Have you had the suspicion that simple narratives about subprime mortgages, last minute bail-outs, and sweaty-palmed bankers fail to adequately explain what has happened to the global economy since 2008? If so, then I can heartily recommend you pick up a copy of Yanis Varoufakis‘s The Global Minotaur – America, Europe and the Future of the Global Economy. It is a complex work, seeking to explain – in layman’s terms (though there are plenty of supply/demand curves thrown in for good measure) – the systemic roots of the particular economic moment we are all living through. Terry Eagleton has described The Global Minotaur as “one of those exceedingly rare publications of which one can say they are urgent, timely and absolutely necessary”.
Varoufakis, who holds dual Greek-Australian nationality, is a political economist and the author of several highly regarded books; he has taught at the Universities of Essex, East Anglia, Sydney and Athens, and is a regular commentator, for the likes of the BBC, CNN, and Sky News, on economics and in particular the implications of the Eurozone crisis. In 2010, along with Stuart Holland, Varoufakis published A Modest Proposal for resolving the eurozone crisis
Yanis Varoufakis was kind enough to respond to a series of questions, via email, for the following interview:
The standard political narrative for explaining the current economic crisis, I would argue, is that de-regulation of the banking industry, coupled with irresponsible lending in the form of sub-prime loans caused all the problems; so regulation is primarily the solution. You take a different approach in The Global Minotaur. Can you explain?
all I had to change in the story before using it as an allegory for the 1973-2008 era was to replace the Minotaur with America’s twin deficits …
There is a multitude of reasons behind the financial sector’s implosion in 2008. Lax regulation, unprecedented greed in the corporate sector, massive computing power-driven financialisation that spread the risk all over the globe (supposedly diluting it) and tied the bubbles in finance to those in the real estate, Alan Greenspan’s interest rate policies, the decline in real wages in the US and much of Europe (which spearheaded an expansion of personal credit and contributed to asset bubble-building), macroeconomic models used by governments, financiers and central banks that assumed away the possibility of a crisis, the capital flows after the 1998 S.E. Asian crisis to Wall Street, etc. etc. However, while each and every one of these causes is a valid and important, they all beg the question: What was behind these developments? People, especially in the corporations and financial sector, were always greedy. Why did greed reach such unchecked heights after the mid-70s? Financialisation has been with us at least since the 1920s and financiers have always tried to capture regulators. But why were they so successful in the post Bretton Woods era? These questions demand an answer. My answer is that all these ‘explanations’ make sense when placed in the context of what I call the Global Minotaur; the emergence, from the ashes of the first postwar phase (the Bretton Woods or, as I call it, the Global Plan era), of an audacious global recycling mechanism which turned on the United States’ twin deficits, on the one hand, and an incessant tsunami of capital from the rest of the world to America, on the other. All these phenomena mentioned above suddenly become easy to understand when projected against the background of the Minotaur’s three flows: (A) the flow of net exports from the rest of the world to the USA (which provided the net exporters with the aggregate demand they so desperately needed, (B) the tsunamis of profits and other surpluses that flowed from the net exporting countries to Wall Street thus helping pay for the increasing American trade deficit, and (C) the torrent of private money minted by Wall Street and the City on the back of these tsunamis of capital [see (B)].
What drew you to the Minotaur as a metaphor for your book?
A simple attempt to use a metaphor that would help my reader grasp the three flows just mentioned (A), (B) and (C) above. When struggling to come up with an allegory that would do the trick, the Minotaur fable crossed my mind. The more I thought of it the more apt it seemed. Consider this: In pre-classical Greece, when King Minos of Crete ruled, the story goes that trade, peace and prosperity ruled. A kind of Pax Cretana was in place, policed ruthlessly by the powerful King. Nonetheless, a dark secret lurked in the King’s Palace’s basement: a sad and savage beast, half man half bull, the product of the Queen’s incest with a bull, was raging encased inside the maze-like Labyrinth that the King had built for it. Unable to be nourished by anything other than human flesh, the Cretan King made sure – so as not to enrage the gods by allowing his wife’s ‘son’ to die of hunger – that it was nourished. Indeed, Athenian teenagers were sent regularly to Crete as tribute; the price that the subjugated Athenians had to pay in order to enjoy the peace and prosperity that Crete guaranteed. Well, all I had to change in the story before using it as an allegory for the 1973-2008 era was to replace the Minotaur with America’s twin deficits which were satiated by the tributes of capital surpluses sent over to Wall Street in exchange for the aggregate demand that America’s purchases of net exports provided German, Japanese, Korean and Chinese factories. Financialisation is what happened on the back of these tributes, by cunning bankers. When it collapsed under the weight of its hubris, the Minotaur was injured fatally. Our world’s post-2008 inability to find its footing is that, post-Minotaur, a large chunk of the aggregate demand that is necessary to keep our industries going has simply disappeared.
You describe 2008 as a moment of aporia, in particular for policy makers worldwide – citing the example of Alan Greenspan; 5 years later, do you think policy makers in either the US or the EU show any signs of having come to terms with what has happened– or are they still bewildered?
Only very partly. In the US Ben Bernanke seems to have ‘got it’. In the BRICS too policy makers have a good feel for what has happened. Alas, our European leaders are in the worst possible state of mind: They are convinced that they know what went wrong but, tragically, they could not be more mistaken.
Since 2008 the public has been bombarded by different phrases used by journalists and commentators to sum up the complex situation. The current warhorse in this respect is ‘debt crisis’, so I was interested to hear you say clearly in a recent talk that ‘there is no debt crisis’.
Indeed, there is no debt crisis. There is a lot of debt but the crisis is as much as crisis of too many savings as it is of too much debt. In fact, post-2008, we have the paradoxical situation of the coexistence of a mountain of debt and a mountain of idle savings too scared to be invested in productive means and activities. It is in this sense that I argue that this crisis is not a debt crisis but the crisis of the mechanism by which, in normal times, surpluses are recycled in the form of productive investments.
Looking back now to the Nixon administration’s 1971 decision to abandon the Gold standard, with hindsight how wise or foolish does it appear? Is it unfair to lay a large amount of blame on that moment for the economy we’ve inherited?
They had no choice whatsoever and, therefore, it would be foolish to blame them. The reason I say they had no choice is simple: The Bretton Woods system, or more accurately what I call the Global Plan which prevailed between the late 1940s and 1971, was predicated upon the idea that, along with fixed exchange rates pegged to the US dollar, America (the only surplus nation in 1947) would be recycling its own surpluses (in the form of aid, investment or credits) to Europe and to Japan. But, toward the late 1960s, the US lost its surpluses. At that point the Bretton Woods-Global Plan era was beyond salvation.
Let’s talk a bit about the role of military power in the global system you’ve outlined in the Global Minatour. Since the fall of the Berlin wall we’ve been told that American style capitalism is a winning ideology, but how much does military muscle need to back up the system?
Geopolitical strength proved immensely important in maintaining the dollar’s ‘exorbitant privilege’. In particular, it helped the United States maintain the dollar are the sole currency in which energy and primary commodities are denominated, as well as kept the flow of energy and other materials going toward America and its allies. Following the collapse of the Soviet Union, the United States experienced a sudden and short-lived rise in its geopolitical domination. However, the Iraq war on the one hand and the collapse of its financial sector in 2008 put America on a course of ever diminishing influence – the other face, if you want, of the Minotaur’s mortal wounding.
Over the last five years in Europe we’ve had sweeping ‘reforms’, including the so-called six-pack, pension reform and various privatisation schemes rushed through. Is it fair to suggest, along the lines of Naomi Klein’s Shock Doctrine thesis, that the economic crisis is being used to a neoliberal advantage in Europe?
Everyone tries to take advantage of a ‘good’ crisis in order to promote pre-existing interests. Employers do it (hoping that the crisis will destroy all legal protection for labour), leftists like myself do it in order to claim that “we had told you so”, opposition politicians exploit it in order to topple the government etc. Klein’s point is utterly apt, however, since by the time the crisis hit in 2008, the trades union movement was already on the canvass and social democratic parties had been successfully co-opted by finance. Thus, in the face of the worst crisis since the 1930s, the only class warriors were the financiers (who had played a huge role in bringing about the catastrophe) and employer associations that saw it as a golden opportunity to roll back decades of regulations that had helped civilise, to some extent, capitalism. Meanwhile the rest of society is scared and privatises its fears and pain, keeping its sights low and its head bowed into submission. And the worst part of this is that these triumphs of the barbaric right will further destabilise the system which they claim to champion.
What role has globalisation had on global surplus recycling mechanisms – or to put it another way, would the post WWII economic recovery spearheaded by the United States (in its role as a benign hegemon) have been possible under a Wallmart dominated economy?
In short, no! The post-war golden era (that lasted two decades, give or take) delivered stability and fantastic growth because inequalities shrank, real wages rose substantially and banking excess was kept in check. The Wall Street – WalMart model would simply be incompatible with that period of balanced growth.
In 2011 when Mario Monti was elected (or put in place) as Italian Prime Minister, he gave an interview where he declared “What we’re witnessing today is the great success of the euro, and the most concrete demonstration of that success is Greece, which is being obliged to take on the culture of stability with which it’s transforming itself. “ As a Greek, and as an economist how do you react to Monti’s comments?
With sadness that is only punctuated by the news that Mr Monti received less than 10% of the Italian electorate’s support, even though he was hailed by the powers that be across the globe as the nation’s saviour.
Does the lack of solidarity with Greece amongst the so-called PIGS countries surprise you? The first comments from Irish, Italian, Spanish, and Portuguese finance ministers seem to consistently be ‘we’re not like Greece’, as if there was some kind of moral culpability in the case of Greece but not elsewhere. How fair is it to single Greece out as a special case?
It feels me with sorrow but not surprise. The local elites are drawing their legitimacy not from siding with logic and with the interests of their citizens but from pats on the back from Berlin, Frankfurt and Brussels. The result is a sinister ‘geography’ lesson where the Irish tell us that they are not Greece, the Portuguese that they are not Irish, the Spanish deny any connection with Portugal, everyone claims, including Greece, that Cyprus is a special case and meanwhile, as they go on and on in this manner, the whole system disintegrates in front of their eyes.
In the under 25 age group, in Europe, almost 6 million people are registered as unemployed. Are there any rays of hope out there for what is now commonly being called Europe’s ‘lost generation’?
No, there is none. At least not until Europe accepts that this crisis is systemic and requires a systematic treatment resembling FDR’s 1932 New Deal.