Monday, 26 October 2015

Varoufakis' Vanity Politics

Vanity Politics acknowledges that Political Action is Vain but, out of Vanity, insists it must nevertheless burgeon senselessly.

This is Varoufakis explaining his brand of Vanity Politics. My comments are in italics.

'I have written extensively and spoken out extensively against the very DNA of the European Union. However it is one thing to criticise a set of institutions like the European Union, criticise the way it was put together and the way it functions. It is quite another thing to argue that it should be dismantled. This is what we call in mathematics, hysteresis. The path that you take to somewhere, once you get to that somewhere, doesn’t exist any more. We can’t just turn around upon the original path and find ourselves outside where we used to be. So we have walked this path towards a particular union, however toxic it might be, and if we try to step back from it, we are going to fall off a cliff.
Hysteresis means path-dependence, lagged effects and unintended consequences. These arise in all social situations- even something as simple as a marriage. A couple who mutually make a rational decision to divorce may find that there are unexpected costs and a period of adjustment. 
In the immediate aftermath of a divorce both parties may experience a fall in their well-being because of hysteresis effects. However, since human beings switch from trait-based behavior to a 'situational' calculus when there is a sharp change in circumstances, the hysteresis effects of divorce tend to fade away and both parties are likely to end up better off. 
'Situational' attitudes are based not on one's genetic traits or habits of thought but a rational analysis of the situation. People with dissimilar traits converge quickly to the 'situationally' rational solution once a sharp enough change in the decision environment is made. This return to 'ergodicity' is why Economics is not empty.
Varoufakis thinks that the EU mustn't break up because the hysteresis costs will be too high. This means that Europeans can never switch from trait-based to situational decision criteria. Suppose Varoufakis is right. Then Democratizing the EU would be the worst possible choice on our menu because Europeans can never vote for the best program (which is determined by the logic of the situation, not by inherent traits or preferences or ideologies) but are bound to vote for an incompossible, self contradictory, bundle. Thus they will vote for lower taxes with higher public spending, Open borders without any Immigrants from strange Cultures, Regime Change everywhere without any of our soldiers dying or our country suffering any terrorist blowback.
That is my view. It is exactly what happened in the 1920s. There was a union at that time. It wasn’t formalised but it was very strong. It was the gold standard. Its fragmentation brought about apocalyptic human losses and I very much fear that we would have the same thing now.

Varoufakis says the Gold Standard was a good thing. But Germany and Japan could only join it- thus accessing Western Capital Markets- after exacting reparations from the French and Chinese respectively. In other words, militarism is what made adherence to the Gold standard possible for two of the great manufacturing nations. Similarly, France and Britain had to maintain large Empires- to the detriment of their common defense- so as to stay on Gold.  But these Empires were a destabilizing factor in World politics. Indeed, the US had to abandon Bretton Woods quasi-gold because it got entangled in France's losing rear-guard action in Vietnam.
Getting on to Gold, or staying on Gold, caused the chauvinistic militarism & Imperialism which was responsible for 'apocalyptic human losses'. 
Does Varoufakis really believe that Britain going off Gold caused Luddendorf and Schleicher and Blomberg to pave the way for Hitler's expansionism and Ethnic Cleansing? Surely he understands at least basic Keynesian macroeconomics? Abandoning the Gold standard was a factor in saving the Democracies from Fascist parties at home. Deficit financing certainly helped defeat Hitler abroad. Does Varoufakis really not know this?

Varoufakis's Theory of the State
Europe and the European Union are not the same thing. The problem with the EU is that it has all the regalia of a supranational state, without being one. It is not only that it is not formally a state. Its DNA, its history, the way in which it has been put together is completely different from the way a state emerges. A state emerges as a result of the political need for a mechanism, a collective action mechanism, that ameliorates class conflict and group conflict.
Has any State anywhere at any time emerged as a result of the political need for a collective action mechanism that ameliorates class & group conflict? Nope. Not a single one. Every State which has ever existed emerged from Conquest or the exigencies of defense against Conquest. Collective action mechanisms for resolving 'class' or 'group' conflict may be forbidden by the State or may work in its absence or in a sub rosa manner. A few States do have organs responsible for particular types of conflict- e.g. compulsory arbitration in Labor disputes- but these organs tend to wither away or become ineffective. It might be argued that Parliament is nothing but a 'collective action mechanism' of the Varoufakis type. However, Parliaments have functioned perfectly well at times when collective action by particular groups have been wholly illegal and those groups have had no representation whatsoever. Currently, Parliaments pay scant heed to the demands of Labor because Industrial Action tends to hurt workers more than Globalized Corporations. This does not mean that the State has withered away. 

So take the US or the UK. The English state began with the need to find some kind of balance between different lords and barons. Rubbish! The Norman Conquest created a limited monarchy of a particular sort whose subsequent trajectory is not reducible to the amelioration of class conflict.  The Magna Carta was a clash between the king’s central authority and the barons, and later on you had the clash between the landed gentry on one hand and the merchants. The industrialists come in and the working class comes in. Different groups clashing mercilessly for control. And the state emerges through this clash of these tectonic plates smashing one another and the state becomes the set of institutions that have legitimacy or try to base their legitimacy on a mandate from the population as a whole, in order to create some kind of balance of power – to equilibrate these conflicts, to stabilise them. There is a conflict between the class of criminals and the class of their victims. Varoufakis thinks the State emerges so as to ameliorate this conflict by setting a Parliament where criminals can argue that medals should be given to stalwarts who rape victims while robbing them while law-abiding citizens can elect representatives who deprecate this practice.
Is this what actually happened? No. Not at all. There was no reasoned discussion or Parliamentary give and take. Instead the State set up Courts and Prisons and Gallows and Guillotines. Varoufakis may believe otherwise. He might think that, in England, the High Court Judge, in his horse hair wig, acts like the Speaker of Parliament, while the criminal class harangue their victims and propose that medals should be awarded to the most depraved of their members.  
So this is how a state forms. By definition, the state, even if it is not democratic, as in China for instance, nevertheless is a purely political process for the purpose of stabilising social conflicts. Rubbish! States exacerbate Social conflict to the point where some people cease to be members of Civil Society because other people are part of the State and have the right to beat and torture and imprison and kill them for a reward. Does Varoufakis think no State has ever been a 'Stationary Bandit'? Does he imagine no State would ever invade another State? If all State's do is 'stabilize social conflict' why do they have Armies and Navies?

Now Europe, Brussels, did not emerge like that. Europe emerged as a cartel of heavy industry. Europe emerged after the Conquest of Germany and its partition between the Soviets and the Americans.  The two super-powers wanted to develop the resources of their 'Allies' (willing or not) so as to shift some of the financial burden of defense onto them. Western Europe, in order to recover Economically and to shoulder more of its Defense burden had to improve Economic integration thus gaining Scale and Scope economies. The owners of the Mines and Steel foundries opposed the setting up of the ECSC precisely because it was not a monopolistic, profit maximising Cartel. The German Socialists also opposed it, because they wanted Nationalisation and re-unification on the basis of a shared Economic system.

Still, one could say the European project started as a Zollverein- as did German reunification. What's so wrong with that? Is Varoufakis saying that Germany would have been worse off if the wars of 1866 and 1870 hadn't been fought? Is he saying that German political unification, without Prussian militarism, would have been a worse outcome for Europe? 
It began with steel and coal, and then they co-opted the farmers, then they co-opted the bankers, and then the car industry and then eventually the service industries, and so on and so forth. It was an attempt to create stable prices, to limit competition, the opposite of the raison d’etre of the British state and of course the American state. When was the 'raison d'etre' of the British State the promotion of Competition?  'Restraint of Trade' is part of the Common Law, not King's Equity. It has to do with the enforcability of contracts and is not jurisdiction dependent. Combination Acts- which issued from the Legislature- did not promote competition. Rather they reduced Labour's countervailing power. Britain pursued Mercantilist policies till halfway into the Nineteenth Century. More recently, British Competition policy was far more permissive than that of the U.S. which did, at one time, pass robust anti-Trust legislation. However, the US was also more corrupt and vested interests could and can fund 'Agency Capture' quite easily. Thus Varoufakis is talking utter bollocks when he pretends that the reason the State exists in the U.S and the U.K is to promote competition.  So the idea was to stabilise prices and to stop the clash between German industry, French industry, northern Italian industry, Dutch industry - that kind of thing. What clash? Does Varoufakis not understand the importance of intra-industry trade and 'disintegration' for modern Industrial Capitalism? Does he really not understand portfolio diversification theory? In any case, Europe was a price taker in Coal and Steel. Coal soon had competition from Electricity and Oil. What was notable about the ECSC was its commitment to raising the living standards of workers- though, it must be said, it never managed to equalize rewards across borders.
There is a huge difference between a state that emerges as a political means for stabilising class conflict and the administrative personnel of a cartel. Multi National Cartels break down because of the free-rider problem- i.e. some Nations cheat. The 'administrative personnel' of a purely commercial cartel-like De Beers- may make monopolistic profits for themselves for a period- but only if they can purchase or otherwise avail of political complaisance. 

British industry was never part of that cartel and that is why Britain came so late to the European Common Market. Nonsense. 'Sunrise' Industries in Britain had close relationships with Continental firms.  Britain needed to join the Common Market for logistical reasons. True, there were some 'Sunset' industries which would lose out- but Europe was always about schmoozing and featherbedding so that wasn't the problem. Britain came in effectively to replace a lost empire by having access to these markets. But the markets were already cornered by the central European cartel. Britain was losing its domestic market because of high per unit labor costs and poor quality.  Why speak of some foreign cartel? Would Herr Schmidt really have preferred a British Leyland Car to a BMW or a Mercedes? No. Nor would Mr. Smith. 

So the reason why the British establishment has never been enamoured of the European Union is because it never was part of the cartelising process which gave rise to Brussels. Rubbish. It was the efficiency of the British agricultural sector and the malice of the French which caused Thatcher to protest the huge net contribution being levied on what had become a poor relative. That is not a bad thing. But I’m trying to explain why in Germany, Holland, Belgium, the establishment, the elites, do not ever question the European Union, whereas in Britain it is questioned. Urm...does the Channel not have something to do with this? A Belgian or French supplier or customer may be closer and have lower transport costs for a German firm- because there is no Channel to cross- and thus Economic integration was always likely to have a higher pay-off for them. Since the Channel is cheaper to cross than the Atlantic or the Pacific, Britain had to join the Common Market, though- being at the periphery- ceteris paribus, it gained less.
So here in the UK you end up with a situation where nobody likes it. The working class doesn’t like it, because the EU doesn’t have the interests of the working class of Britain in mind. Rubbish! The British Working Class wants the 'Social Minimum', reduced working week, higher statutory redundancy payments, longer holidays, taxes on Hedge Funds and so on. It doesn't want to give money to Greek kleptocrats. It does want French type featherbedding and German type Apprenticeships. But at the same time British industry does not have the same stake in it. The City has a stake in it, and some businesses, some small pockets of businesses also do have. Everything follows from this. The European Union had to develop a common currency because if you are going to build a cartel you need to have stable prices. OPEC was a cartel. Iraq and Saudi Arabia adopted a common currency- NOT! If Varoufakis is right about the Common Market starting as a Cartel how does he explain that there was no move towards monetary integration for thirty years? For the first twenty years the stability of prices was guaranteed by Bretton Woods. No, it was guaranteed by Exchange Control. Triffin's Dilemma  had a workaround so long as domestic savers could be denied access to foreign assets. After 1971, Europe tries to create its own gold standard Bretton Woods system, which then became the euro. Nonsense! Europe sought to reduce currency fluctuation- which increased uncertainty and reduced trade- by replacing a costly and inefficient system of exchange controls with an agreement by its Central Banks to support each other on the basis of Fiscal and Monetary policy Harmonization.

 To maximize Seignorage and reduce Uncertainty, some countries voluntarily adopted the Euro which was issued by an independent Central Bank and backed by an 'ordoliberal'  Stability & Growth pact (i.e. macro-harmonization while preserving Tiebout type subsidiarity) However, this proved a mistake in the case of relatively closed or dual type economies like Greece. Britain, wisely, didn't join because of structural dis-similarities and differences in its trade elasticities- i.e. the optimal currency area conditions were not met. So Britain is in a precarious situation vis a vis the EU. Britain keeps saying to the world that they want the single market but they don’t want Brussels. But they can’t have that. Britain keeps saying to the world that they want the single market but they don’t want Brussels. But they can’t have that. Britain's position isn't precarious at all. Why? It is not negotiating on the basis of hysteresis effects but ergodic truths. It has adopted a rational, situationalist approach and long-run everyone else is going to move to a stituationalist calculus thus militating for a rational solution. Britain isn't whining about German reparations or demonizing Brussels as part of some 'Global Minatour'. It is proceeding rationally. It will have a Referendum which actually means something unlike Syrizia's Referendum.
So my view is that the problems with the EU have to do with the way in which it was constructed in the first place as a democracy-free-zone. It is completely democracy-free by design. Which is why there is no European Parliament. Britain is not - due to the difference between Brussels as opposed to London in terms of DNA. From my perspective, progressive Brits have no alternative other than to stay in the EU and join us in trying to democratise it. If we fail to democratise the EU, it really doesn’t make much of a difference whether we’re in or out. Unless of course Britain finds a way of replacing the 60% of its trade with the EU, with someone else. This it won’t be able to do.If we fail to democratise the EU, it really doesn’t make much of a difference whether we’re in or out.

The E.U has undemocratic DNA. You can't change DNA unless you know Science and are smart. European voters don't know Science and arent' smart. Thus there is no Democratic way by which European voters can democratize the Union. Still, because human beings are incapable of situational rationality but remain trapped in hysteresis for eternity, leaving the EU would cause Economic and Social collapse. Thus we must all pretend to be trying to democratize Europe, though Europe can never be democratic, because Politics is an exercise in Vanity simply. Vain people, like Varoufakis, should be considered great Politicians because they tell us in advance that nothing they can do will make any difference but their pretending to do that nothing is not utterly vain because their Vanity still needs to be fed.

The single most important lesson that I have learned is that it doesn’t matter. Because if the message is strong, given the need for a movement that expresses this craving for a modicum of democratic control over the sources of power in Europe, I think the groundswell of people will, as it did in Greece, carry us through. We won 61.3% of the vote in the referendum against every single television, radio station and every newspaper. They were all campaigning for the yes. We could do it in Greece, we could do it in Europe.

And in the final analysis, it is as Homer has taught us. It is not so much the journey that matters as the destination. It is a good fight and we have to fight it

So there you have it. Varoufakis is a meat-headed Ajax who fights for the sake of the glory of defeat because nothing really matters. All is Vanity. Come on Sheeple! Join in the struggle! Here is your good Shepherd who- in the madness of his injured amour propre- flails along thinking the sheep he slaughters are actually the evil Achaens of Brussels.

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