lack the will and suffer from senseless trepidation. Shame on us.
Also, change the financial system and end usury.
There is no reason why “interest” needs to be paid to keep currency in circulation or to increase the quantity of currency in circulation.
RT – you can help get us there – check out the Green party platform and methinks you will find proposals for concrete measures that will take us in the direction you seem to desire – voting Green won’t produce magic, but it really is one of the simpler things we can do right now ….
Refreshing -common sense speaking to power calmly and respectfully about realities that should be obvious to all of us.
I would say the calamity is upon us. How much fear of destitution, living on the edge in the face of real destitution for millions of others (they haven’t come for me yet); our known extended family members (friends, when they decline from middle class, simply disappear -like the 100 million unemployed thrown out of jobs over a 30-year period -or near unemployment -overworked) does any human being need to acknowledge that calamity is upon us.
Here, the hope of the world, the US system of governance, rule of law, a constitution formerly the envy of the world, and free markets for things other than human slavery, have collapsed. The one thing thriving are illegal markets including illegal finance now guaranteed against losses by taxpayers.
You’ll be seeing the dictator of New York in action in the days to come with all his new powers legalized under this administration -powers like holding anyone at will during an ’emergency’ like his formerly illegal, now legal jailing of more than 1200 peaceful demonstrators during the Republican National Convention 2004 here in New York City while orange terror alerts falsely rang out to reinforce terror in the population for the grand purpose of reelecting Baby Bush. All of this by a mayor who claims to be an ‘independent.’ The ‘independent’ he means is independence from rule of law.
Now the holding, jailing and body searching, torturing anyone they choose to is legal -or more accurately, is above the laws of our Constitution. Bloomberg recently ‘didn’t know’ it was against the law to fly his private helicopter over the residents of New York City on the weekends. Oopsy! he made a little mistake. Rather, he got caught out breaking the law -but, no matter. Its only a few thousand people whose lives he’s interfering with -who by his standards aren’t entitled to live their lives peacefully without ear shattering noise over their heads for his pleasure.
America as the “Hope of the World” mentioned recently and oddly controversial on this blog is/was very real. I remember a conversation with a woman from India here for a consulting assignment at the UN, said and sincerely believed, to the contrary of what I could see as a declining trend into lawlessness at the highest levels of my country, that the US would pull itself out of this one “as it had always done.” That was before 2008 but after the demolition of the three World Trade Center buildings in the downtown NYC area before evidence emerged offering alternative narratives to the official version for its cause.
For those of you who want to scream conspiracy theory, there is only one fact anyone with half a brain needs to notice to begin looking for the truth, the thing that made me so angry that day without any ideas or theories: ‘THEY let it happen’ ‘THEY let it happen‘ -the most powerful military in the world -a military that has been sucking on the tit of every US worker in this country for 75 fucking years –let it happen. Not a military plane in the sky for the entire duration of this attack by 14 little dark men and a leader in a cave did us in and now extend and pretend that they, who let it happen, are protecting us. The first responsibility of this president, he says repeatedly is to protect us. IT MAKES ME SICK. These are the last people on earth who are going to protect anyone while they bomb, kill, rape and torture all over the world -and bring it home to us. Global killers.
Everything these criminals have constructed ‘to protect us’ needs to be turned around and pointed at them. Spy on them. Report on them. Question them. Stop them -release all their secret papers -put them in those camps awaiting civil unrest.
Tell me -please. What country, in the history of the world, has ever put gamblers in charge of their own governance. Traders in Wall Street aided in large part by traders in The City of London became a law unto themsleves. Leveraged themselves into power positions all over the world beginning with getting rid of their own professional management and institutions of oversight and governance and growing from there on leveraged financial instruments of control to dictating poverty to others over the entire world -and demand to be paid bonuses for doing so -and, believe it or not -getting it. Who, involved in creating and now perpetrating this situation, is not a criminal?
+1
LeeAnne, clearly Bloomberg is a Despot, but that suits Wall Street just fine.
IMF revised the fiscal multiplier to 1.7 from 0.5 last month. Enormously under-appreciated shift that essentially repudiates Austerity policies. And from the Kings (and Queens) of Austerityland, no less. Raw ideology, and wealth transfer and resource concentration policies determined by a few, are continuing to drive this bus; not economic initiatives that are in the interest of the People.
Varoufakis is saying that the Eurocrats are in a standoff, playing a game to prevent their interests from being harmed and using ponzi austerity to buy time. And in the delay, the continent is being destroyed. This destruction will spread outward and destabilize what is left of world markets… The markets part, world markets, was where he wanted to focus. Because those markets haven’t ever functioned very well. Varoufakis says so himself – that our markets were based on surplus recycling. No good plan for the present or the future. It is the entire system that is now in a standoff. Because as he says, nobody can free-ride on another country’s growth any longer. And that’s the scary thing about economists planning to stabilize their currencies by exports – when every country has the capacity to produce anything it needs or wants. Varoufakis is saying that we have to stop this whole dysfunctional thing and start over. He is only using the EU as a metaphor. The world has gone far beyond markets and is firmly in the realm of politics. Where it should be.
“We must aim at the mobilisation of idle savings into medium to long-term investments that serve genuine human needs – rather than producing new bubbles for the purpose of dealing with the ill effects of previous bubbles that burst disastrously. None of this will be accomplished by markets caught up in an equilibrium of fear that is reinforced daily by universal austerity. Equally, none of it will happen unless public investment takes markets seriously.”
Obvious truth retold with no real insight. Who is to determine what classifies as “medium to long-term investments that serve genuine human needs”? And what are these? Utilities? Infrastruture? Education? Do we really need these? Because, say, if we put more money into education, the most likely result is to increase the number of Finance graduates who will be marketing the “toxic” derivatives we tried to stem in the first place. So shall we let the market decide what should these “investments” be? I am pretty sure it will end up in one of the financial institutes’ coffer in no time.
So please stop BS the world and speak only if you have something new/important to say.
“Education? Do we really need these? Because, say, if we put more money into education, the most likely result is to increase the number of Finance graduates who will be marketing the “toxic” derivatives we tried to stem in the first place.”
Heh.
1. The sole meta-currency for the European Union Nation-States shall be the SDR. NationStates within the EU shall have their own local currencies.
2. The European Union and the EuroZone shall be equivalent. No half-measures. See how national currencies fit into EU SDR Frame below.
3. All countries/nations participating in the EU Trading/Exchange Block by any name must peg their individual currencies to the EU metacurrency, the SDR. This includes the UK; or England, Scotland, Ireland, Wales should they decide to become discrete sovereign states within the European Union.
What does the author mean by “public investment [taking] markets seriously? This is not a rhetorical question. I am genuinely flummoxed and would like to understand the phrase because it seems to be making the key point of this essay. Thanks!
That paused me too Ms G because ‘public’ means two different things in the US and the UK. I assume YV means, bottom line, that money has to be channeled into long term, socially beneficial investments. I’m OK with that. But I do not trust self-interested “capitalists” to accomplish this nebulous goal.
I still don’t understand what “public investment” means in this context: it is apersonal. Is Mr. Varoufakis referring to (1) private market actors investing in some privately defined “public good” set of things? (2) private market actors giving money to municipalities, states and the Fed free of charge or interest in order to make restitution for the trillions they have stolen from them (us) in the past 30 years? (3) public government entities should become “interested” in “public invesment”?
The more I articulate my confusion the more I realize that the phrase is meaningless. Perhaps not by design, but it would be helpful if the author would admit this and post an explanation of what he is intending to say.
I agree – “public investment taking markets seriously” needs some clarification, IMO. At first blush i turned up my nose at that because ISTM that part of our problem is that we have been taking “markets” all too seriously in terms of their dictating every bloody aspect of our lives … If he thinks the problem is not that we have done this but that we haven’t done enough of it – count me out on this one …
Varoufakis is European so #3: “public” as in public institutions, government or whatever other form of social representation (municipalities, etc.)
Not “public” as in a “public corporation”, which means, if I’m correct, one that is traded in the stock markets (“private” would be one that is not).
Public as in “we the People”.
I think he means health, education, infrastructure, which are, as he says, “medium to long-term investments that serve genuine human needs”. At the end of that paragraph he acknowledges the opposing side’s opinion when saying that the management of these (health, education, infrastructure etc.) should be effective like the markets’ efficiency. One might ask why a lefty like him thinks markets are efficient(?!) when everything in this financial crisis demonstrates that they are not.
Thanks for that clarificatinon p78. I did not want to jump to conclusions by I had a feeling that is what was intended. I too am perplexed at the author’s position. The Unlimited Growth problem (tumor) is, by definition, a pattern of looting (Education, Health, Infrastructure, Social Safety Net, Housing, Parks, Libraries, Sea Shores, etc.) by private actors. The same private actors that got away with having the rest of us believe they were self-regulating, moral, Masters of the Universe and Job Creators. Until we figured out all that was a giant fraud. How exactly does the author envisage that these same private actors are even amenable to Getting Religion and suddenly modifying their looting schemes for the Public Good?
I am also disturbed about the inconsistencies in the author’s biographical details as related in his website (which he presumably updates on a regular basis) and the Conference bio.
Oh, and as for the author’s basic premise that there’s anything “efficient” about private markets that should be emulated by the Converted Private Actors in shifting their investment strategies to all things “public” — are we not witnessing an ongoing Massive Human Disaster caused by the massive Inefficiency (i.e., manipulation) of markets? Did even Greenspan’s milquetoast admission to Congress somehow pass unnoticed?
It appears that, as of earlier in 2012, Mr. Varoufakis is more or less a full time “economist in residence” at the online gaming company Valve. See profile of his arrival at the company in Forbes. http://blogs.valvesoftware.com/economics/it-all-began-with-a-strange-email/
Correction — the link is to the author’s blog about gaming, not to the Forbes article in which he was profiled as a new employee of Valve.
Like Godot, still waiting for the post-consumer society.
The real key in Yanis’ post for me was to “re-value” growth. We all think that growth is necessary, a Good Thing. However, I think with the coming resource crunch a redefinition of growth is needed and Yanis alludes to this. It was the advent of capitalism that gave rise to the meme of GDP and growth as Good. Before that the models of society that people has were either static or cyclical – not growth oriented.
If we create the dire consequences extrapolated, as expected, from our pollution of the planet, it could well be that between now and 2050 we have significantly fewer people living on this third stone from the Sun. We may be looking at a gigadeath scenario sooner rather than later.
The need is for a new paradigm of industry, innovation and economy that is NOT necessarily tied to the simplistic meme of ‘more is better’ growth. I suggest some elements of this new meme:
1. The growth needed must be somehow proportional to the population.
2. The growth must benefit more of the population as a whole and not just small cliques.
Corollary a. small numbers of people getting more and more while their co-planetary citizens starve on resource depleted land is not “good” growth (but this is where capitalism is leading the planet as of 2012.)
3. Levelling – Sticking everyone at the lowest level, or in a static environment a la state communism is not good growth.
4. A means needs to be found to incentivise good innovation and weed out bad innovation. The current “greed” incentive is probably NOT optimal.
There are many things that modernity and post-modernity have brought us that are ‘Good’ that we probably should not jettison with the jettisoning of capitalist accumulation as a model for growth. I am thinking of certain personal liberties, equality, rule of law rather than person/power, democracy, education, environmental sensitivity. There are a few more that I will need to think longer to get at.
A few things that come to mind that we will need to significantly alter to get to the next level of post-capitalist society: corporations, debt, interest, representative governmental powers, the role and concept of money.
I would like to know if any progressive think tank or university is thinking around these new post-modern, post-capitalist ideas.
For a 12-word version of a meaningful reform manifesto, refer to the front page of Corrente Wire (www dot correntewire dot com).
“Think tanks” generally exist (at least in their present form) to bolster and provide theoretical credibility to Neo Liberal Policies, be they promulgated by the red side of Duopoly, or the blue side.
Think tanks and Research Institutes? The Post Carbon Institute is thinking about some of these things.
http://www.postcarbon.org/ There must be others.
Universities? Academic departments? I don’t know enough to know about that. Lonely academics like Herman Daly referrenced above, and his lonely band of “De-Growth” economists and ecological economists are thinking about it from their end.
Bill Mollison and David Holmgren and successor permaculturists are thinking about restoration and growth of non-depleting foodgrowing capacity requiring such high levels of intelligent onsite labor guided by intelligent onsite management…perhaps by one-and-the-same people . ..
that it cannot easily support onsite slave labor for the profit of remote investors and/or permaculture plantation owners.
That’s the limits of my lay amateur knowledge.
What Europe and the industrialized world need is growth in terms of quality rather than mass flow. That is, applying design skill and manufacturing skill to improve actual quality of life with less energy and material inputs. In fact, the initial part of that growth should be directed at the particular designs and technologies that are necessary and enabling for mass and energy flow reduction.
That’s abstract, but consider building a “green” house. We can use less high-embodied-energy materials, optimize the use of building materials, and design for longevity. With the right arrangement of windows, mass, overhangs, landscaping, and passive ventilation, we can design a house that can come close to passively heating and cooling itself, even in extreme climates. In the process we create a house that is more comfortable and pleasing to live in. Because of the downsized mechanical systems it can be dome for the same cost as a conventional house, and the energy and maintenance costs are lower. High quality of life can be a good investment, but it takes the right knowledge, regulations, and incentives.
Sometimes the design problem is political rather than technological – zoning so that people can walk to work, or charging pay-as-you-go for the externalities of pollution.
We need to do more with less or we will just end up doing less.
Decades ago my father used to teach economics at the University of Tennessee (Knoxville). He and the other economics teachers were friends and aquaintances and so forth. Sometimes some of those other economists came to our house for social visits and so forth. One of them was named Dave Cole if I remember correctly. He had spent a year on sabbatical in Austria studying Austrian economic ways and means. One thing he said was that (at that time) the Austrian government would support in some way 50 year mortgages at 2 or 3% interest for would-be homebuyers/builders . . . but only for houses that met certain standards such as 3-foot-thick stone walls and so forth. I may be remembering the details wrong, but I remember the basic concept.
That kind of approach . . . mortgage support or permission for houses built up to a set standard, could be a way to FORCE the building of better houses such as you call for.
While we’re at it, why not cancel the FDIC protection for deposits in lending institutions which sell a mortgage after they originate it? Why not restrict the FDIC protection to ONLY those banks and etc. which do not sell a single mortgage to any debt-buyer upon the writing of the rule or the passage of the law which “makes it so”?
Another economist thinking about these things was E.F. Schumacher who got modestly famous for writing Small Is Beautiful: Economics as if People Mattered. Does anyone still think about Schumacher or even remember Schumacher? Is some of his work still considered to have merit?
http://en.wikipedia.org/wiki/E._F._Schumacher
Here is Mother Earth News’s old Plowboy Interview with E.F. Schumacher.
http://www.motherearthnews.com/nature-community/dr-ef-schumacher-zmaz76ndztak.aspx
Varoufakis is growing and his views are changing in response to what is happening in Greece.
The eurozone as currently constructed is a vehicle for looting by the rich and their servant elites. For a new eurozone, taking into consideration all that has been said here about the limits of growth, the same 6 problems I have been harping on need to addressed and resolved:
1) Lack of a democratic fiscal and debt union
2) A weak central bank
3) An insolvent predatory banking system (and I suppose I should add to this lacking protection and insurance for depositors)
4) Mercantilist trade patterns within the eurozone
5) Completely corrupt political classes
6) A ruling kleptocratic class of the rich