The drop in global oil prices has all sorts of annoying consequences (apart from the problems it causes an oil-producing country like Scotland). For instance, renewables are suddenly bad value for money (which is causing investment in them to drop), and recycling of plastics is now dearer than producing new stuff from oil (which again kills off recycling companies).
At the same time, it’s not like we’ve suddenly found a lot of new oil in the ground or have discovered a way to use it without causing even more global warming. At some point in the future, oil will run out or get banned, and before either happens, prices are likely to skyrocket.
Oil prices might of course rise again well before then. The current drop is caused by a combination of factors, including a drop in Chinese demand, an increase in supply (caused to a large extent by the advent of marginal producers that are only in business because oil prices were so high for a while), and a plan by Saudi Arabia to get rid of the marginal producers by lowering prices to a very low level for a few years. We’re not living in a world where prices have dropped to a new and permanently low level.
Anyway, the sensible course of action for Scotland (and the UK until we gain our independence) would be to subsidise renewables and recycling during the years of low oil prices. Unfortunately, income from oil production falls at the same time, which means there’s less money to do this with.
So here’s an idea: Why don’t we create an inverse fuel duty, whereby the price at the pump is practically constant because the duty goes up when the price goes down, and vice versa? If a large part of this fuel duty was used to subsidise renewable energy, plastic recycling and similar projects, their subsidy would increase when oil is cheap, which is exactly what you want. At some point in the future, oil will get so expensive that the subsidy would drop to zero, which would again be perfect because at that point they wouldn’t need it any more.
Sadly, we aren’t independent, which means we’ll have to convince the English Tories to introduce it, but they don’t seem to care about renewables and such things. We really need independence more than ever!
When challenged about the cuts to tax credits, the Tories typically reply that most people will be compensated by a higher minimum wage. This is not entirely true (as far as I can tell, the minimum wage isn’t going up enough to fully compensate workers), but the biggest problem with it is that it assumes everybody is paid a salary.
However, there are a lot of self-employed people (either freelancers or owners of one-person companies) whose income depends on what they can sell (whether services or products) and who cannot simply increase their prices to compensate for falling tax credits.
Some politicians and economists have been wondering why productivity hasn’t been rising in the UK when employment has appeared to be doing rather well. I believe the answer can be found in a large rise in under-employed self-employment.
One shouldn’t forget that the job-seeker’s allowance (JSA) is in effect a working-class benefit, because recipients typically also get their rent paid; if a potential JSA claimant has a mortgage, on the other hand, there’s no help to get with that, and there’s therefore hardly any reason to apply for it. (It’s instructive to compare this with other countries like Denmark, where unemployment benefits are much higher but don’t include free rent, which means the system also works for people with mortgages.)
If you’re paying a mortgage, it makes much more sense to apply for Working Tax Credits (WTC) than JSA. You might only get £1,960 p.a. instead of £3,801, but you’re then free to do freelance work to top it up, and making at least two grand a year shouldn’t be too hard. (If you have kids, you’ll can also get Child Tax Credits, but let’s leave that aside for a moment.) Furthermore, you won’t be assigned silly jobs without pay by the Job Centres, and they won’t sanction you for missing a meeting, so you’ll have much more time to either make freelancing pay off or to apply for a real job elsewhere.
In other words, tax credits have to a large extent functioned as an unemployment safety net for people with mortgages, providing a certain amount of financial safety during the beginning of a freelance career or during bad years later on. (See also this article for some examples of the ways self-employment has simply become a way to hide unemployment.)
So what will happen now that the Tories cut the tax credits down to a very low level? The consequences won’t be felt by people in full-time minimum-wage jobs. Instead, it will be the large number of middle-class people who lost their jobs during the recession and who have been struggling to make ends meet by a combination of freelance work and tax credits that will potentially now have to throw in the towel, sell their house and go down to the Job Centre.
Another problem is that the way child tax credits will be limited to two children for new claimants. That will make it unattractive for people with more than two kids to accept temporary well-paid employment, because they can’t run the risk of not getting their tax credits back afterwards.
This will be a disaster for the Tories in many ways. Not only will many of the people affected be Conservative voters (at least in England), but it will also mean that the unemployment figures will start rising again (although it might be good for productivity).
Unfortunately, many of the people affected aren’t saying very much because it’s hard to come across as a successful professional or consultant or whatever if you’ve just told the world you didn’t manage to make more than three grand in the past year. It’s easier to keep shtum, grit your teeth and try even harder to find more work.
It’s interesting that whereas the problems with zero-hour contracts and salaries lower than the living wage are well-known, the hurdles facing the self-employed often get overlooked. Perhaps it’s because the issues are really hard to solve. You can’t simply legislate that freelancers and small businesses have to sell their products and services at specific prices — the consequence would often be a drop in earnings rather than a rise. In fact, tax credits are probably the single best way to help this group of people.
The Tories are going to regret this for a very long time. The SNP and the other pro-independence parties should already start to outline how they’ll solve it after independence.
The LTV basically says that the value of something is the amount of labour that went into producing it (counting also the labour used for producing the materials and the energy used). The main competing theory is the “theory of marginal utility: that there is no intrinsic value to anything, except what a buyer will pay for it at a given moment” [p.160].
As a small business owner I must says that the LTV doesn’t make any sense to anybody who’s ever run a company — the price I can charge for a product does not depend on the number of hours I put into making it. It would be nice if I could just bill by the hour, but I cannot. It does make sense as a minimum pricing guide — I would like to sell my product at the LTV or more — but then it’s not a theory of value any longer.
The reason Paul Mason is fond of the LTV is because it assigns value to Open Source products such as Linux and Wikipedia which are not for sale and thus not assigned a value by the TMU, but it’s quite easy to work out their LTV.
Using the LTV and the fact that the nature of the info-tech revolution is continually reducing the cost of capital and labour he then makes an interesting observation:
Let’s run this spreadsheet down to an end-state, over several time periods where capital and labour get shrunk towards zero marginal reproduction costs. Now the labour expended is mainly focused on providing energy and physical raw materials. [p.170f]
Paul Mason seems to think this means capitalism is coming to an end. I’m not so sure, however. Even if robots start producing everything more or less on their own (food, energy, raw materials, products), many things will still cost money. Somebody will be owning the fields the food is grown on, the mines the raw materials are extracted from and the hills the windmills are placed on. Also, all homes aren’t equally attractive, so of course some will be worth more than others.
We might thus be heading for a situation where value derives from land (for living on, growing food on and extracting materials from) and energy (which ultimately derives from land, too). So an app or a book will be practically free, whereas a house, a gold ring or a trip to Barbados will still cost real money.
In spite of what Paul Mason is saying, we’re therefore not heading for a future without money. Even if you tried, you’d get USSR-style black markets and corruption in order to get the most attractive house or the newest smartphone before everybody else.
I guess the real question is where people will get money from in the first instance if their labour isn’t needed. Landowners will be rich, but apart from them only people doing important work (such as building and maintaining robots) will be necessary. The rest can then to some extent make money by providing personal services to the landowners and robot builders and to each other, but it doesn’t sound like a very prosperous future to me.
My personal guess is that the only real way forward in that situation is by taxing land and using this money to pay everybody a basic income. That would ensure there’s enough money in the economy, and it would enable some people to spend their time producing Open Source products for the benefit of everybody.
If we don’t do that, the danger is that we might be heading for a modern version of the Middle Ages, where the landowners are rich, most people are poor, and in addition there will be robot builders as a futuristic version of the medieval Church.
I reckon that rather than trying to resurrect the LTV, we should perhaps be starting to look again at the ideas of Henry George and the other Georgist thinkers:
Henry George (September 2, 1839 – October 29, 1897) was an American writer, politician and political economist, who was the most influential proponent of the land value tax and the value capture of land/natural resource rents, an idea known at the time as ‘Single-Tax’. His immensely popular writing is credited with sparking several reform movements of the Progressive Era and ultimately inspiring the broad economic philosophy often referred to today as Georgism, the main tenet of which is that people legitimately own value they fairly create, but that natural resources and common opportunities, most importantly the value of land, belongs equally to each person in a community.
Perhaps Paul Mason’s Marxist vision of a Post-Capitalist society will ultimately only be realised if we follow Henry George instead of Karl Marx.
Paul Mason’s “Post-Capitalism” is an interesting book. It often feels like a work in progress, and I often disagree with his ideas, but it is the kind of book that makes you think, so it’s definitely worth reading even if you don’t think you’re likely to agree with his conclusions.
The book at times reminded me of a course I had to take back in 1991 in the “theory of science of the humanities” as part of my linguistics degree at Aarhus University. My teacher was a young Marxist who was completely freaked out by the collapse of Communism and spent most of the time insisting that Marxism was right and that the collapse must be due to some specific errors made by later interpretations — Marx himself had to have been right.
Paul Mason seems to view Marxism in a similar fashion (but he is much more convincing that my teacher was back in 1991). His heroes are people like Ricardo, Marx, Kondratieff and Bogdanov, but he’s very critical of Lenin and especially Stalin and his acolytes. There’s nothing wrong with that per se (I don’t care where an idea comes from so long as it is good) but at times it’s like Paul Mason is willing them to be right — he seems to be hoping the financial crash of 2008 will be the event that triggers the advent of real Communism as envisaged by Marx.
Sometimes I agree with his hopes. As somebody who has been part of the Open Source movement for a very long time (I installed Linux for the first time in 1994, made my first Wikipedia edit ten years later and participated in the first Wikipedia conference, Wikimania, in 2005), I would dearly want the future to be a place where intellectual collaboration replaces suffocating uses of copyright and patents. However, I’m not entirely sure this is enough to make it happen.
The historical chapters are very good and explained several things to me that have been puzzling me. For instance, I never quite understood why the moderate social-democratic parties basically gave up the will to life after the collapse of the Eastern Bloc, given that it was a very specific variant of Communism that had been discredited, not everything based on Marx’s ideas. However, Mason explains it well:
Both wings of the labour movement became wedded to the belief that socialism could be introduced by taking control of the state and the organized market. […] This was the idea that died after 1989, with the collapse of the Soviet bloc, the rise of globalization and the creation of the fragmentary, marketized and privatized economy we see today. The progression Hilferding imagined, which had implicitly guided socialism for eighty years, has been broken and indeed reversed. [p.60]
His also points out that neoliberalism wasn’t just an accidental and natural extension of old-fashioned capitalism:
Neoliberalism was designed and implemented by visionary politicians: Pinochet in Chile; Thatcher and her ultra-conservative circle in Britain; Reagan and the Cold Warriors who brought him to power. They’d faced massive resistance from organized labour and they’d had enough. In response, these pioneers of neoliberalism drew a conclusion that has shaped our age: that a modern economy cannot coexist with an organized working class. Consequently, they resolved to smash labour’s collective bargaining power, traditions and social cohesion completely. [p.91]
One specific problem I have with this book is the length of the economic cycle.
In 2010, the Russian researchers Korotayev and Tsirel […] used a technique called ‘frequency-analysis’ to show convincingly that there are powerful fifty-year pulses in the GDP data. […] Cesare Marchetti, an Italian physicist, […] concluded in 1986 [that his data] reveals cyclic or pulsed behaviour in many areas of economic life, with cycles lasting roughly fifty-five years. [p.44]
However, Strauss and Howe argue rather convincingly in “Generations” that the normal cycle length in human societies is about 80 years (because this is the time it takes for everybody who remembers the errors made last time to have died (or at least have grown so old that nobody will listen to them). I find it much easier to find current parallels with 1935 than with 1960-65. This matters because one of Paul Mason’s main arguments is that the normal capitalistic cycle seems to have been broken because the economy doesn’t look at all like it did in the sixties — if the cycle length is different, that argument doesn’t hold.
Of course, there could actually be two overlapping cycles, an economic one lasting 50-55 years and a societal one lasting 80, but in that case we’ll have to go back a great many years to find a close parallel to the situation we’re finding ourselves in today (see the graph above).
Cycles are very interesting, but I think much more research is needed before we can conclude that the normal cycle has been interrupted.
After spending most of the book addressing the history of Marxism and neoliberalism, exploring different theories of value (which I’ll discuss in a separate blog post) and using this and cycle theory to argue that capitalism is dyring, in chapter 9 (“A Rational Case for Panic”) he points out that the current model is also collapsing in other ways, such as climate change and the demographic time bomb.
This was very convincing, and I was looking forward to getting a convincing answer to everything in the last chapter. However, it was somewhat underwhelming. His best proposal is a computer simulation:
We need an open, accurate and comprehensive computer simulation of current economic reality. […] It would start by attempting to construct an accurate simulation of economies as they exist today. Its work would be Open Source: anybody could use it, anybody could suggest improvements and the outputs would be available to all. It would most likely have to use a method caled ‘agent-based modelling’ — that is, using computers to create millions of virtual workers, households and firms, and letting them interact spontaneously, within realistic boundaries. […] The prize […] is an economic model that does not just simulate reality but actually represents it. […] Once we are able to capture economic reality in this manner, then planning major changes in an accountable way becomes possible. [p.271f]
He does make some other suggestions, but it does make sense to focus especially on this. If we had such a model, we could answer many questions much more convincingly. For instance, during the Scottish independence referendum, we would have been able to respond to Project Fear’s scaremongering in a much more authoritative fashion if such a model had been in place. We would also be able to show exactly why austerity is the wrong answer in the present situation and why benefit sanctions don’t increase employment, so this is definitely worth doing.
I disagree with many specific ideas in Post-Capitalism, but that’s not a problem. The purpose of this book is to make you think, and it achieves that extremely well. I would definitely recommend reading this book, even if your purpose is to fix capitalism so that it starts working in everybody’s best interest again.
I love the European Union — it has achieved so much for normal European citizens: Peace, the freedom to travel and (in many cases) prosperity. I also love the idea of a common European currency — although it was terribly exciting as a kid to get exotic notes and coins when travelling, it also made it hard to compare prices and salaries across borders. Indeed, back in the year 2000, I was very active on the Yes side when Denmark held a referendum about joining the Euro (it was narrowly defeated).
However, the EU I liked the best was Jacques Delors’s Commission-run project. Since then, the European Council (where the heads of state get together in private) has taken the lead, and idealism and democracy has suffered.
The EU has disappointed me in at least three regards recently:
Firstly, Barroso and several other European politicians took part in Project Fear’s scaremongering in order to persuade us to remain within the United Kingdom. Given that almost everybody on the pro-independence side supported continued membership of the EU, whereas many people on the No side were already discussing how and when to leave the European Union, that struck me as being rather foolish, short-sighted and undemocratic.
Secondly, the Mediterranean refugee crisis has revealed a huge lack of European solidarity. It’s clear the numbers that arrive in Italy are far too high for one country, but spread across the EU they would be very manageable, and yet lots of countries refuse to do their bit.
Thirdly, the way Greece has been treated has been an unmitigated disaster, not just for Greece but for all of Europe.
The EU has to work in the interest of normal Europeans citizens, and that’s simply not happening in Greece. Normal people are suffering, to a large extent because their former governments borrowed a lot of money and gave it to their rich friends (such as international bankers).
I completely understand that other European countries are worried about moral hazard. Of course you don’t want a situation where a country can simply borrow money and then refuse to pay it back without any negative consequences. However, punishing ordinary Greeks for a century is a rather extreme way to avoid moral hazard, I would have thought.
At the moment, what benefit does Greece actually derive from being part of the Euro? As Frances Coppola put it recently
Any country can use the Euro as its currency, whether or not it is a member of the Euro. And some do: Montenegro, for example, and Kosovo are both Euro users though they are very far from being accepted into the EU, let alone becoming Euro members. So what distinguishes a Euro member from a Euro user?
Normally, the distinction between a sovereign currency issuer and the (foreign) user of a currency is that the sovereign currency issuer has complete control of the money supply, whereas the user must earn, borrow or buy its currency from external sources. But Greece cannot be considered a sovereign currency issuer. Its central bank can only issue the amount of Euros that the ECB allows it to. That amount has just been frozen by the ECB. Greece must now borrow, buy or earn additional Euros from external sources. That is what currency users have to do, not currency issuers. So Greece has no control of its money supply. It is as if it were using a foreign currency as its domestic currency.
Bloomberg reports that Bulgaria, which is not a Euro member but backs its currency with Euro reserves, has just been allowed to borrow from the ECB at the same rate as Euro members, thus enabling it to firewall its banks from Greek contagion. This is a privilege normally only accorded to Euro members – and it has been WITHDRAWN from Greece. If this is true, then Bulgaria (non-Euro member) can obtain Euros from the ECB while Greece (Euro member) cannot. It is hard to see what benefit Greece’s Euro membership confers, apart from redistribution of seigniorage receipts.
I’m not saying that the best solution would necessarily involve giving a lot of money to the Greek state. Perhaps it’d be better if the Greek banks were to be taken over by the EU, for instance. Or perhaps Greek pensions could be paid by the EU instead. It might be worth looking at what the US would do if a state went bust, or what Germany before 1999 would have done if one of its Länder had done so.
However, some kind of debt foregiveness must surely play a part when a country cannot realistically pay back its debts ever. And Germany of all countries shouldn’t be vetoing it. As the French economist, Thomas Piketty, said to Die Zeit:
When I now hear the Germans say that they deal with debt in a very moral way and firmly believe that debts must be repaid, then I think: What a big joke! Germany is the prime example of a country that has never paid its debts. It can teach other countries no lessons. [Wenn ich die Deutschen heute sagen höre, dass sie einen sehr moralischen Umgang mit Schulden pflegen und fest daran glauben, dass Schulden zurückgezahlt werden müssen, dann denke ich: Das ist doch ein großer Witz! Deutschland ist das Land, das nie seine Schulden bezahlt hat. Es kann darin anderen Ländern keine Lektionen erteilen.]
I can’t help thinking that a lot of the differences between the approach taken to Greece comes down to national bankruptcy laws. In Denmark (and Germany, I believe), if you go bankrupt, you will never be entirely free of your debt. I know of people who did something silly in their twenties, got landed with a huge debt, and a result they’ll never be able to buy a house ever — bankruptcy laws are mainly concerned with ensuring that you’re allowed to keep enough money every month to survive. In English-speaking countries, on the other hand, a bankruptcy actually cancels most of your debt, and you’ll be able to start from scratch with a blank slate.
Apart from cancelling debts, the threats have to stop. In a federal state (and that’s more or less what the Eurozone is today), you cannot expect similar political parties to be in power in all parliaments all the time. (In fact the past twenty years have probably been rather exceptional in that regard, because of the way the Social Democratic and Conservative parties became so similar after the collapse of Communism.) The various treaties and constitutions have to be designed in such a way that things don’t collapse in a heap simply because some neo-Marxists get into power in Greece. That said, even inside the UK most politicians seem to be struggling with finding the right response to the rise of the SNP, so it’s not simply a European problem.
The way the majority of EU countries are acting at the moment, I wouldn’t be surprised if Greece eventually decided it’d be better to leave the EU completely, and that would be really dangerous for the rest of us, given the instability of the geopolitical situation at the moment. Europe really needs to get its act together!
Ever since moving to Scotland from Denmark a few months after the 2001 election (which put Anders Fogh Rasmussen into power — imagine a Tory government supported by UKIP), I’ve been increasingly unhappy about the way Denmark is developing.
While Scotland has found its own voice during the independence referendum and is now speaking loudly in favour of tolerance, solidarity and equality, Denmark seems to running away from these values.
The two modern Danish lodestars appear to be xenophobia and neoliberalism. Let’s look at both in turn.
Xenophobia has been on the rise for more than twenty years, and I was already starting to find the tone of the debate uncomfortable in the 1990s. Dansk Folkeparti (the Danish equivalent of UKIP) was always at the centre of this development — I described it like this a while ago:
The typical pattern has been like this: Dansk Folkeparti make a suggestion (e.g., to limit the number of immigrants, or to put some restrictions on Denmark’s EU membership); the other parties at first dismiss it, but the media give it plenty of coverage (because it’s always a good story from a journalistic point of view), and some dissenters within the other parties are quickly found that agree with it, and eventually the other parties implement at least 50% of the original proposal. As soon as this has happened, Dansk Folkeparti start demanding even more, and the whole process starts again, with the result that after 10-20 years, the mainstream parties have adopted policies that are more extreme than those originally advocated by Dansk Folkeparti.
This is making it increasingly uncomfortable to live in Denmark if you’re not 100% Danish. Theresa Nguyen, a Danish journalist of Vietnamese origin, described it well a couple of days ago:
[I’d like to] talk about the feelings that are awakened within me when a candidate for prime minister says that “Denmark is in danger of becoming multicultural” with pride in their voice. Dear Helle Thorning-Schmidt and Lars Løkke Rasmussen, your rhetoric makes me so angry and sad — yes, almost depressed — that more than anything I just want to leave that awful Denmark that I am barely able to recognise any more. […] The Denmark that I see now is quite unrecognisable. I don’t have the words to describe the missing link between the Denmark of my memories and the Denmark I, as an adult Dane from an ethnic minority background, must now contribute to and be a part of. Your debate last Sunday was a disgrace to the generous and bountiful country of my childhood. Your views on people and our global responsibilities frightened me and filled me with shame. […] Your divisive rhetoric is giving a lot of people the desire to leave the country. But those who can and probably will leave are people like me; the educated and resourceful citizens that Denmark strongly needs to stay and pull our weight. The rest, those who have been less lucky to get an education, do not have the ability to leave Denmark. They are forced to stay behind and listen to your words.
([Jeg vil gerne] tale om de følelser, der bliver vækket i mig, når en statsministerkandidat med stolthed i stemmen siger, »at Danmark er i fare for at blive multikulturelt«. Kære Helle og Løkke, jeres retorik gør mig så vred og trist – ja, nærmest deprimeret – at jeg mest af alt bare har lyst til at forlade det forfærdelige Danmark, jeg snart ikke kan genkende længere. […] Det Danmark, der møder mig, er mildest talt uigenkendeligt. Jeg mangler ord til at beskrive den manglende kobling mellem det Danmark, jeg husker, og det Danmark, jeg som en voksen dansker med anden etnisk baggrund nu skal bidrage til og være en del af. Jeres duel på ord i søndags var en skændsel for det generøse og overskudsfyldte land, jeg var barn af. Jeres syn på mennesker og vores globale ansvar skræmte mig og fyldte mig med skam. […] Med jeres splittelsesretorik giver I rigtig mange lyst til at forlade landet. Men dem, der kan og formentlig vil gøre det, er dem, der er som mig; de veluddannede og ressourcestærke borgere, som Danmark har så såre brug for bliver og tager vores tørn. Resten, dem, der har været mindre heldige til at tage en uddannelse, har slet ikke muligheden for at forlade Danmark. De er tvunget til at blive tilbage og lytte til jeres ord.)
I’m so much happier living in a country where Ruth Wishart could say her famous words: “A Scot is someone born here, and anyone who has paid us the compliment of settling here.”
The other Danish malaise is neoliberalism. Although the Danish welfare state is working well and is quite affordable for the state, Danes keep demanding lower taxes and most people have grown up with so much job security that they honestly believe unemployment can never happen to them. For a while it was possible to cut costs without great consequences, but it’s now getting to the point where it’s becoming visible in international comparisons. To take but one example, in 2001 Danish unemployment benefits on average gave workers 66% of their previous salary, which was the highest in the EU; by 2012 this had fallen to 40%, which placed Denmark as number 10 out of 14 countries (less than Spain but marginally more than the UK).
When I tell Danes they’ll soon start seeing real poverty if they continue this development, they don’t believe me. Again I really enjoy living in a country that has already learnt the lesson of the Thatcher years — looking at Denmark from Scotland feels a bit like observing a train crash in slow motion from a distance.
Of course not all Danes agree with the xenophobia and the neoliberalism. In the same way as many people in England are still voting Labour because of what it used to be like, many Danes are still supporting the Social Democrats without realising that they’re increasingly a part of the problem. And of course there are several parties that do what they can to change things for the better.
Danes get disenfranchised two years after leaving the country, so I haven’t had a vote for over a decade. However, if I was able vote in the general election on Thursday, I’d probably support Enhedslisten (or possibly Alternativet). I used to be a member of the Social Liberal Party, but although they’re still strongly against xenophobia, they seem to have forgotten their social conscience and are increasingly becoming a neoliberal party (or perhaps more accurately, one of the parties of Necessity), so I wouldn’t really consider voting for them any more.
After putting it off for a while, I finally got round to reading The Global Minotaur by Yanis Varoufakis (Γιάνης Βαρουφάκης), the Greek finance minister.
If you’re not put off by a healthy dose of Latino-Greek loan words and grammatical constructions that sound rather academic and/or foreign, it’s a wonderful book. Here’s a typical sentence: “Our current aporia is a variant of the puzzlement engendered by the simultaneous progression of commodification, financialization, and the crises these processes inevitably occasion.”
The book isn’t really about Greece, or even Europe. It’s about the global financial system that was created by the United States after World War II, how it developed over time, and how it got fatally wounded in the financial crash.
His discussion of the 1929 crash and its aftermath is good, but things get interesting when he starts discussing Bretton Woods. For instance, the following was new to me:
During the debate on what that new syustem should look like, John Maynard Keynes made the most audacious proposal that has ever reached the bargaining table of a major international conference: to create an International Currency Union (ICU), a single currency (which he even named — the bancor) for the whole capitalist world, with its own international central bank and matching institutions. Keynes’ proposal was not as impudent as it seemed. In fact, it has withstood the test of time quite well. In a recent BBC interview, Dominique Strauss-Kahn, the IMF’s then managing director, called for a return to Keynes’ original idea as the only solution to the troubles of the post-2008 world economy.
Of course, this never happened. Instead, the US came up with what Varoufakis calls the Global Plan, “according to which the dollar would effectively become the world currency and the United States would export goods and capital to Europe and Japan in return for direct investment and political patronage”.
The book then discusses why the US chose to make Germany and Japan the regional pillars of this system, rather than some of the WWII victors (and as an aside, how this damaged the UK’s economy hugely).
What Varoufakis calls the Global Minotaur is the system that arose when the Global Plan collapsed after 1970, and the world economy instead started to depend on US deficits: “America began importing as if there were no tomorrow, and its government splurged out, unimpeded by the fear of increasing deficits. So long as foreign investors sent billions of dollars every day to Wall Street, quite voluntarily and for reasons completely related to their bottom line, the United States’ twin deficits were financed and the world kept revolving haphazardly on its axis.”
The book then describes how the financial crash fatally wounded the Minotaur, and how nothing has stepped in to replace it.
A lot of the book is concerned with surplus recycling mechanisms, and the point here is that there needs to be some mechanisms that allow surplus capital to be put to good use elsewhere in the world, so if the US can’t or won’t do this any more, the world economy won’t fully recover until some other way has been found to achieve this.
This is of course also the problem in the Eurozone: Germany and other Northern European countries are generating surpluses but tend to hoard the cash. Ideally they should either invest the cash elsewhere (in Greece, Portugal and so on), just like the US did as part of the Global Plan, or they should start to run massive deficits and in this way create a market for Greek and Portuguese products, like the US did during the reign of the Global Minotaur.
Finally, the book discusses how the bankrupt banks managed to dictate solutions to governments, in the process creating what Varoufakis calls a bankruptocracy or a ptocho-trapezocracy. (Although the book doesn’t discuss it, it’s interesting to compare this with what Iceland did instead.)
I must say the book was quite depressing to read. Varoufakis sees things a bit too clearly for comfort (this is what he calls an aporia), and to realise you’re living in a ptocho-trapezocracy is not a cheery thought.
However, if you can face it, I thoroughly recommend this book.