This Week's Show •

Yanis Varoufakis’s Greek Tragedy

Before Brexit, of course, there was Grexit: the possibility, one year ago, that Greeks defying the will of E.U. bureaucrats bankers would fall right out of Europe. Yanis Varoufakis was the finance minister of Greece’s radical left government ...

Before Brexit, of course, there was Grexit: the possibility, one year ago, that Greeks defying the will of E.U. bureaucrats bankers would fall right out of Europe.

Yanis Varoufakis was the finance minister of Greece’s radical left government during that heady summer of 2015. He got famous first for his flair: open shirt, shaved head, and motorcycle jacket — but then really famous for playing chicken with his nations’ creditors in Brussels and Berlin.

His line was that Greece could not and should not be forced to take on huge new loans to pay off bad old ones as a price of staying in the European Union. “Fiscal waterboarding” he called it: periods of intense austerity that crippled the Greek economy in exchange for bailout money that went to big banks.

See Varoufakis and Tsipras in Paul Mason‘s film about the Greek crisis:

Greek voters loved him, but his prime minister, Alexis Tsipras, rolled over in the crunch. Varoufakis lost his battle and gave up his ministry, but the third phase of his fame had just begun — as the exceptional political figure who could articulate in principled defeat the brutal logic of finance for finance’s sake. He is more visible than ever in politics this summer as the leading figure of the pan-European democracy movement known as “DiEM 25.”

He’s at it in the US in book form, his title drawn from the inhuman code of Athens’ ancient warfare with Sparta: “the strong do what they want,” meaning today the banks and the rich; “and the weak suffer what they must.” On the cover of his book, he adds a question mark. In the book, Varoufakis argues that the fight for the glorious European project — England’s Brexit vote against union is part of it, he says — between the spirit of democracy and the power of wealth.

Podcast • June 18, 2013

Mark Blyth (9) : On the Dead End of Austerity

The Great Gatsby is out as a film again. Go see it! Think about it. Basically you have this tiny elite. How many yachts can they buy, right? They have all the goddam cash. And ...

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The Great Gatsby is out as a film again. Go see it! Think about it. Basically you have this tiny elite. How many yachts can they buy, right? They have all the goddam cash. And they don’t need to invest in a recession because they can live off the interest on their investments, so they’re fine. Everybody else is screwed if they don’t have investments. They can’t consume enough because of the wage skew. We’re back to where we were in the Twenties and Thirties.

Political economist Mark Blyth, with Chris Lydon. June, 2013.

Mark Blyth, the butcher’s son from Dundee, is sounding off again in the Scottish pub where we all belong — if you want the news of wealth in our time deciphered, and if you can listen as fast as Mark Blyth talks. The authority of his brash gab is reinforced by the reviews hither and yon of his pithy new treatise from Oxford on the false doctrine of the day: Austerity: The History of a Dangerous Idea. That idea he’s been bashing in our conversations for almost three years now is the doctrine (rampant in official Europe, fashionable in the US) that governments can shrink their way out of debt by slashing their public budgets. Professor Blyth’s counter here is that it’s government’s job to grow the economy and the taxes that will service the debt.

Not the least of what’s new in Mark Blyth’s book is the argument that austerity (not inflation) was the proximate cause of Naziism in Germany in the Thirties — also of Japanese expansionism in the same period that led to World War 2. So there may be a grim warning in his evocation of Scott Fitzgerald’s Gatsby and the Jazz Age.

In the class-divided skies of British Airways nowadays he sees another flash of where we’re going:

I fly a lot on British Airways, which now has four classes in its planes when you go trans-Atlantic. It’s the medieval class structure brought back to life. At the very front of the plane where you turn left instead of right as you come in the nose — first class! — that’s the Aristocrats. They’re the ones you never get to see. Literally, the Lords and Ladies. Then, when you turn right, you go through all these flat lie-down beds. These are the trans-Atlantic Knights of the Financial Nobility. Then you get past that to Premium Economy, which is like the Serfs with Money — you notice that’s a very small section of the plane. And then: one third of the air frame has two thirds of the passengers. Cattle. Cargo. Self-loading. Everybody else. It’s a bit like the societies we’ve built for ourselves. And until the people — not at the bottom but the ones in the middle, the ones whose voices matter the most in politics — say: you know what? I just can’t afford $50,000 a year for whatever Ivy League or non-Ivy League university my kids gets into. How am I going to do this? Let’s say you earned $150,000 a year… That’s a lot of money — it’s three times the median income. You’ve got a chunk of change, but you still have to eat. Let’s say you save $40,000 of that. That’s still not enough for one year of college. And you won’t get financial aid because you’re making $150,000. I know professors who can’t send their kids to these schools. And that’s if they have one. What if they have two? So when that constituency starts to say: hang on a minute; there’s something seriously wrong here. That’s when you’ll begin to see change.

austerityMark Blyth’s argument here is drawn from life — that is, from his own:

Let’s go back to my experience. My mother died when I was very young, and I was raised by my paternal grand-mother. Basically all we had was her state retirement pension and occasional handouts from my manual-worker father, who was a butcher; and that was usually in the form of in-kind: bits of dead things were dropped off at the house on a Friday. And we made our way through. I went to school with holes in my shoes. So then I got to university and all the rest of it. I did this with all these state-funded ladders of achievement. Schools worked. If you were smart enough you got in. There were grants available. You didn’t have to have complete financial records. You did not have to go miles into debt to do this, and that was that. People say to me: good for you, but someone had to pay for that; basically you’re taking from others and enjoying yourself. Well, my answer is: you gotta be kidding me. Do you know the taxes I pay now? Suppose I hadn’t exactly advantaged myself through the education system. Suppose I’d stayed in Dundee. Well, I probably would have been in the military which is a huge tax loss. Or I’d have been in jail, which is very expensive. Or I’d have been a marginal worker, and I’d have paid very little taxes into the public purse. Instead of which I come over here and as somebody who’s done pretty well I pay a lot more taxes over my lifetime than I ever took out of the welfare expense.

This stuff pays for itself. It creates an equal society. It creates the possibility of mobility. It creates the idea, the ideal and also the belief that it’s possible to succeed. And we are dangerously close to creating a world where those ladders of mobility and that belief — that all-important belief that’s critical to the germination of capitalism — is going away. We have a winner-takes-all society where those who can opt out and those who are left behind do what they must. That is what worries me. That is where the scary politics start.

Mark Blyth in conversation with Chris Lydon. June, 2013.

Podcast • December 21, 2010

Mark Blyth (2): 2011 Will Be Worse… and Life Will Go On

Mark Blyth is back in the pub tonight, played by Sean Connery, as usual, and demonstrating again how far a man can go in political economy just by talking fast and infallibly with a strong ...

Mark Blyth is back in the pub tonight, played by Sean Connery, as usual, and demonstrating again how far a man can go in political economy just by talking fast and infallibly with a strong Scots’ accent.

The Democrats in Washington have taken up again their modern mission: cleaning up a Republican mess in America, for which they will get no thanks in 2011 or 2012, says our corridor mate at the Watson Institute. The Tea Party rebellion demonstrates anew that American voters are crazy but not necessarily stupid: when they see debt and deficits skyrocketing and unemployment still climbing, the Republican campaign writes itself, and wins. “You don’t get any credit for putting an emergency floor in the building when the roof is still falling into the basement. That’s what the Democrats have done for the last two years, and will keep doing.”

Mark Blyth is a man of rough opinions, as you’ve gathered, on top of learning and experience. The civilized expert world has decided, he notes, that “austerity” is to be the bad idea that governs economic policy in 2011. “If it’s not hurting, it’s not working,” is the rule. It won’t work, Blyth says. It won’t even be sustained, because democracies (like Ireland, maybe even the US) have discovered that they’re paying twice for the meltdown: first through the bank bailout, second through service cuts on the altar of the austere. Sooner or later, he says, the holders of sovereign debt will “take a haircut” but that day of reckoning could yet be years away. At the end of the day, he is telling us, the American economy has staying power that a lot of nervous Americans forget. This sounds like the Mark Blyth version of the line attributed to Bismarck, that “God has a special providence for fools, drunks, and the United States of America.” Is not the empire at risk, I am asking…

MB: It depends on what you mean by “empire,” right? This is the funny thing about American Empire. As an immigrant to the United States, along with hundreds of millions who have done it over the past hundred years, it’s this funny empire that people keep wanting to join. It’s a really weird thing. The Italians are the best at this, they got six US military bases on their soil that fly unimpeded missions to Afghanistan and God knows where else, whatever the Americans want to do, and then they come over here, probably flying Business Class to get here, and then moan about the American Empire. It’s a strange creature, this one.

CL: Some of them come here to get out of range of American foreign policy.

MB: When the British had an empire you knew where you stood. You had no rights, you had only responsibilities. We owned the stuff and you got shat on. When the French had an empire it was even clearer. This is a very odd empire where you get preferential trading agreements, better access to markets, technology transfers, and then all the sort of benefits that go along with hanging around in the dollar club. Oh, and then we’ll also do this thing called NATO where basically we’ll bankroll your militaries for 35 years and we’ll keep it going 20 years after the Cold War because it’s just a good idea. If you had to design an empire from scratch and you could do whatever you want, this would not be it. This is a seriously funny empire.

One example of this. So let’s go into Iraq for oil, right? Okay… But if you went out in 2002 and went on the spot market, and basically bought oil future contracts at about $36 a barrel, you could have bought the entire Iraqi oil stock for one quarter of what we spent on the war. This is the stupidest empire the world has ever seen. If there really was an empire, it should have fallen years ago.

Next time, perhaps: Mark Blyth on the post-bubble blues, reflecting on the ruins of the equity and tech boom (1987-1997) and then real estate and housing (1997-2007): “There’s a whole conversation we could have sometime about whether the model for investment banking is bust. I personally think it is, and it’s not coming back. So saving the banks was maybe wrong for different reasons than people thought.”

Podcast • December 1, 2010

Mark Blyth on Ireland: The Circle will not be Squared

Mark Blyth, of Austerity fame and the Watson Institute, has a Scot’s vernacular gift for clarifying economics. Is the situation explosive? “You’ve got 300 million Americans and 500 million handguns. And 72 percent of Americans ...

Mark Blyth, of Austerity fame and the Watson Institute, has a Scot’s vernacular gift for clarifying economics. Is the situation explosive? “You’ve got 300 million Americans and 500 million handguns. And 72 percent of Americans that live paycheck to paycheck. Do the math!”

We’re talking in particular about the Euro crisis spreading out of Ireland. Short form: tiny country, continental meltdown in the offing.

It was never a “Celtic Tiger,” in the first place, in the Blyth telling. “It was a small ocelot with a roar.” A population the size of Brooklyn, NY, producing about 2 percent of the European GDP. And now, in deep pain of cuts in education and health services, it’s having an utterly illusory shouting match, not so unlike ours in the US of A.

“People want to say: look at those profligate governments, spending all that money. We’ve got to restore fiscal sanity. But it wasn’t fiscal insanity that got us here. It was private-sector leverage and the insanity of banking that brought us to this point. So the bankers put it on the state, and the state turned around it put it on the taxpayer. It’s the biggest bait-and-switch in human history.”

As the Euro bankers try to transfer risk and responsibility for their crisis back and forth from private to “sovereign” public debt, I’m asking Mark Blyth — using Ireland as a manageably small example — to find the point where justice could be said to meet necessity. It turns out, he says, that there’s no such point. Not in sight yet, anyway.

The just thing is that the banks should pay. No question. You made the mess. Clean it up. It’s a pretty simple rule. But the basic line is this: if you let the banks fail, there’s nothing coming back. So if you’re Ireland, the Celtic Tiger, and over 10 percent of your GDP is in the financial sector, that’s where you make a lot of money, bankers’ salaries and all that. So let’s say you decide to blow up 10 percent of the economy. What’s your next trick? We can try to reflate it. We can hope that it comes back. We can hope to raise the patient from the dead basically. In order to do that you need to have a growing economy. So obviously hacking away at austerity politics is not going to bring back the bankers’ balance sheets. But on the other hand, it’s not clear what else you do with them. They don’t have any money to pay back, unless you bring the corpse back to life.

Now the only way you can do that is by having growth-enhancing policies, and that’s why austerity is not one of them. But there’s another short-run way you can do this. If you had to take all the debt off the banks and put it on the public balance sheet, thereby making the bondholders of sovereign bonds concerned about the value of their holdings, those sovereign bondholders are going to go to the EU and Germany, and remind the bankers in those countries about all the different bonds they’re holding in all these peripheral and non-peripheral countries, and say: do you want a bank run on this?

Because here’s the deal: if the Irish decide that they’re going to put it on the banks, and the banks can’t pay it — if they say: Screw it, we’re not going to take austerity politics anymore. Hell with it, we’re not going to do this! — okay, what’s your next trick, Ireland? Well, we’re going to default, we’re going to back out of the Euro! Oh, really? The minute I know that, I’m going to dump every Irish bond I can, and the minute I do that I’m going to look at my holdings in bonds and I’m going to say: there’s other guys out there. They can default, too, and probably the Spanish are going to go as well. So then I start dumping the Spanish and then the Portugese. And then everybody’s dumping all these bonds together. You’ve got a massive run that wipes out not just 2 percent of Europe’s GDP, Ireland. It basically takes out the European banking system.

So from the point of view of Europe and the Germans in particular, they’re saying to the Irish: You’re not going anywhere, Ireland. And you’re taking this austerity, and you’re going to like it! The only problem is: they’re not going to. There’s a democracy in Ireland. They’re going to vote the rascals out. And when they vote them out they’re going to get a government that says: maybe the banks should pay for this. And then you’re back to your problem: the banks don’t have any money left. So how are you going to do it? You can’t square a circle!

Mark Blyth with Chris Lydon at the Watson Institute, Brown University, November 30, 2010