Три племени бюджетной экономии

Aug 30, 2018 Yanis Varoufakis

АФИНЫ – В периоды рецессий ни одна политика не является столь же саморазрушительной, как стремление верстать бюджет с профицитом ради обуздания роста госдолга. Это так называемая политика бюджетной экономии (austerity). Сейчас, когда мир приближается к десятой годовщине краха банка Lehman Brothers, будет уместно задаться вопросом, а почему эта политика оказалась настолько популярной у политической элиты Запада после схлопывания финансового сектора в 2008 году.

Экономические аргументы против этой политики прекрасно известны. Спад экономики по определению подразумевает снижение расходов частного сектора. Сокращая бюджетные расходы в ответ на падение налоговых доходов, правительство невольно подавляет национальный доход (который представляет собой сумму частных и государственных расходов) и – неизбежно – свои собственные доходы. Тем самым, оно не достигает изначальной цели снижения бюджетного дефицита.

Очевидно, что должно быть иное, неэкономическое объяснение причин поддержки политики бюджетной экономии. И действительно, те, кто поддерживает такую политику, делятся на три довольно разных племени, каждое из которых выступает за неё по своим собственным причинам.

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0 Comments on this paragraph, 35 in all 35 Comments on this article

Yukon John Sep 20, 2018

Wondering whether another “tribe” is possible: Greens, who see the perpetual loop of chasing growth to repay debt as the impetus to failure. Yanis writes of debt’s insidious theft from future generations in his book to his daughter. Shouldn’t we be seeking other models - Degrowth perhaps?

MMT is just Debt in sheeps clothing. We need new thought! Could we be on the brink of anew paradigm?
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vivek iyer Sep 14, 2018

No. Steinbruck gave an economic reason, viz Agent Principal hazard, but it is not a clinching reason. Rather it is a blunt instrument arising out of an arbitrary constraint. Better Mechanism Design is the correct policy instrument.

Stupidity consists of thinking there are only two alternatives when the policy space is multi-dimensional. Sometimes stupidity is tactical and seeks to assert 'agenda control' But it is still stupidity.
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Ran D Sep 11, 2018

"..it is powerfully motivated by an ideological commitment to small government, which in turn veils a more sinister class interest in redistributing risks and losses to the poor."

I run a medium size tech businesses in the US. My VP for the first four years of our 24 years in business is a Greek guy. Really an amazing, driven, generous, honest, clear thinking person. He decided about 20 years ago to cash out, and return to Greece to start up there in Greece. He began with about 28 employees. The stories he told of endless government bureaucrats literally demanding bribes was unbelievable. The bloated government of Greece was strangling any and every competant and motivated entrepreneur.

I am gernally symptahtic to greece, and certainy do not supbscirbe to all the simplistic blaming of Greece for all its economic issues, which of course in involve both internal and external fault/blame. Those in the inside cast the blame externally and visa versa. I don't agree the Greeks lack work ethos.

That said I believe professor Varfoudakis is really off base, and is aping the simple mindedness of Greece's critics (and critics of himself) by engaging in generalizations and broadly smearing people who support limits on government size and reach as pressing a "sinister class interest" or "tribal." Is no government too big until it occupies all the space in organized and individual decisions?

And what are the interests of the tribe of government bureaucrats?
- Heinz Günther Sep 14, 2018
  
  I think that a distinction need to be made here, between austerity and bad management.
  
  Greece clearly has a lot of problems on governmental side. Corruption clearly is an issue as well, as as a government way out of size.
  Limiting the governments size is all well, but can mean different things. It could mean make it run more efficient, or it could mean to reduce its responsibilities.
  While making a government more efficient will decrease its costs, you can as well reduce the costs without limiting its size!
  
  Hence, limiting governmental size does not necessarily equal to austerity.
  Therefore austerity does not equal a solution for a government gone wild.
  
  The big problem, and one that Yannis is actually never addressing, is that in Greece governmental incompetence is the root cause of the crisis. It is not government spending per se, but as a result out of bad management.
  
  So, to conclude, that the greek government need to limit its size is certainly part of the solution, as well, as that maybe some competence in policy making is needed. A result of this will be, that spending is cut.
  
  On the contrary, cutting wages and pensions, nearly shutting down the health system and as a commentator downside praised selling everything one can will not necessarily lead to a responsible government and policy making. This is austerity, cutting spending as means, not as a result!
  
  Austerity itself has been proven again and again as the worst solution to a crisis. It did never work and will most probably not work in the future. The consequences can be enormous. People who defend austerity either know that but search their own advantage, or they are just uneducated to the fact, that austerity is a stupid idea.
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John Alexander Sep 8, 2018

“Oddly, it did not occur to him that, at least during a downturn, democratic options are best secured without fiscal tightening, simply by increasing taxes for the rich and social benefits for the poor.”

Here Yanis comes dangerously close to advocating progressive taxation, which, he will probably agree, is virtually a taboo subject in the western media. Well, in the British media at any rate. And where Britain is concerned it’s interesting to note that here we have a Greek who writes better English than even the most established of British journalists. Take the fused participle, for example, which now peppers every page of the British press and is arguably the ugliest aspect of modern British journalism: this perceptive economist has sufficient knowledge of classical grammar, or sufficient aesthetic sense, to abstain completely from using it.
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Per Kurowski Sep 2, 2018

“Enemies of big government” Who are they? Those who for the purpose of the risk weighted capital requirements for banks assigned a risk weight of 0% to the sovereign and 100% to the citizens? Those who gave Greece a 0% risk weight and doomed it?
http://teawithft.blogspot.com/2018/08/what-if-germans-knew-german-authorities.html
- Per Kurowski Sep 19, 2018
  
  In a world of ultralow interest rates, QEs, growing debt levels almost everywhere; it is quite hard to understand that austerity has been imposed.
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Barry Rosenfeld Sep 2, 2018

One would expect that private sector indebtedness was nonexistent. House purchases are fine as long as income covers operating costs, including debt charges. No corporation is debt free. Perhaps if government had serious capital budgets and used debt to finance these public goods, it would be easier to put current revenues and expenditures (including debt charges) in balance. The entire issue seems to entail the willful confusion between capital investments and current spending, to the point in which politicians refer to an increase in transfer spending as "investment."
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B Wilds Sep 2, 2018

We have read this all before and the debate continues. We would be far better off if the term austerity was replaced or renamed sustainable spending. An article that was published several months ago on Project Syndicate by James McCormack titled, "The Quiet Demise of Austerity" states the merits of austerity seem to have been forgotten just when it is needed again.

The article below argues that we should at all times conduct business and run our government with responsible reigns on spending. If a government spends and runs its business in an austere way the issue of when to start cutting or tightening should never surface.

http://brucewilds.blogspot.com/2017/11/austerity-should-be-renamed-sustainable_1.html
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A C Sep 1, 2018

In case you are reading the comments, Prof Varoufakis, I would love to read your explanation of the state of Venezuela in your recommendations for its salvation.
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vivek iyer Aug 31, 2018

Varoufakis teaches Economics. Perhaps for this reason, he invokes at least one well known fallacy Economics teachers warn against in each paragraph of the above.

Pursuing a budget surplus in recessionary times need not be 'self-defeating' if it decreases the current account deficit by a greater sum. This means there is a net injection and a higher multiplier. This is Econ 101. It is what Greece should have done. It took massive austerity to trim its current account deficit. A better way to go would have been privatisation of ports (which has now been done) etc accompanied by greatly expanded ease of doing business so as to boost exports. Austerity should have been marketed as 'Thrift' and cutting back on conspicuous or wasteful expenditure by both the Public and the Private Sector. Rationalisation of benefits and transfers while providing a universal safety net would have improved both the supply and aggregate demand side.

In his second paragraph Varoufakis says 'An economic downturn, by definition, implies shrinking private-sector expenditure'. This is not the case. Private sector expenditure can be increasing but, if the marginal propensity to import has increased, then there is a net leakage.

A Govt. which cuts wasteful spending in response to falling tax revenue does not depress national income- more particularly if that spending is going on imports. Varoufakis sees an inevitability where none exists. It is not the case that reducing transfers will lead to a bigger deficit. On the contrary, it may reduce the marginal propensity to import by more than the marginal propensity to save and thus leave a bigger multiplier operating on a net injection.

There is no non-economic rationale for supporting austerity. Varoufakis provides none in connection with his soi disant three tribes.

1) ideological commitment to small government is a purely economic rationale based on 'Ricardian equivalence' and the 'crowding out effect' and the theory of Agent Principal hazard and so forth. Redistributing risks is wholly economic.

2) Varoufakis mentions a German politician who, having been trained in Economics, not Politics or Aesthetics or Theology, gave a purely economic reason for limiting deficits- viz. that it reduced Agent-Principal hazard which otherwise might undermine Democratic Social Choice. It is very foolish of Varoufakis to mention Germany. That country came out of the crisis in tip top shape because of their earlier Supply side reforms.

3) The Republicans cut taxes because the Party is run by rich people. This is purely economic behaviour. America did its Supply side 'workfare' reforms under Clinton. That is why unemployment quickly recovered.

Varoufakis speaks of 'cartelization' - which means restrictions on supply- in the context of financialization. Is he utterly mad? Does he really not know that there was a gross over-expansion of all sorts of financial assets? In which sunrise industry has there been 'hyper cartelization'? None. Real prices have fallen while market power has increased- precisely because of financialization under liquidity trap conditions. Anwar Shaikh has provided a proper Marxist explanation of this aspect of Capitalism's 'turbulent flow'. Varoufakis, lazily, keeps repeating some Sophomore fallacies of a vulgar Kenynesian sort though describing himself as a 'Hayekian-Marxist'. Economic theory predicts that, under Rothbard's law, stupid Economists will commodify themselves as the worst representative of their stupidest thought. Well done, Varoufakis! You have established your niche in the Global Market for crap Economics!

Still, one thing puzzles me. Why does Varoufakis say Republicans are 'determined to dismantle America's New Deal'? It was dismantled a decade before he was born. Perhaps he means LBJ's 'Great Society'? But Clinton took an axe to it.

How can any Economist be so ignorant? The answer is the thing is not possible. Clearly Varoufakis emerged into our time-line from an alternative Universe where Nazis and New Dealers do battle in the streets. The people of Greece may wish this fellow had remained in his own dimension. For the rest of us, his articles provide a valuable didactic tool because every single paragraph he writes contains at least one economic fallacy and one glaring error of historical fact.
- Heinz Günther Sep 14, 2018
  
  I am sorry, but your second paragraph is already disproved by reality.
  
  "A better way to go would have been privatisation of ports (which has now been done)[...]" It has been done long time ago and proven as the worst thing one can do. One will in general only be able to sell profitable parts of infrastructure and in a crisis only for 50cents on the Dollar (as done in Greece on airports, ports etc). So you monetize future income way under its value. Short term relieve? Maybe! Solution? Not at all, but cause of future problems!
  
  "accompanied by greatly expanded ease of doing business so as to boost exports." Doing business is not that difficult for European companies and not more difficult for foreign ones than in other parts of Europe. And hey, you dont even have to pay taxes, isnt that the neoliberal dream of a "business friendliness"? Boost exports is a great idea, and does work fine. Unless, basically every other country is cutting expense too.
  It always strikes me, that the most basic rule of trade (to sell something, someone must buy) is so easily ignored, once an economist has the chance to explain something in terribly difficult terms.
  
  Honestly i didnt read much of the rest of your comment. Though one point is striking and that is "It is very foolish of Varoufakis to mention Germany. That country came out of the crisis in tip top shape because of their earlier Supply side reforms."
  
  Germany came out tip top of the crisis, is because it did not have a crisis!
  - vivek iyer Sep 14, 2018
    
    I am sorry you are incorrect on the facts. Greek ports were loss making under public ownership/management and starved of funds. The Chinese half of Piraeus, eight years ago, was paying taxes and growing volume as well as jobs. The Greek half was bleeding the exchequer. Sadly, even know Greece is dragging its feet over the smaller ports and this is damaging the country's competitive standing.
    
    Economists give the name 'selling the family silver' to your fallacious argument. Taxes on well run privatised industries yield far more than net Social benefit than subsidies/ loans to badly run public sector enterprises. Varoufakis, a self proclaimed Hayekian, admits this. He has repeatedly said the Public Sector in Greece is so corrupt and incompetent it should not run anything.
    
    Greek ease of doing business is appalling and is quoted as the reason why it continues to lag despite property prices having come down a lot. Of course, front loading of corporate and property taxes does not help but even so, ease of doing business is cited as the main reason deterring fdi or loans to Greek businesses in relevant sectors.
    
    Germany had accumulated surpluses because of the Hartz reforms and going into Euro undervalued. As a big exporter, of course it was hit but escaped a haircut for its savers thus there was no wealth effect. Further, continued Chinese growth buoyed up its capital goods exports. Obama's mistakes in backing Green Tech actually helped Germany.
    
    To sell something you must make something the market wants. Nobody wants to pay Greek bureaucrats and politicians for screwing up their country. However, because of Greece's natural and acquired advantage relative to other countries in the region, everybody wants to invest in Greece and make it an export platform- if only the bureaucrats and politicians will stop screwing up that country.
    - Heinz Günther Sep 14, 2018
      
      You really see the argument, that a state enterprise of a communist regime, which is heavily export oriented ships a lot of volume over their own port as an argument? And further you want to make the argument, that a private owner (as private as the peoples republic of china) runs an enterprise better than a public owner (as the state of greece)? Do you see the irony in what you wrote there?
      
      As towards loans to greek business, just ask yourself, did you buy any greek corporate bonds?
      
      Germany had accumulated a surplus as result of the hartz reforms in what?
      
      And what haircut? Germany was never close to a haircut! Same as nearly all other european countries!
      
      Beeing affected by a crisis is not the same than having one of your own. Germans dont take loans and its economy is build on small companies which dont take loans as well, it is that simple (okay, they take loans, but way less). Hence there was no crisis in private debt.
      - vivek iyer Sep 14, 2018
        
        Cosco is owned by the State but operates in a Capitalist manner. It does not featherbed its employees. There is no 'iron rice bowl'. Genuine private sector investors would have done a better job but they were scared off by erratic Greek Governments. Cosco can rely upon the clout of the Chinese Govt. which is already using Greece as a Trojan horse within the EU. Trump's America also knows how to use clout to pressure Greece to sell assets to its favoured enterprises. Meanwhile entrepreneurs- like Iskandar Safa- who are not backed by a big power have to go to court because the Greek Govt. keeps changing the rules. It is more difficult for ethnic Greek entrepreneurs to challenge the Govt. because of how their action may be perceived or misrepresented. Otherwise there would be no lack of P.E finance for both Ports and Shipyards which would yield a bonanza for the tax-man. The difficulty is that different Govt. depts act contrarily and the Courts take a long time to decide things and so there is too much uncertainty and opacity.
        This is what is meant by lack of 'ease of doing business'. What is the result? Big Powers can use their proxies to recoup their investments by fair means or foul while advancing their own agenda. Greece is left with a begging bowl. It won't be able to tax these foreign backed entities properly or even regulate them in the same way it would have been able to equitably tax and regulate genuine private sector entrepreneurs. Greece has made itself the victim of neo-colonialism because of its erratic behaviour and failure to improve ease of doing business and create a predictable 'ordo' business environment.
        
        Hartz reforms lowered per unit labour costs by throttling wage growth. This gave Germany a structural surplus. Consequently, it could implement 'kurzarbeit' to maintain Human Capital when the recession hit while also bailing out German banks and thus preventing Savers losing wealth (which would hurt Aggregate Demand). Thus no German took a 'haircut'- i.e. lost a portion of their savings- nor lost entitlements. Greeks took a massive 'haircut' and entitlements were very gravely curtailed causing massive suffering to decent ordinary people who had worked hard and built up the country.
        German 'export sophistication' is a function of a social compact as well as the persistence of a 'mittelstand' with characteristics of patrimonial rather than financialized managerial capitalism.
        
        Greece could also have had 'export sophistication' either under floating exchange rates or else if it had implemented an efficient, fast paced, ordoliberal social compact. Instead it has huge administrative and judicial delays and is thus 'erratic' not 'ordo'. There is no 'liberal' component whatsoever. There is no 'Social Minimum'.
        
        Varoufakis says there are three tribes of Austerity. As far as Greece is concerned there is only one Tribe. It consists of politicians who falsely claim they can get 'free money' from somewhere- Brussels, Berlin, Beijing, maybe it will be Bahrain next- and thus there is no need to stop running the country in the stupidest and laziest way possible. When the ordinary people don't get any of this imaginary 'free money'- instead they have to emigrate or live from hand to mouth- then this Tribe talks nonsense about 'Three Tribes' (why not Twelve?) so as to exculpate itself from all blame.
        
        I suppose Bernie Madoff could say 'the reason my investors lost all their money is not because I am a crook but because of the three Tribes of Austerity- damn Republicans and damn Social Democrats and this damned cartel based, hierarchical, globalised financial system which looks down on the son of a plumber who didn't attend Harvard or get an MBA or Law degree or CPA qualification.'
        
        Madoff is in jail. None of the Greek politicians who lied and cheated and defrauded the voters has suffered a similar fate. Thus, Greece will continue to underperform relative to its tremendous endowment of Human Capital.
        
        Heinz Günther Sep 14, 2018
        
        Very impressive, so a successful government enterprise acts like a private one, therefore private owned > public owned, theory still intact! Wuhuuu
        
        Oh certainly, it treats its employees bad therefore act like a private enterprise, that is a very unique distinction (The iron rice bowl they dont provide is called workers unit and is a basic right and a major achievement of modern times btw)
        
        This => "as well as the persistence of a 'mittelstand' with characteristics of patrimonial rather than financialized managerial capitalism."
        is the part, where you, absolutely unnecessary use jargon, just if you wonder.
        
        It is easier to say, that german small and midsize companies are on the one hand mostly family owned with a high degree of equity and less dependence on loans and on the other they are the backbone of the german economy. Doesnt sound so cool and kind of proofs my point, that germany was affected by the crisis though had none of their own.
        
        The first roots of Kurzarbeit went back to 1910. One can make the point that without the Hartz reforms (named after the criminal Peter Hartz, should never went unmentioned) germany would have been unable to keep Kurzarbeit, but then again the Lizard People...
        
        Besides that i do agree, that greece has structural problems. And in difference to the other PIGS states, Greece is the only state where the government caused the crisis, which then spread to the greek banks.
        Also Greece needs to address these issues and it most definitely missed the point to do that by at least a couple of decades. On this I just misunderstood your point.
        
        Still, austerity is no solution, nor even a band aid.
        
        You can defend it, that is your right, but even the IMF, which basically invented this stuff states now, that it might not work and certainly did not in Greece.
        And they did the calculations based on economic theory and they presented their numbers and they... were soooo wrong, so so wrong that they needed to acknowledge that maybe the theory is flawed.
        
        What always struck me is, if Greece would have solved the crisis by becoming export oriented and a net exporter certainly, and so would have done Spain, Ireland, Portugal, Italy, USA, Cyprus, etc. who would be the importing party?
        
        vivek iyer Sep 14, 2018
        
        The Coase & the Myerson general feasibility theory show why Public & Private Enterprises should act in exactly the same way. Kantorovich has proved a similar result linking the transportation problem, as dual, to optimal shadow price vector. You may believe all this is jargon and thus meaningless and so only you are wise. No doubt you have a similarly cavalier attitude to the theory of General Relativity or the Standard Model of Quantum Mechanics. If so, Varoufakis is the man for you. Buy his books.
        
        The IMF has a narrow remit. It can squeeze out a corrupt dictator- like Suharto- or it can let a Democracy like Greece go down the toilet. Neither the IMF nor the World Bank has ever employed one single intelligent economist. The same is true of virtually every economist who ever worked for a Central Bank. Why? A country's problems are not solved at that level. All that matters is incentive compatibility under a bond of law.
        
        It is true that German economists are considered to be of poor quality. However, as a Society, they at least understand the importance of the Law. Economic performance is often in inverse proportion to the number of first class economists a country produces. On the basis of your comments here, I feel you should retrain as a German Economist. You will find in that field the esteem that has otherwise eluded you for reasons it were scarcely kind to spell out.
        
        Who will Greece export to?- you ask. That is a question worthy of the great mind of a Duhring or, indeed, a Sinn. Good luck to you in your new career as a great German Economist. Reinvent the wheel- but make sure it is square.
        
        Heinz Günther Sep 14, 2018
        
        I did never say that all of it is jargon, i made a very specific reference, therefore your over reaction seems a bit like the dog who got bitten. I also never said that what you expressed in jargon was wrong, just that, counter to what you explain below, it was absolutely unnecessary.
        
        But yes, a lot of what you say does not make any sense once one spends a moment to think about it.
        
        To state that public and private enterprises should behave in the same way, always and as an absolute is nonsense, which is very easy to see once you think about the reason for their existence. Actually something you learn in germany in 5th grade, maybe thats the reason we are so bad economists? I dont know.
        Public enterprises for the most part exist to serve a given purpose, which does not change that rapidly. Private enterprises exist for the single purpose of earning money, thats how nokia went from rainboots to mobiles to cameras, while the Deutsche Bahn still does train stuff, even on lines that are not that profitable. They serve a purpose. Though private companies can do train stuff as well, way more profitable. If both would behave the same way, most people in germany would be pretty stuck in their towns.
        Should they probably have the same or similar strategies to act efficiently? Yes they should, at least most of the time.
        
        If you really compare theory of relativity with basically every theory of economics, its actually funny... Because its both called theory? You are aware that physics is a real science? Economics is not... I hope that is not shocking to you...
        
        It is quite funny as well, that you state i had to be the only wise one only to state later as well, that IMF economists are basically stupid, and central bankers too.
        
        To see where the jargon and complexity is blurring the mind is btw not that difficult. Take every Theorie that postulates a uniform savings rate independent of income. Really, do you need to an economist to know that people that earn a lot safe a lot and that poor dont?
        
        And as another commentator already made aware, how often did ever someone say to you "due to the tax cuts that i expect as a result of the austerity policy i bought a new car." Seriously, how often? Or is it more likely that if you cut retirement payments, retired people spend less money simply for the fact that, well, they have less money to spend?
        
        And seriously, who would Greece export to? I mean that is the basis of your theory, right? Greece just needs to export more, import less? so export to whom? Come on, you are smart, certainly smarter than the IMF economists, you got it figured out, hm?
        
        vivek iyer Sep 14, 2018
        
        The Germans weren't stupid by nature, their pedagogy made them so. The ignored Gossen- who anticipated Jevons, Walras etc- in favour of worthless nonsense such as you write. To be clear, Economics is just an optimal transportation problem, that is all. It does not matter whether the result is achieved by a decentralised process using the price mechanism (with subsidies and taxes to take care of externalities) or whether it is done by a Central Planner using shadow prices. Kantorovich figured this out and got a Nobel. His work is useful for Physicists just as much as for O.R.
        
        Still, even if German pedants were worthless, Germans knew how to economise so- though they fell prey to very stupid ideologies- they were able to do quite well in a material sense once they understood that thrift, hard work and upholding the Law was all that mattered.
        
        I don't say the Germans are good lawyers and in Jurisprudence they produced only the vile Carly Schmitt, still- as a people- they are not to be despised.
        
        I constantly read 'due to expected change in taxes fleet orders are up or down by x per cent'. A change in the tax treatment of capital gains is correlated with a rise in luxury car purchases in financial centers.
        
        Greece can produce things the same way any other country can. If its price is lower it sells more. Do you really not know that?
        
        Oh dear! I just understood what you are doing. I thought you were trying to become a German Economist. I now realise you were showing off the famous German sense of humour- which, as everyone knows, is no laughing matter.
        
        Heinz Günther Sep 14, 2018
        
        okay, okay, i think i got it.
        
        Varoufakis is obviously stupid, as well as central bankers and certainly IMF economists, and German economists and obviously Germans in total, though reassuringly not by nature.
        
        There is just one thing that remains quite a riddle to me. You write:
        
        "Varoufakis mentions a German politician who, having been trained in Economics, not Politics or Aesthetics or Theology, gave a purely economic reason for limiting deficits"
        
        As germans are stupid, and especially german economists are known to be terrible in their profession, doesnt that prove Varoufakis point?
        
        Or, if Varoufakis is stupid for calling Steinbrück stupid, even though Steinbrück made a perfectly economically justified point, doesnt that disprove your point that german economists are stupid?
        
        And if it is a lucky punch by Steinbrück couldnt it be, that the IMF would be as stupid as Steinbrück, but might still have a point about austerity?
        
        If stupidity is a reason to banish all of ones output as irrelevant, than again Varoufakis would have a point, but that would make your argument faulty.... Which would be extremely unlikely, or?
        
        vivek iyer Sep 14, 2018
        
        No. Steinbruck gave an economic reason, viz Agent Principal hazard, but it is not a clinching reason. Rather it is a blunt instrument arising out of an arbitrary constraint. Better Mechanism Design is the correct policy instrument.
        
        Stupidity consists of thinking there are only two alternatives when the policy space is multi-dimensional. Sometimes stupidity is tactical and seeks to assert 'agenda control' But it is still stupidity.
        
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- vivek iyer Sep 1, 2018
  
  I wish to address the following criticism of my comment- 'Your use of jargon to inflate the importance and correctness of your response has a number of negative effects both on your thinking and on your ability to understand the real nature of the issues you are trying to debate.'
  
  To clarify, what I am saying is Varoufakis is a Professor of Economics. He writes books on the subject. He claims to know mainstream Economics of the sort taught from High School to PhD level all over the world. Thus, it is correct for me to use Economics jargon to show that every single paragraph of what he has written contains a fallacy. He could easily avoid this just by toning down his language, for e.g., by saying 'is likely' rather than 'is inevitable'. Alternatively he could quote empirical results- indeed, he could, like Krugman, do a couple of 'back of the envelope' calculations himself, or better still link to an econometric result he has derived. If he did this, his credibility would increase.
  
  Just imagine what would have happened if, in early 2015, Varoufakis and other academics elected on the Syriza platform, had mobilised Econ theory and econometric results to show that 'price stability' is multiply realisable and thus there was no legal barrier to pursuing an expansionary policy. Recall that Draghi, of the ECB, had won a legal case against the Germans permitting quantitative easing. So, we know, the thing could be done. If Varoufakis and his colleagues had made the case that what matters is the Full Employment Budget Surplus, then it would have been much easier for PIGS to get support. Bureaucrats in various ministries would be able to say to their Ministers- 'this plan will meet the legal challenge. You can back it safely.'
  
  I don't say that Economic theory has some magical power- successful countries break its supposed 'laws' all the time- however, if you are a professional Economist, then you should couch your arguments in the correct 'jargon' and garner empirical support for your view. Then people can take you seriously. However, if you talk nonsense, people will think there is no Economic case for your view- that is why you are just blustering.
  
  Suppose a Doctor says to you- 'please change your diet. Your blood test shows elevated cholesterol which has a proven relationship with heart disease'- you are inclined to do as he says. However, you will disbelieve him if he says 'Change your diet otherwise the Lizard People who secretly control the Vatican will come and poison you while you are sleeping. Everyone will think you died of a heart attack. The truth, however, is that Lizard People have murderous intentions to people who eat bacon sandwiches.'
  
  There are no non economic reasons for proposing 'Austerity'. No politician has said 'we must consume less so as to save our souls'. Once we understand this we can easily defeat flawed arguments for Austerity by showing how a better outcome can be achieved by helping, not hurting, working people and families. As a matter of fact this was the 'liberal' part of the 'ordoliberal' pact. It called for a universal safety net- which Greece never implemented- as the other side of the coin of fiscal rectitude and price stability.
  
  It is more exciting to read a paranoid narrative featuring secretive elites who may be Lizard People from Planet X. However, this does not help anyone- except the author who makes a lot of money.
  A criticism of my comment reads- 'Y.V.s’ point of a cartel is not the literal cartel from a dictionary of economic theory and to argue against is in such a way is not just pedantic, it again shows your inability to think outside of the constraints of your precious theoretical models'. When a Professor of Econ uses the word 'cartel' we expect him to literally mean 'cartel'. We don't expect him to talk nonsense unless he is either stupid or trying to bamboozle us or both. We can easily think outside the constraints of Science and Rationality and say 'the Lizard People hyper-cartelize the financialisation of the globalised NeoLiberal nomenklatura which is why my neighbour's cat is spying on me.' But, what good does that do?
  
  The truth is that, during the eighties, Hedge Funds gained salience. Private Equity meant that 'hyper cartels' of Corporations ceased to be cohesive. That is why the Galbraithian 'fix-price' model collapsed and one source of inflationary bias disappeared. Unemployment proved to have no effect on voters. In the Nineties, they welcomed 'workfare' type Supply side measures which is why America, UK and Germany showed elastic response of Unemployment to the financial shock. Varoufakis is the same age as me. He saw this with his own eyes just as I did- unless he is really from a different dimension. Why is he writing this foolish, late Seventies type, nonsense now? Is it laziness or shrewdness? It does not matter. What matters is that he is rewarded for doing so. This is a good example of 'market failure'.
  - Elizabeth Pula Sep 10, 2018
    
    Super commentary. People like me will get to watch and hopefully not suffer too much, while the "dark money grabs" play out behind-the-scenes that sort- of get reported. I know that's jargon, but that's my level of my expertise!
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- joe @joedekadt.com Sep 1, 2018
  
  Dear Vivek,
  
  What’s interesting to read in these comments and is especially evident in your response is that the more opposed to Yanis' view point the writer is the more the critique is couched in technical jargon. And I am not using the term jargon uncautiously. There is a push back in the study and implementation of economics and economic theory against the fetish that has existed for decades to turn it into a hard science. Your use of jargon to inflate the importance and correctness of your response has a number of negative effects both on your thinking and on your ability to understand the real nature of the issues you are trying to debate. Your obsession with quoting theory rather than understudying what it actually means to have your life destroyed by the actions of a government’s economic policy can be summarised by unpicking a statement you make as self evidently true that shows in no uncertain terms the complete logical fallacy of jargonising economic theory and human behaviour.
  
  “Ideological commitment to small government is a purely economic rationale based on 'Ricardian equivalence' and the 'crowding out effect' and the theory of Agent Principal hazard and so forth. Redistributing risks is wholly economic.
  
  What is extraordinary about this statement is that is it true but not in the way you would hope those of us reading it would think it true. It is admitting that the ideas you are proposing are based on completely discredited models that attempted to black box the behaviour of humans so that economist could create mathematical formulas about the way the world of economics works. Ricardian equivalence… the idea that a Greek pharmacy owner with a few extra Euros will save that money to pay the higher taxes that he expects to be hit by in the future because he believes that the government's funding of it’s economic policy is unsustainable. It’s the same with agent/principal hazard. Human beings just don’t act like the fabled homo economics of your economic theories. And so the irony of your statement, the crux of why you believe Yanis to be wrong is to say that a government’s primary role is to manage the economy based on discredited theories. Bravo.
  
  Even for a civilian like myself, someone who hasn't been trained in the war arts of economic theory, it’s so easy to see that virtually your entire rebuttal of Y.V.s’ article is the result of a dangerously flawed idea that humans act like equations. The really shocking thing about this kind of thinking though is that it allows you to dismiss as white noise the collateral, emotional and environmental damage that your theories create.
  
  I suggest you pop out some day from your ivory tower and go see how the world is burning as a result of the failed economic policies of the past few decades. Y.V.s’ point of a cartel is not the literal cartel from a dictionary of economic theory and to argue against is in such a way is not just pedantic, it again shows your inability to think outside of the constraints of your precious theoretical models. Because what your rebuttal is saying is that what we see around us today is the correct system for governance and nothing needs to change.
  - Elizabeth Pula Sep 10, 2018
    
    Very valid, all three of you guys write so well, and make such valid comments. Change is really the only constant factor, and it is just so hard to think and write about by anyone, at any one time, or different times too.
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Janos Nagy Aug 31, 2018

Had to stop reading at the begining.

What austerity has to do with tax cut?
Especially when the government still has a deficit spending of a trillion plus.
And secondly tax cuts not necessarily means less revenues for the government.
But isn't interesting that the left and globalists propagating that tax cuts is bad when its for a domestic economic output but its ok for an imported economic output called duty!
Its just horrible to make a domestic economic output cheaper or more money to spend, but its like the government absolute duty that an imported economic output is cheaper by less tax
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Jonathan Engel Aug 31, 2018

One of the issues, of course, is that prosperous conditions are not conducive to overhauling the state bureaucracy, because there is no push behind this uncomfortable process, and therefore it's when resources are under pressure that decisions "must" be made. The article however is interesting, and thought provoking, and I would propose adding another (naughty) category: the ecologist "lobby" which is pushing for less growth, and a turning back of the economic clock to more austere times, by restricting access to cheap energy, cheap transport and "convenience" in general.
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otto ruthenberg Aug 31, 2018

A blatent case for transfers from wherever to continue overspending - effectively extraction as promises of payback never come true. Varoufakis will earn plenty of praise from the non-ressourced but creditors will and must cut their exposure to contexts that adhere to such views that effectively separate Europeans - not helpful!
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mike flynn Aug 30, 2018

Mostly sympathetic to Yanis' Arguement. Banks got 800 Billion in soft landing credits from 2008 crash. As an American, I for years have called out the injustice of capping Social Security Taxes at a relatively low income level. BTW - no way SS and Medicare get killed. We'll just print money.

Anyway, given the glaring greedy flaws in 'liberal' economies, wonder what Yanis' take is on China economic model? Or present an alternative?
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M M Aug 30, 2018

Interesting article from the author. It would have been more enlightening if the author had mentioned the major forces behind the tribes (meaning "the real culprits"), such as the ones that propelled Trump to power (and I am not talking about the voters); the ones that really hold the strings in the EU and some parts of the ME and Asia (such as the monarchical establishments); and last but not least, the vested interests in the form of the "lobbyists"!
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christopher tingus Aug 30, 2018

All quite interesting in your perspectives....unfortunately all is quite simple...less corruption, more transparency and harsher reigns on govetnment spending as all are bankrupt including the US where Barack Hussein Obama doubled the federal deficit handing out fiat dollars to those less deserving...the indolent...unwilling to put their big boy pants on and get a job...no matter and understanding that education is the way to pull oneself up to secure a meaningful Life eventually able to contribute....Enroute to another global conflagration simply because old generational stonewalls continuously and stubbornly exist, the obvious laziness among many looking to government to bail them out does not bode well and in sync with this evolving technological revolution whereby the less educated and unmotivated are remain far back in the pack!
- John Doyle Sep 2, 2018
  
  Do you understand what is a budget deficit? It's pretty clear from your text that you have little idea. Please explain?
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Jose Antonio Vanderhorst Silverio Aug 30, 2018

As with many other economists that operate with restricted feedback, I have tried to get Yanis respond my comments without success for quite sometime. Austerity is still driven because economists remain under The Wealth of Nations paradigm set up for good capitalism where opportunities are only for the few with national leaders (under a global leadership vacuum) where money governs. To develop the alternative to all kinds of austerities measures, economists need to embrace The Wealth of Globalization paradigm in order to help emerge great capitalism where opportunities driven by institutional innovations will be available to all, with global leaders where authentic trust governs rather than money.

To get a better understanding, please consider responding to the first three comments conversation at this moment, that I initiated under the Aug 28, 2018 article "The Myth of Secular Stagnation" by JOSEPH E. STIGLITZ, which says:

I wanted to write a comment under the Joseph E. Stiglish’s Jul 30, 2018, article “The US is at Risk of Losing a Trade War with China,” but it had to many comments already. That has been my experience with the great majority of articles that attract me, for example, in Spain’s EL País newspaper, which translated it as "EE UU y la guerra comercial," with the subtititle "Trump tiene un problema, pero no es con China. Está en su propia casa: el escaso nivel de ahorro," published by El Pais.

Adding today’s numbers in brackets, next is a translation of my comment that I understand applies here as well: “How weird. The English version of this article currently has 144 [148] comments and this having passed 10 hours has only one [3 with mine]. Will it make sense to say that Stiglitz has a simplistic model of globalization and anti-globalization? Using Ockham's Razor, I have been suggesting an up-to-date global conceptual model that divides globalization into bright and dark, and which calls DeGlobalization what Stiglitz's calls anti-globalization. That changes the current situation in that we are mssing the Bright Globalization to help emerge an institutional innovation, since the world is dominated by obsolete institutions of the Dark Globalization and its reaction with the DeGlobalization.

That comment was replied by MICHAEL PUBLIC on Aug 29, 2018, who wrote: "I am with you that globalisation needs to be divided into dark and light varieties, as do many other grand concepts bandied around here. I caution against referencing Occum's Razor as it in essence is a lazy principle - the world is as simple or complex as it factually is, no more, no less - to say that simple explanations are more likely to be true is in no way supportable."

Then, I replied on Aug 29, 2018 with the following:

Thank you for trying. Before responding you in the last paragraph, these preliminary are useful to get a better picture. I have responded twice to VIVEK IYER, who has a comment here already. This is part of what I said to him the second time.

My response is based on an emerging vocabulary as a result of using mainly the Heuristic (lessons learned) Methodology of Systems Architecting. If you go a bit deep into my first comment here, you will see that the UN 'Sustainable Development Goals' were developed by consensus under the Simplistic Globalization Model being used by economist of The Wealth of Nations, when they should be developed to help emerge institutional innovations under the Updated Global Conceptual Model of The Wealth of Globalization.

In one of your very valuable comments, on Aug 23, 2018, you wrote that ” In this field, as elsewhere, 'the best' is the enemy of 'the good' and talk of morality is the enemy of ethical pragmatics.” Next I repeat my selective response to you under that article where I only wrote one comment.

In the third paragraph of my comment, which you can consider as a thought experiment, I wrote “This time I am questioning if the EcoNoMy science that centers its attention on The Wealth of Nations, might need to help emerge the EcoIsOurs profession, like Engineering has grown into Systems Architecting, to center the attention into The [W]ealth of Globalization, which give the opposite understanding on the meaning for the heuristic “'the best' is the enemy of 'the good‘.” That opposite understanding to favor ‘the best’ is due to the Computing Big Shift that enables us to approximate to the Third Degree of Clarity given that the Printing Big Shift is limited to the Second Degree of Clarity.

The rule for selection of a framework is simple: the one chosen should have heuristic and learning power. The globalization and anti-globalization framework have no such heuristic and learning power as needed to address wicked problems. The Bright Globalization, Dark Globalization and DeGlobalization has the heuristic power that systems architecting tell us to, like, "simplify, simplify, simplify," which in this case corresponds to "the principle (attributed to William of Occam) that in explaining a thing no more assumptions should be made than are necessary.“
- Michael Parsons Sep 2, 2018
  
  Words words words..Maximising satisfaction: If I am happiest making cider from granny's old orchard, wearing my old coat and living in her dilapidated cottage writing poetry oor singig songs what 'economic rationalisaton' over-rules that choice? If I am happy wandering in my ancent forest, eating well and curing illnesses with roots and leaves, on what grounds should I prefer an oil-well and polluted rivers?
  The consumer is king - so how do you sustain your high-flown adam-smithian preferences for your choices against the rest that want a quiet life, for example, or established ways? except by appealng to your hope of private returns for a few from the use of force against us e.g, returns on 'investment' in politiicans and arms for your 'globalisation duck-speak'? "we had the gatling gun, they did not"etc. Utility is not summable across individuals, which suggests your 'economics' is pretty much nonsense to begin with.
  - José Antonio Vanderhorst Silverio Sep 3, 2018
    
    I took this from Wikipedia: “The 19th-century idealist philosopher Georg Wilhelm Friedrich Hegel famously noted that ´the owl of Minerva spreads its wings only with the falling of the dusk’—meaning that philosophy comes to understand a historical condition just as it passes away.”
    
    As can be seen next, "the owl of Minerva" was used in the comment by MICHAEL PARSONS, on Jan 29, 2018, under the Project Syndicate article "Giving Democracy the Finger," where he wrote that "To produce an intelligent and convincing assesment needs more objectivity and less obvious contempt than this poor squib of an article. History is not rational, but everything has its reasons however unpalatable. We need a more objective sociological approach, though analysing power like this is difficult prior to its decline and so its loss of self-protection: the owl of Minerva only takes wing in the dusk, alas."
    
    Please compare my Aug 30, 2018, comment and his Sep 2, 2018, reply to see which of them has "an intelligent and convincing assessment.“ Notice that when Hagel wrote about "the owl of Minerva" we were limited to only learning from the past, based on induction and deduction. Since then, American philosopher Charles Sanders Peirce added abductions to be able to learn from the emergent future.
    So we are now also able to learn from the emergent future by using, for example, though experiments that seem like “word, word, word,” to most economist, unable to learn from the emergent future, I use a systems architecting approach that allows us to learn from the emergent future, which is mentioned in the last paragraph of my comment which I repeat for convenience next:
    “The rule for selection of a framework is simple: the one chosen should have heuristic and learning power. The globalization and anti-globalization framework have no such heuristic and learning power as needed to address wicked problems. The Bright Globalization, Dark Globalization and DeGlobalization has the heuristic power that systems architecting tell us to, like, ‘simplify, simplify, simplify, which in this case corresponds to ‘the principle (attributed to William of Occam) that in explaining a thing no more assumptions should be made than are necessary.’“
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