Monday, May 28, 2018

Steve Keen - My review on Yanis Varoufakis' "Adults in the Room"

Steve keen on Twitter

Yanis has just penned a superb review of reviews of Adults in the Room, and it's prompted me to make my review (which I only published on Amazon) more widely known. Here it is below, and here's the link to the review on Amazon.
Buy Yanis's book. It's the only way you'll understand what's about to unfold in Italy

 A cracking tale of the first act in the destruction of Europe by Europe's unelected elite 

First an admission: Yanis and I have been friends since we met in 1991, when I was doing my PhD at the University of New South Wales and he was a Senior Lecturer at the University of Sydney. This hasn't influence my review however: if I hadn't enjoyed the book, I would simply not have written one.
Having read it, I am confident that it will go down as one of the great political biographies of the 21st century. It is a work that people will turn to when they try to understand what on earth happened during our time: a riveting, compelling history of a critical act in the self-inflicted decay of European civilisation.
Most political biographies are an attempt to rescue a reputation that deserved to be sullied. This one confronts the many barbs that were thrown Yanis's way, but he doesn't refrain from throwing some barbs at himself either when, on reflection, he wished he had taken a different course. That takes a courage and an honesty that I came to expect from knowing Yanis, and he did not disappoint.
As the tragedy of Syriza unfolded in 2015, I had wished that Yanis would deploy the one Big Stick he had: the threat to default from Greece's unpayable loans from the IMF. On its own this was not significant, but as he explains in the book, it would in turn have triggered a cascade of defaults that would have undone Mario Dragi's program of Quantitative Easing.
He did, once, have his finger on that trigger, and decided not to pull it--to wait and leave the act to Tsipras. Looking back in this book, he now wishes he had done so. If he had, he could have forced the Troika to work with Greece on a sensible program, rather than watch them impose one which will lead to Greece becoming Europe's Somalia.
I like to think that I would have pulled that trigger. But I wasn't there in the hot seat: Yanis was, and he tells the tale impeccably well. This is a cracking yarn as well as a priceless political history, with major actors--Dragi, Tsipras, Merkel and above all Schauble--exposed by their own words.
They will not like to have their words and deeds documented this well, which is all the more reason you should read it. 

18 comments:

lastgreek said...

When the going gets tough, Varoufakis gets going ... like right out the door!

Varoufakis is all show.

Konrad said...

When SYRIZA took power in Jan 2015, I called them frauds, since they championed the euro that is killing Greece. A lot of people flamed me for that. One blog even banned me.

I was of course correct.

Yanis Varoufakis’ book spans 560 pages [!!!!] I shall identify Greece’s problem in only 70 words…

[1] Greece has a trade deficit. Therefore Greece has no euros or any other currency coming in from abroad.

[2] The Greek government itself cannot create euros out of thin air, like the banks and the Troika can when they make loans.

[3] Therefore the Greek government must borrow all its euros from banks and the Troika.

[4] Therefore Greece is falling into ever-worsening debt.

[5] Greece is unable to pay back its debt in euros. Therefore Greece makes payments in Greek assets (i.e. the Greek government privatizes public assets by giving them to the bankers and their cronies.)

[6] Therefore average Greeks are living in a nightmare.

WHY IS THIS SO HARD TO UNDERSTAND?

STEVE KEEN:As the tragedy of Syriza unfolded in 2015, I had wished that Yanis would deploy the one Big Stick he had: the threat to default from Greece's unpayable loans from the IMF. He did once have his finger on that trigger, and decided not to pull it--to wait and leave the act to Tsipras. If he had, he could have forced the Troika to work with Greece on a sensible program, rather than watch them impose a program which will lead to Greece becoming Europe's Somalia.

NONSENSE.

As long as Greece clings to the euro while Greece has a trade deficit, there can be no “sensible program.” Default was not a “big stick,” since default would have made no difference at all. Greece will keep going further into debt no matter what. Having adopted the euro on 1 Jan 2001, the Greek government put the heads of 10.7 million Greeks in a hangman’s noose, and tied their hands behind their backs. Greeks can’t force the Troika to do anything.

Greek politicians falsely claim to be victims of an unelected elite. They are liars. Greek politicians agreed to adopt the euro in exchange for being put on the bankers’ payroll. The SYRIZA coalition is part of the scam. It was Greek politicians that destroyed Greece. The euro was simply the poison they used.

Yanis Varoufakis’ analysis of various reviews of his book is nonsense top to bottom, since it ignores the simple items that I have listed here.

I presume that Varoufakis’ book is likewise nonsense from start to finish.

Varoufakis has no clue what's happening, and yet he imagines himself to be a popular hero. Since his nonsense keeps average Greeks confused, the corporate media outlets give his nonsense plenty of exposure.

peterc said...

As far as I can tell from afar, I really like both Yanis Varoufakis and Steve Keen. (Actually, as an undergrad I was in some of Yanis' classes. He is a standout teacher.) But they both appear to be pretty shaky in their understanding or knowledge of macro and especially monetary economics. Anyone who doubts that should check out some of their recent presentations or interviews locatable on YouTube.

I think a lot of academics these days may simply be too busy to read and properly digest work that is outside their specific area(s) of specialization. Both Yanis and Steve claim to have read and understood basic MMT, for instance, but clearly do not understand it very well at all -- especially Yanis. I just watched a presentation where he was addressing people at Harvard. Some of the questions from the floor were mindbogglingly ignorant (especially considering this was Harvard) but some of Yanis' responses were not all that much better.

Often with heterodox economists I would put this down to a lack of mathematical or statistical competence, but this can't be the answer for either of these two. Both had strong training in math. Yanis has a background in game theory and I'm pretty sure Steve has an engineering background. Maybe they didn't do any accounting. I don't know. Many economists do study at least a year of undergraduate accounting, and that would probably suffice for the purposes of following basic points of MMT. I think it simply must be a scarcity of time. There is just too little time for academics to devote to reading outside their area(s) of expertise these days.

Tom Hickey said...

In defense of YV, he was not personally in charge of Syriza or Greek policy. Although he was a minister, he didn't call the shots by himself. He resigned when the leadership rejected his position, as he should have.

As far as his dealing with the Troika bureaucracy goes, he got played. He didn't realize that it's about raw power and they hand now intention of negotiating by moving away from their demands. They put him on, until he finally realized it.

I agree that almost all economist other than the MMT economists seem to be blinded in some way of other about finance and accounting as it relates to economics, SK and YV included.

I was looking at an article of YV recently and decided not to link to it, since it too far off the mark in this respect — taxes "fund" in the sense of pay for.

Taxes "fund" only in the accounting sense of sources and uses. As long as taxes are collected, they will appear as sources that offset uses on accounting records, which is erroneously interpreted as paying for. Same with sovereign debt. They get confused by the accounting because they don't have a good grip on how the system works and mistake bookkeeping for operations.

At the same time, being a Marxian of sorts, YV is way ahead of most other economists in understanding political economy in terms of economic sociology.

Konrad said...

PETERC WRITES: "I think a lot of academics these days may simply be too busy to read and properly digest work that is outside their specific area(s) of specialization."

Pundits, professors, and politicians are paid to lie, especially in the field of economics. Exceptions to this are very rare.

As for Yanis Varoufakis, he is a euro-phile who pretends to be a Greek nationalist. He often tries to rationalize the euro-scam, suggesting, for example, that Greece could adopt a "parallel" or dual currency, even though this would do nothing to stop the hemorrhaging of Greek debt in euros.

Yanis Varoufakis is a neoliberal. The corporate media outlets laughably call him a "radical Marxist” in order to sustain the illusion that the Greek masses have someone who cares about them.

One Greek economist that "gets it" is Dimitris Kazakis, who correctly says that the euro currency is destroying Greece. (Dimitris Kazakis calls Yanis Varoufakis a “con artist.”)

Dimitris Kazakis correctly says that the only hope for Greece is to dump the euro, and go back to using drachmas.

If the bankers and the Troika want to be paid off, then Greece can pay them in drachmas, which the Greek government could create out of thin air.

djrichard said...

Agree with Konrad.

Ideally, EZ would have come up with a eurobond and a fiscal spending apparatus to exploit it, like any rational federal gov. But would the EZ have pursued that if Greece held a gun against the EZ's head with the threat of leaving the euro? Doubtful.

The EZ doesn't want to be saved. Save your nation states. Leave the EZ.

lastgreek said...

In defense of YV, he was not personally in charge of Syriza or Greek policy. Although he was a minister, he didn't call the shots by himself. He resigned when the leadership rejected his position, as he should have.

I knew you'd say that, Tom :)

As Greek Finance Minister, YV reached out to Warren Mosler. According to a dissapointed Mosler, YV was unfortunately out of his depth.

And Yves Smith over on her site excoriated YV's (along with SYRIZA's) amateurish and grossly negligent negotiation tactics with the Eurogroup.

I recall YV casually and confidently saying in media interviewers that there would be no capital controls. Few days later ... capital controls.

Sadl, the best thing that ever happened to YV was the Greek financial crisis. Made him into a celebrity, which he relished. You know, I am surprised he never got an offer from CNN International to host some show. Who knows, maybe when the abominable Christiane Amanpour retires.

Calgacus said...

And Yves Smith over on her site excoriated YV's (along with SYRIZA's) amateurish and grossly negligent negotiation tactics with the Eurogroup.

Varoufakis & Syriza (even Tsipras), for all their faults understand things better than Yves Smith, an extreme doomsayer on Grexit, who doesn't understand basic international law.

The problem was not their negotiation tactics, which succeeded better than I expected, but Tsipras's foolishness. Varoufakis did, as he had said years before, ultimately support leaving the Eurozone over accepting the third memorandum. His replacement by Tsipras showed Tsipras wanted to resign the game. I didn't believe so at the time, because Greece was winning.

So in spite of YV's Europhile positions since then, he did well enough as a Greek nationalist when in power - except for teaching Tsipras economics, which YV could do with learning more himself. (I saw him comment about MMT - "I'm too old to learn a new theory". The answer to that is that economists need more to unlearn things that ain't so than learn new tricks.)

The Greek debt in Euros was not the true problem. The problem is the Euro itself, using which prevents Greece from having a healthy economy. If they just dumped the Euro, reintroduced the drachma and did not default, they would be in the midway position of being a country with its own currency and foreign denominated debt. But it had already been renegotiated to have long terms and low interest, so paying it AND giving the people of Greece a substantially more prosperous society would probably not have been an insurmountable problem.

lastgreek said...

Cal, there was never a Greek Grexit plan, not a serious one. Basically, Tsipras/Varoufakis went to a gun fight with butter knives.

Varoufakis should have been handed the Ministry of Culture and Sports portfolio ;)

Tom Hickey said...

@ lastgreek

I doubt anyone would have made a significant difference. Greece just doesn't have the clout to act independently. The technocrats would have crushed them, like they did YV and Tsipras.

Italy is a different story, as is Spain. Italy, especially, could bring the whole house of cards down.

Calgacus said...

I doubt anyone would have made a significant difference. Greece just doesn't have the clout to act independently. The technocrats would have crushed them, like they did YV and Tsipras.

This sort of nonsense - sorry Tom - is the true problem. And it is partly based on rewriting history to make it seem less stupid than it really was. The technocrats did not crush Tsipras and Varoufakis (who wasn't crushed). Tsipras and only Tsipras crushed himself and Greece. Replace Tsipras with Varoufakis or Lafazanis or Lapavitsas (or Schauble!) and Greece would be out of the Euro and fine by now. No problemo.

Tsipras & Varoufakis et al were "crushing" the technocrats with their butter knives. That's why Schauble surrendered to the maximal reasonable and possible demand from Greece - negotiated Grexit. Schauble had a plan, Lafazanis etc had plans. Plans are nice, but not so essential. What is essential is knowing how to point your guns, to know the difference between up and down etc. To understand truisms like "exports are a cost, imports are a benefit". People who don't understand truisms base their actions on falsisms and end up pointing their guns at their own heads and pulling the trigger out of completely imaginary fears.

International economic relations are not a fight, seeing and framing things that way is very wrong. Bringing the house of cards down is not the object and not a good thing. Clout, except the clout to run your own country is not necessary.

I criticized Yves Smith's ignorance above, she honestly believes that if Greece had just pulled out with Grexit, then the EU would have sent tanks over the border, and that this is implied in the Euro treaties. At least it makes sense in one way, it is an imaginary fear of something real. But Tsipras and too many have imaginary fears of imaginary things.

Tom Hickey said...

We generally agree on economics, Calgacus, but not politics as the sue of power.

The situation in Europe is not chiefly an economic issue. It is a political one over control.

This is the general situation in the world today, as ever, but now with globalization, the stakes are high historically. It's about world domination (global hegemony) and all that means socially, politically and economically. The Western capitalist class and their colonialist compradors are not going to loosen the reins without a fight to the death.

Tom Hickey said...

"sue" = use"

peterc said...

This is interesting Calgacus:

'I saw him comment about MMT - "I'm too old to learn a new theory". The answer to that is that economists need more to unlearn things that ain't so than learn new tricks.)'

Don't suppose Yanis is likely to be reading this thread, but for an economist already with knowledge of PKE and Marx, I think he'd quickly get a grip on MMT basics just by reading some of the early "debriefing 101" posts at billy blog. This was my first encounter with the approach and the logic jumped out straight away. I think someone of Yanis' intellectual caliber would get it almost immediately. Of course there are still nuances to grasp, but these follow very logically from the basics. An effective starting place is billy blog posts 'Deficit spending 101' (in 3 parts), 'Will we pay higher taxes', 'Will we pay higher interest rates' and 'Fiscal sustainability 101' (in 3 parts). The 2013 paper 'Modern monetary theory 101: a reply to critics' by Eric Tymoigne and Randall Wray would be another effective place to start.

I think those are good starting places for economists, especially if familiar with heterodoxy already. For non-economists, other starting places might be preferred, such as Warren Mosler's Seven innocent frauds or Randall Wray's primer at New Economic Perspectives.

jrbarch said...

... I found peterc's Posts to Read First nice and clear too.

peterc said...

Thanks, jr. Not in the same league though. The flattery is nonetheless appreciated. :)

lastgreek said...

@peterc: As I mentioned above, YV contacted Warren Mosler for help. We know this because Mosler talked about it later. Mosler found YV out of his depth -- as in, and I am paraphrasing here, why is this fool finance minister and not minister of culture or something like that :(

@Calgacus: Yves Smith, like Warren Mosler, does not easily suffer fools... and speaking of fools, the Eurogroup easily sized up YV and Tsipras as fools -- hence, why they were able to withstand YV's "crushing blows with his butter knife" LOL

@Tom: You are right -- the Greek government (like all prior governments dealing with the crisis) did not have the know-how. The Tsipras government hoped on getting a lot of sympathy from other euro govenments/political parties and thus forcing their counterparts to give them better terms than they were being offered. When that never materialized, that is when you had the clever announcement of the bogus referendum by the Greek government. This was all an act to save face to be sure. And make no mistake: YV knew it was bogus even though he made it out to be the greatest act by a Greek government since the days of Pericles!... All liars and phonies. What else is new? :(



Tom Hickey said...

YV contacted Warren Mosler for help. We know this because Mosler talked about it later. Mosler found YV out of his depth

This illustrates a real problem. SK and YV are both very smart, are skilled economists, and are also on the right side of the debate.

But they are unable to grok MMT. They seem to suffer from either from superficial knowledge or cognitive bias or both.

This is common, but understandable, as one realizes in dealing with Warren's cryptic messaging which is grounded in an intuitive grasp of the system based on MMT. I realized at the time I encountered it that this is something that one must acquire to grok what is really going on. It requires hard wigging and head-bending.

Probably few people "in the business" have the time to acquire that level of knowledge of MMT that is needed, if only for lack of time to devote to reading the MMT literature as well as gaining the background in accounting, and government finance and operations, while doing everything else they need to do.

YV, especially, was under extreme pressure at that time. He probably should just have trusted WM and done as told.

This is a big hurdle to overcome, and it includes economists, policy makers and the public.