Forest of Dean & Wye Valley

REVIEW: A MASTER CLASS IN ALTERNATIVE ECONOMICS

In John Wilmot, Reviews on December 22, 2015 at 4:30 pm

The Global Minotaur, by Yanis Varoufakis – with a foreword by Paul Mason. Published by Zed Books.

This is an updated edition (brought out, I suspect with the Greek financial crisis in mind) of a book first published in 2011. The author is an economist of world repute. He has taught in numerous universities in the UK and became an MP for the Syriza party in Greece. On its rise to power he was appointed Minister of Finance.
When the crisis occurred, and the Government finally bowed to pressure from the IMF, Varoufakis parted company with his party – and the deal that was imposed over his head.
Now, any book on economics poses difficulties for the lay reader – and I’m no exception. There’s the terminology used by economists for a start. And this volume, by necessity, is quite dense.
But Yanis Varoufakis writes well, and has a lively turn of phrase which helps the reader over the difficult bits. He has been described as an “opponent of austerity”, which is true – but he’s more than this. He can also be described as a critic of capitalism, noting its lurches from boom to slump – a pattern that can be traced back to its birth when it replaced the old feudal order.
Some slumps, he suggests, are major, like those of 1929 and more recently that of 2008 – capable of turning the established order on its head. But he mentions other lesser slumps – such as that of 1847 in Britain. It ended the railway boom abruptly with  stocks and shares going into a nosedive, and a consequential collapse in a number of banks.
In 1873 there was a similar crisis in the USA, again caused by a stock market collapse in railway shares. This led to a six year depression.
THE WALL STREET CRASH:
Fast forward to the roaring ‘twenties and we see the great crash of 1929. By the end of the year, 40 billion dollars had been wiped out on Wall Street, and banks went to the wall. In America 2,293 of them closed permanently. The crisis went global, reaching Europe like a financial plague, affecting heavy industry and the financial markets alike. The “Gold Standard”, which was meant to regulate commerce and the relationship between currencies, collapsed. Despite the good intentions of the “New Deal” in the USA, it took the Second World War to lift the economy out of slump.
At the end of  the war came the Bretton Woods talks, with the USA now the dominant economic power. With the Gold Standard now dead in the water, American economists brought in a new plan to replace it with the US dollar. The “yankee dollar” was to become the currency on which the capitalist world relied. And so it was to remain until the economic collapse of 1971.
2008:
We remember the crash of 2008, of course. Much of the population of Europe and the USA are still feeling the effects. This was another collapse caused by bankers’ greed and lack of foresight. According to Varoufakis, it saw the banking industry go into damage control mode, “desperately trying to stem the popular demand for stringent regulation of their institutions.”
Their argument was that too much regulation would “stifle financial innovation”. As if this “innovation” hadn’t already caused enough damage!  Of course we’re all aware of who’s been responsible for the crash seven years ago. In popular parlance it was the “greedy bankers”, paying themselves massive bonuses regardless of whether the economy or their own part in it warranted these pay-outs.
In Britain of course the “damage control” (sic) worked. Banks continued to operate without the regulation needed to keep them in line, and the champagne continued to flow. A few heads rolled and then it was back to business as usual. Big bonuses are still paid out regardless. And the rest of us still have to put up with conditions of austerity introduced in order (ostensibly) to deal with a crash that we were in no way responsible for.
In his final chapter (“A world without the Minotaur”), the author decides to re-evaluate his position in order to put it to the test. This chapter is an addition to the first edition of the book, published a few years earlier. And here his analysis becomes complicated!
But just to summarise a few points:  the slump of 2008 resulted in a break in America’s pattern of trade deficits, which had relied on the USA absorbing the surplus production and capital from Europe and elsewhere. To put it simply, after 2008 this inflow of capital and goods slumped. Without this global flow of capital etc., profits could no longer be maintained. Once again it was the banks and financial institutions that went down like ninepins.
As for solutions to the problem, Varoufakis comes up with no simple formula. But he does suggest that neither of the responses put into place in Europe and the USA would work.  European countries opted for austerity – or in some cases had it forced upon them. America tried “quantitative easing”, which he says failed to have any positive effect (though, as I see it,  it had less damaging impact on people’s lives than “austerity”).
LACK OF SELF RESTRAINT:
In conclusion, he suggests that both governments and private capital had been guilty of a lack of self restraint in their dealings in the decade leading up to 2008.
Governments had failed to regulate financial institutions, whilst the banking and financial world had thrown caution (and sanity?) to the winds in its greed to make bigger and bigger profits.
But, as I see it, that is what it will always do unless it’s held in check. Meanwhile this book by Yanis Varoufakis is an interesting guide to both the development of a volatile capitalist system and the roots of its crises in the last century.
JOHN WILMOT
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  1. I like your review style, John. Very authentic :). Would love to feature your reviews in our weekly curated email digest that goes out to thousands of people.

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