Friday, 21 December 2012

Will the real economy rebound, following Wall Street’s resuscitation? - Yanis Varoufakis Interviewed

Another Spanish newspaper, El Confidencial, were kind enough to interview me on the global and european crisis, on the occasion of the Global Minotaur‘s Spanish translation-edition. Here is the interview, in English (the actual article will appear in Spanish, of course). Read on…
 

 Click images above for information on Yanis' acclaimed book "The Global Minotaur"


Before the crisis, Wall Street had grown so much, but the productive sector expanded more slowly. Now, after the financial crisis, are we going to see industry grow, instead of the financial sector? Or will we see just the opposite?

Rapid, unregulated growth is usually built on the back of a financial sector bubble; also known as irrational exuberance. Credit expands fast, increasingly risky bets are placed and a portion of this is channelled into productive investments in industry (the real economy, as you put it). Then the bubble bursts, liquidity disappears and the real economy entered a vicious cycle, of having to pay back unsustainable debts through austerity that causes investment to plummet, debt-to-income ratios to remain prohibitively high and, alas, growth to turn increasingly negative. In this sense, the answer to your question is bleak: No, there is no guarantee that industry will grow faster than the financial sector now. In fact, quite the opposite: Since governments and central banks are financing the banks, to refloat them, the financial sector is in the process to recovering, and growing again, while at the same time the real economy is continuing to shrink. Especially in the Periphery of the Eurozone where the impossibility of devaluation, coupled with the disproportionate burden of adjustment falling on the deficit countries, guarantees a depression. This is precisely what is meant by the trap of negative growth and high debt. It is a phenomenon that we first encountered in the 1930s, from which Europe seems to have learned almost nothing.

What has been the role played by economists in this crisis? Are they some kind of new priests?
Economics, as a discipline, is a paradox wrapped up in a contradiction. The more irrelevant its models the greater the profession’s discursive success and, thus, social power. From the 1970s onwards, economics departments were taken over by a particularly narrow-minded quest for ‘solved’ mathematical models of the economy – including of finance. But to ‘solve’ our mathematical models, economists had to impose (often without stating) hidden assumptions which guaranteed that these models had nothing whatsoever to do with really existing capitalism. Yet, these very mathematical models could be used by financiers and politicians to provide a veneer of respectability to their policies and derivative trades (since the models effectively assumed, in order to be solved, that financialised capitalism is immune to crises). Thus economists were popular (and well rewarded by the financial sector and neoliberal governments) for having produced models that were, by design, irrelevant. This is why I refer to economics as a major contradiction; a most peculiar failure: It is the only discipline whose power is proportional to its theoretical failure to illuminate capitalism. And yes, it is a priesthood of sorts, in the sense that young graduates do well in the economics profession if they learn how to set up and solve these mathematical models ritualistically, accepting in the process that they will never have anything useful to say about the real world.

Politicians and officials like Lagarde say that a USA economic problem would seriously affect  everyone. Does it mean that the flow of money into Wall Street should keep coming and the international institutions are going to do everything to make sure it stays that way?
The political elites have already accomplished this. Wall Street, the City of London and Frankfurt are, once more, awash with money. The tragedy is that, unlike what was happening in the pre-2008 era, this capital is failing to bolster investment and consumer demand, the result being a major deficiency of effective demand worldwide. Thus the crisis of the real economy perseveres.

Have the national governments some chance to make policies against the mainstream global economic policies and the interests of investment funds?
Not our governments, not within the Eurozone. Once our states became insolvent, after the Crisis spread its wings to the Eurozone, national investment policies are severely restricted in scope. What we now need to do is focus on shaping a progressive rational investment strategy at the European level. The European Investment Bank and the European Investment Fund must play a major role here and Spain ought to lead in their conversion into the pillars of European growth and development.

Why was there so much consensus in implementing the economic policies that led us to the crisis? Why did no one object against them?
While financialisation was building up incredible pyramids of toxic money, it was almost impossible for our voices to be heard over the din of all this private money making. Those who did object were silenced. It took the catastrophe of 2008 for the voice of reason to be given a modicum of a chance.

Why, after the crisis, are the governments still implementing similar economic policies to what they did before the crisis?
Because they are co-opted to what I call Bankruptocracy; a new regime that emerged after 2008, where the power to exploit society’s surpluses has passed on to the bankrupt bankers, in direct proportion to the black hole they burnt into their banks!

What will be the medium-term future of Greece in the context of sovereign debt crisis? And the future of Spain? What kind of life can expect to live as southern European citizens?
I am tempted to reply using Thomas Hobbes’ expression; that our lives will be “brutish, nasty and short”. Only, they will not be short. Just brutish and nasty, as the vicious cycle of recession-austerity-debt-more austerity-depression unfolds. Until and unless, of course, our governments do the only thing they can: Stand up to our northern partners, in some EU Summit, and simply say ‘No!’

Without China’s growth, there wouldn’t have been growth in South America or Africa. What is going to be the role of China from now on?
Chinese growth is unsustainable without a recovery in the United States which, in turn, relies heavily on a European recovery. At the same time, Latin American, South African and Indian growth relies entirely on Chinese growth. This is why Europe’s silliness, which has created an unnecessary and utterly avoidable recession in the Eurozone, is so detrimental to the planet’s well being.

You say that the crisis is the laboratory of history, and conformity is the main driving force. I think conformity still prevails, despite all that has happened. Do you see any signs of change?
Only a few. I see some welcome change of heart and mind within the International Monetary Fund and a new sense of purpose in the US Treasury. But nothing, so far, that might signal a decisive U-turn.

©El Confidencial

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