...we must not forget that the ongoing crises has led Greek savers to withdraw oodles of their savings from Greek banks and either shift them offshore (London, Geneva, Frankfurt) or stuff them in their mattresses, or hide them in their freezers (in ‘bricks’ of 500 notes). This means that, by the time we come to an exit from the euro, the stock of savings will be in euros and the flow of incomes and pensions (once the banks re-open) will be in drachmas. So, unlike in Argentina, a Greek euro-exit will drive a wedge between stocks and flows, savings and incomes; with the former revaluing massively relative to the latter. Moreover, the very availability of such large quantities of ‘hard’ currency savings, in the hands of the average Dimitri and Kiki on the street, will ensure that the decline in the value of the new drachma will be precipitous (something that did not happen in Argentina since most savings were in pesos also).
In short, even if we neglect the devastation caused by the delay in the introduction of the new currency (something Argentina did not have to worry about), the new currency will be debased ever so quickly due to this bifurcation, leading to hyperinflation and the loss of most of the competitive gains we might have hoped for from the devaluation.
What Varoufakis is talking of is a small 'real balance effect'. Overall, this would be negative. Holdings of cash are worth less so wealth ha decreased. However, suppose every Greek had cashed out her Deposit Accounts and has a pile of Euros under the mattress. She would feel her savings were worth more relative to her income. This is a wealth effect. It increases her propensity to consume. That is a good thing for the economy. People go out to spend their drachmas because their 'Rainy Day' money is in Euros and the Euro is appreciating. Moreover, as exports rise- because Greece is cheap- Income rises, Unemployment falls, spare capacity is utilized, the recession is over. So long as the Government does not print drachmas like crazy there is no inflation risk. Varoufakis however thinks that drachmas will feel 'debased' because they are less valuable than euros. This will cause they to behave in a really slutty fashion. God will punish slutty drachmas by imposing hyperinflation.
There is something wrong with Varoufakis's brain. He thinks Economics is a Morality Play. In this latest Project Syndicate article he has started babbling about the Olympic Games- so as to earn some slutty dollars, I suppose.
The Olympic 100-meter final is about to begin. The crowd roars at the sound of the starting gun. The sprinters are off. But, after 30 meters, the frontrunners slow down, as if in solidarity with the laggards. They have not chosen to do so, but new rules set strict limits on the maximum distance separating the winner from the last-place finisher.
So what? All the competitors at the Olympic level are fine sprinters. Moreover, it is impossible to sprint while observing how far you are from the laggard. You don't have eyes in the back of your head. If there is some crazy rule about 'maximum distance' then, maybe, the winner gets disqualified if there truly was a 'laggard'. But the race would look just like a normal race. Varoufakis is talking bollocks.
Conservative opponents of income and wealth re-distribution have this kind of analogy in mind when they lament the “politics of envy.”
No they don't. The analogy is crazy. It is based on the notion that people have eyes in the back of their head!
Envy is not a good thing. It is a lamentable moral failing. A 'politics of envy' will be rancorous and sow discord in the same way that an envious person will poison the atmosphere around him by telling mischievous lies. Iago was envious. He was one of Shakespeare's most repulsive villains.
They envision the rich as sprinters that do-gooders want to slow down by law and through punitive taxes.
No. They envision envious people, like Iago, telling lies so as to bring about the downfall of the noble Othello, the virtuous Desdemona, and- perhaps- the ruin of the State which loses the service of a valiant commander.
But life is not the Olympics, where talent and training determine an athlete’s performance.
Yes it is. The Olympics exist in real life. People with talent and training do become famous and rich through their sporting achievements.
It’s more like a Roman arena in which well-armed gladiators vanquish unarmed victims who lose not because they did not try hard enough, but because of the asymmetrical initial distribution of armor.
There is an asymmetrical initial distribution of talent and training. There isn't any Roman arena operating anywhere. Why? The form of life represented by the Roman arena died long ago. It was not viable compared to Christianity.
Still, if Slavery is reintroduced- an idea Varoufakis hasn't yet had- then, sure, having gladiators kill unarmed folk in the arena may be a good way of terrifying the slaves. On the other hand, you may get a Spartacus leading a slave rebellion. One way of the other, the system depends on crucifixion.
In the 1950s and 1960s, hard work and an innovative mind could perhaps be relied upon to lift people from poverty and propel them upward.
This also happened in the Seventies, the Eighties, the Nineties and so forth. No doubt, the thing might be more difficult in North Korea than South Korea. But it is the latter which prevailed ideologically.
But that was possible only because society imposed constraints on what the ultra-wealthy, bankers especially, were allowed to do with their money.
Communist countries imposed more stringent constraints. Did they become rich? Nope. They turned into shitholes.
Since those constraints were removed, with the collapse of the Bretton Woods system and the ensuing financialization of our economies, working long hours and showing immense flair may get one nowhere.
Lots of people 'got nowhere' working long hours and showing immense flair in Gulags. Bretton Woods was about fixed exchange rates and utilized capital and credit controls. This facilitated a transfer of wealth from the old to the young. But, it also kept primary producers poor. The petroleum exporters in particular wanted a better deal. So did savers. Women and 'Coloured folk' wanted economic equality. The cozy White Man's club had to go. Varoufakis weeps for it. Does he also weep for the Greek Colonels and their brutal Junta?
The problem facing most people, especially the young, is not that superstars like Warren Buffett are leaving them behind. It is that they are being held behind by stagnant investment and wages, owing to the simple fact that the wealthy get wealthier almost in their sleep, for reasons that have nothing to do with effort, entrepreneurship, or parsimony.
Yet Buffet has those qualities. He could simply have snorted coke all night and slept all day. Young people want alternative employment with higher productivity so as to get higher wages. This can happen if investors get smarter. Buffet was plenty smart.
Even the great innovators are part of the problem. Jeff Bezos had foresight, revolutionized retail, and made a fortune. But what part of his $200 billion is a reward for his smart thinking and entrepreneurship? And what part of his current wealth is simply a function of his previous wealth?
Wealth is defined, in Econ, as the stock of assets needed to generate current income. Bezos's wealth has gone up because markets think his 'smart thinking and entrepreneurship' can generate more and more income in expected states of the world. But, the world can change unexpectedly. No part of current wealth may hold a functional relationship to wealth in the next time period. Also, Bezos is mortal. Once in the grave, you own nothing.
While it is impossible to answer such a question precisely, the greatest proportion of the world’s wealth does not find its way to society’s innovators or maintainers.
None of the world's wealth finds its way to anybody unless we are speaking of livestock or domestic pets which come to you of their own accord. Even slutty drachmas don't come to you and fondle you and then jump into your pocket.
As wealth accumulates in few hands, the rest of the economy gradually becomes a desert.
Because the non-wealthy don't have to get jobs or set up businesses so as to eat. Instead they turn into camels and go racing in the desert chased by slutty drachmas.
Incidentally, Saudi Arabia has highly concentrated wealth. It is mostly desert but seems to have lots of shiny buildings. It also used to export watermelons. Thankfully, that sort of stupidity stopped. It may yet develop into a Fintech hub.
This is not news. We have always known that exorbitant market power underpins exorbitant wealth, which then feeds back into even greater market power.
No we haven't. We have always known that monopolies get broken one way or another. In any case, exorbitant wealth attracts excellent robbers.
And this is the crux of the matter: Nothing retards productivity and depresses employment as efficiently as exorbitant market power.
Nonsense! A stupid economist, like Varoufakis, can fuck up a country much more efficiently. The quest for 'exorbitant market power' can be dynamically efficient. Whether this outweighs allocative inefficiency in a given field is a matter of ideographic econometric research. But if prices fall as quality improves, who are we to complain?
To invoke the conservative analogy, not even the fastest runners can win when the wealth commandeered by the ultra-rich turns the track into sand for everyone else.
But the ultra-rich don't want to do any such thing. Nor do they have magical powers. On the other hand, a stupid economist like Varoufakis can turn his country into a shithole.
That’s why the most soul-destroying poverty and the largest number of “deaths of despair” are observed in countries where wealth concentration is soaring.
During peak oil, wealth concentrated soared in places like Saudi Arabia and Oman. But 'soul-destroying' poverty was greatly reduced. Since addiction was strictly punished, 'deaths of despair' did not arise.
What should we do about highly concentrated wealth? How do we redistribute it fairly and efficiently?
If 'we' includes Varoufakis, then we must begin by beating and chasing away that silly twit. He fucked up Greece. Don't let him fuck up anything else. On the other hand, he is welcome to redistribute his own wealth fairly and efficiently with his cretinous supporters.
A wealth tax is much in vogue today. But no legally and politically feasible wealth tax can reduce substantially the current levels of crushing inequality.
Why? Because inequality is not 'crushing' at all. If it were, the thing would be politically feasible in Democracies.
Moreover, it enables conservatives to cast doubt on wealth redistribution by asking pertinent questions: Should the state evict the poor heir of a good house if she can’t afford to pay the wealth tax?
Conservatives don't ask that question. They have always said a poor person who can't pay her property tax must be evicted. A bleeding heart Liberal may think this unfair.
How do we price an asset, such as a stamp collection, without first auctioning it off?
In the same way that Accountants do so- i.e. by getting an expert valuation.
Fortunately, there are proven ways to redistribute wealth without violating anyone’s rights or crossing ethical lines.
Nonsense! If wealth is held legitimately then a Hohfeldian right is violated when it is taken away. Ethical lines are subjective.
In 1906, Theodore Roosevelt famously broke up Standard Oil and other cartels despite a chorus of opposition bemoaning his attack on innovation and entrepreneurship.
Who got that wealth? Was it single mums? What about hobos? Roosevelt must have given at least some of that Rockerfeller money to hobos- right? Wrong. Nothing of the sort happened. That dynasty is still very rich.
Following the 1929 Wall Street collapse, another Roosevelt, Franklin Delano, faced the same chorus when he put the financial genie in a bottle. With these two moves, the Roosevelts effected a redistribution of wealth and power that nothing short of a revolution could accomplish.
Yet, the Thirties were a miserable time. It took the Second World War to revive American prosperity.
Of course, the powerful find ways to shake off such shackles.
But poor people also find ways to run away from places like Cuba or North Korea or Venezuela.
After the Bretton Woods system collapsed in 1971, Wall Street and the cartels began to dominate again. Today, three megafirms, BlackRock, Vanguard, and State Street, own at least 40% of all American public companies and nearly 90% of those listed on the New York Stock Exchange.
But they are themselves owned by Institutional Investors- i.e. your Pension fund or Insurance Company.
Tacit collusion is rampant, because every CEO knows that the parent megafirm is likely to be talking to CEOs of rival companies that it also owns.
Either tacit collusion is profitable or it isn't. Who owns your shares does not matter. If you boost profits, head-hunters will be approaching you with fabulous offers.
The result is higher prices, less innovation, lower investment, and, naturally, stagnant wages.
Either demand is inelastic in which case prices will rise so that profit goes up or demand is elastic and profitability depends on finding increasing returns of scope and scale through innovation, investment and raising wages to attract more productive people.
Power was further concentrated after Wall Street imploded in 2008 and central banks began to pump rivers of money into the financial system.
So Obama- and Biden- fucked up. Does this mean we should vote for Trump?
Levering up the central bank money, the gargantuan cartels used this liquidity to invent new forms of complex debt and to buy back their own shares, sending share prices (and, naturally, bonuses) into the stratosphere while starving the world of investment in quality jobs and green infrastructure.
Like Trump said to Biden- you guys were stupid enough to give me a Tax refund of millions of dollars!
Why did Obama love the Rich so much?
Megafirms also indulged in another favorite pastime: usurping markets, buying politicians, and capturing regulators – in short, poisoning liberal democracy.
Yup. That's what Trump said sho' nuff. Crooked Hilary! Lock her up!
By the time COVID-19 sent the real economy further into depression, the world of finance had decoupled fully from the real economy, turning capitalism into a type of techno-feudalism.
That Chinese virus may yet saddle us with Biden. So, yeah, 'techno-feudalism' here we come!
To end this regime, we must update the two Roosevelts’ interventions.
How? Warren crashed and burned. Also, Varoufakis isn't an American citizen. He can't update shit in that country.
Instead of wasting energy on an ineffective wealth tax, progressives should concentrate on a three-pronged strategy.
Tell Varoufakis to fuck off is prong one. Prong two is to tell wankers who like Varoufakis to fuck off. The third prong goes up Varoufakis's butt hole because the fucker did not fuck off like he was supposed to.
First, central bank money must be exclusively directed to support public investment in the green transition and other public goods.
Yes, yes. Let the Banks collapse while the Central Bank finances money-pit schemes to extract sunlight from cucumbers.
Second, corporations that monopolize large marketplaces of their own making – as, say, Amazon and Facebook have done – should be broken up.
So we all turn to Chinese tech giants. Cool.
Lastly, a proportion of large corporations’ shares (perhaps 10%) should be deposited into a social equity fund to fund a universal basic dividend.
Since those corporations will be making losses, this dividend will be zero. Instead tax dollars will be used to prop up those corporations which have the most unscrupulous lobbyists.
This combination of policies, drawing inspiration from anti-trust and New Deal legislation of yesteryear, could revive the economy, revitalize democracy, and save the planet.
In the same way that Varoufakis saved Greece from austerity in 2015.
If political economy were an Olympic event, the gold-medal favorite would be clear.
OMG! Varoufakis is hinting that he himself is the bestest political economist ever! That's how come Greece rose to an unprecedented height of prosperity under his brief reign as Finance Minister. The Eurozone Ministers were in awe of him. They said 'Yanis you are a rock-star! You are an Olympian God! We love and admire you so much! Please put your hand down the seat of your pants and bring out some of that delicious chocolate cake you squeeze out of your anus! We can't get enough of it!'