On 4th January 2013, in the context of the ASSA-AEA Annual Conference, EPS (Economists for Peace and Security) organised a panel to discuss the ‘Global Crisis and the Impediments to Recovery’. The organisers afforded me the distinct honour of sharing a platform, to discuss our world’s most pressing issues, with Kenneth Arrow and Robert Gordon. Below you can hear audio recordings of the discussion, in the order in which we presented our talks, plus a 30 minute panel discussion at the end. Click on for the audios plus a written summary of my argument/presentation.
AUDIO RECORDINGS (*)
- J. Galbraith (Chair): Introduction 6:23
- Kenneth Arrow 20:50
- Robert Gordon 24:51
- Eric Laursen 19:39
- Yanis Varoufakis 15:41
- Panel Discussion 30:46 [Guide to impatient listeners: For the first 6:32 minutes Robert Gordon is commenting critically on Eric Laursen vis-a-vis US social security issues. Then, from 6:32 to 11:12 Eric replies. At that point James Galbraith makes a brief intervention on social security (11:12 to 12:39). A member of the audience asks a question about stimulus and sustainable debt (12:39 to 15:40), followed by a reply from Robert Gordon (15:40 to 17:06); a brief comment by James Galbraith (17:06 to 17:24); a related comment by Yanis Varoufakis (17:24 to 20:34) - to whom Robert Gordon responded (20:34 to 21.35). Another question from the audience, a Forbes Magazine journalist (21:35 to 23:16), occasioned a comparison between Canada and the USA by panelists: Robert Gordon (23:16 to 24:56), James Galbraith (23:16 to 26:00), Eric Laursen (26:00 to 26:57), Yanis Varoufakis (26:57 to 27:35).]
Yanis Varoufakis’ talking points:
What are the impediments to global recovery?
- A glut of savings too scared to be invested in productive activity. Global Savings ratio has climbed from 20% to 25%, and soon will exceed 27%. Angst-ridden saving spree in the East joined by hefty de-leveraging in the West. This is as much of an excess-savings crisis as it is a debt and banking crisis.
- The gap between deposits and loans has just exceeded $2 trillion in the US. They accumulate in banks which find it much more profitable to use them as fodder for repo trades that allow them fabulous returns under circumstances created by QE.
- Labour’s share of national income dropping even faster during the Recession than it did before 2008 – globally! Technical change is working like an ants colony in the foundations eating away at the economy’s capacity to produce the effective demand that will keep its factories going. It is clear that global demand is sufferring – an effective demand loss for manufactured goods of more than $1 trillion.
- There are two ways in which a Great Recession can be reversed: One is for Central Banks to re-inflate bubbles of the sort that caused the problem (which, in effect, is what the Fed is striving for). The other is to plan, at the G20 level, a coordinated spending program that aims at the growth of things that humanity needs and a recession in the sectors we do not want. [I say G20 because, as we know, and as the Chinese know, spending programs must be coordinated in order to stand a chance of working – both politically and economically.]
- Seems that the Central Bankers have opted for bubble-reflation possibly in recognition that the G20 will not act to coordinate spending. Hence, US, UK, Japanese, Swiss and Scandinavian CBs are flooding the world with liquidity that is sipping into the global monetary system, causing rapid toxic capital movements. China too, in its struggle against the feared landing, has upped credit since 2008 by an amount equal to what the whole of the US banking system is creating in one year.
- This combination of
- monetary priming,
- continued financial sector gaming of the deposits-loans gap (e.g. JP Morgan $1116 billion deposits and only $693 loans),
- increasing monopoly power due to Recession-induced bankruptcies and mergers,
- technological change that, due to oligopolistic market failures, depletes the stock of good jobs and fails to deliver goods society needs,
- a Eurozone that is constantly fine-tuning a never-ending recession, and
- the inability of the US economy to use its deficits in order to create suffucient effective demand both at home and globally,
will lead to
- a recovery of asset prices in parts of the West that remain in control of their currencies (e.g. UK, US, Scandinavia),
- massive anxieties in the East and the Brics,
- a Depression in the European Periphery that drags the surplus economies down into a slow burning recession, and
- a postmodern version of protectionism, e.g. the notion that the US can recoil behind a weak dollar and shale gas self-sufficiency.
What should we do?
- End the banks’ incentives to profit from the deposit-loans gap.
- A coordinated program for private debt reduction (a QE for the masses as my friend and colleague Steve Keen puts it).
- Coordinated spending programs at G20 level – toward a Global Manhattan Project for Green Energy.
- Working toward labour intensive health and education sectors.
- Establish a WTO-like framework for recycling surpluses at a planetary scale
(*) As these talks were amateurishly recorded by yours truly, using my phone, the quality varies and, due to proximity to my person, my talk sounds better than the rest. Apologies!
Best wishes for your name day, first of all. Very interesting and good to have the recordings!. You were so good at seeing through the surface of events right from the start as described in your article in TASEIS 3 years ago! (http://www.allmedia.gr/Allmedia/_gr/digitalpublications/taseis/TASEIS_10/TASEIS_2010.html).
I hope we could have your views in the forthcoming edition.
Best
A very happy new year to you Yanis and to all who frequent this insightful blog.
Thanks for sharing this talk Yani. In light of what some of the comments have touched upon here ie. that these powerful economic minds could do with some re focusing and the yearning for some new thinking, I’d like to share a site with you all. It’s written by an environmental lawyer come sustainability advocate from Sydney. Of particular interest is his proposed plan for ‘Chippendale’ which to my mind screams ‘productive investment’ which I hear Yani repeating in the many panels and interviews I’ve enjoyed.
Onwards and upward for 2013!
http://sustainablehouse.com.au/projects/
Yanis,
Thanks so much for going to the trouble to personally record these talks. Out here in the hinterlands we don’t have much opportunity to hear the likes of Kenneth Arrow, Robert Gordon, Eric, and Jaimie, much less yourself. I listened through the entire series of the recorded talks. I did have some trouble making out what some of the speakers were saying, but I think the gist of it came through. It would be great if EPS would publish transcripts.
What struck me most strongly was that none of these prestigious economists and journalists seemed to give the impression that any had read Modern Political Economics or the The Global Minotaur or had looked at the global economy with the kind of vision that you provided there. Professor Gordon seemed to have some idea of what had happened in the late nineteenth century, but none seemed to be really alive to the post-WWII history that you have told in these books.
These greats of American economics mostly struck me as extremely parochial, worried only about the details of taxation and Social Security within the US and with no grip on the peril in which the world now finds itself as it seems that the Global Minotaur is dead and global warming will flood our coastal cities before we have a chance to burn the newly-found fracked hydrocarbons now in the ground. Not a word was said about the possibility of a steady state economy by the Americans. Their only mantra was growth. Yours were the only remarks that directly addressed the “Global Crisis and the Impediments to Recovery” which was supposed to be the subject for the talks.
Here’s hoping that your remarks may begin to awaken them from their slumbers.
Ironically, I had posted a review of Arrow’s classic text on my blog a few weeks ago (http://notesfrommylibrary.wordpress.com/2012/12/16/odd-economics/). Had no idea you would be speaking with him!
A Swedish solution to local atmospheric pollution but what about elec. grid and battery disposal ?
http://opbrid.com/
see video.
It could work for some routes where you also have cheap electricity such as in Norway.
It is just a hybrid bus with extra battery cells and pantograph. (it has a backup diesel engine)
I imagine elec operation is best in heavy traffic / city centre preventing wasteful idle use of a diesel engine.
Again capital costs come into the equation…………
Post war Norwegian anti car legislation is probably needed to free up capital.
But we need real political / economic hinterlands to trade with each other – that does not happen within the Euro Market state concept.
This Euro is a creature of all the central banks (the Fed & BoE)
The 20 minutes of spare time the above Bus driver at the end of his route would be considered a waste within a Euro market state & their fellow “low cost” business operations THAT CANNOT HAVE NATIONAL GOALS given the nature of its monetary construct.
So low cost operations such as Wallmart , Lildl , Ryanair must push out people by destroying labour value as the above operations would not be considered profitable.
The market state must then provide employment benefit until it becomes bankrupt.
People are retiring at 18 in Iberia.
The retirement meme talked about by other speakers is simply bollox.
The above corporate operations must destroy / run down the capital base so that they can bypass labour inputs.
@Yanis
Could you tell us about what the French banks are doing – burning Greek , Spanish ,Irish etc capital to mount further wage arbitrage games in North Africa & Turkey.
I want the nation state back please.
Your Euro market state is a expression of pure evil.
Its money without political input – which means the euro is not a money token , it is a capital token.
Your proposal of banks farming the European hinterlands fiat on a official level is very very dark in my opinion.
Our last (albeit tiny ) protections against the power of banks credit money has been lost.
Europe is the plantation owners house while the rest of the world is his cotton fields.
This is how the non sov Euro works…..
It must destroy their post 1986 Spanish invention to make more Spains…
A classic line.
“we are using sustainable concrete……….”
Spains investments (now overcapacity) will rot while they make more grot stuff elsewhere.
Europe is beyond sick.
I once thought the US was the heart of darkness.
But the cold dead heart of globalism lies within Europe.
Frighting gap between deposists and loans, Morgan c.s have ample money to bet with, which will soon lead to a heck of a lot wreckage in its wake, or what?
This all resembles like a magma chamber underneath a vulcono, the build up from a Grand Theft 2.0 (instinctively I don’t concur with your remark about the US and the UK having their currencies “in control”)
I for one believe (I am not an economist, thank God for that;) the Dollar and the Euro both are doomed with the American banks having these insane surpluses, whilst being spared from splitting up into commercial and investment banks.
So, Yanis, what is the risc with the shadow banking system still in place (be it erstwhile deflated) using all this surplus money to say kickstart that “wunderfull machine” so the leverage again will be pushed into ever greater danger zones?
First of all; A Happy New Year Yanis; and of course to everyone else reading these web pages.
You tell us that: – ”There are two ways in which a Great Recession can be reversed: One is for Central Banks to re-inflate bubbles of the sort that caused the problem (which, in effect, is what the Fed is striving for). The other is to plan, at the G20 level, a coordinated spending program that aims at the growth of things that humanity needs and a recession in the sectors we do not want. [I say G20 because, as we know, and as the Chinese know, spending programs must be coordinated in order to stand a chance of working – both politically and economically.]”
When in point of fact neither plan will work; indeed, neither plan has worked.
No one is in any doubt that Central Bank reflation of bubbles is one of the principal reasons why we remain in recession and that these bubbles followed by recessions keep repeating. So that one is instantly kicked into touch.
A coordinated spending program is simply a wider program of government spending; only this time of a full G20 platform; all twenty nations all at once. This reminds me of that old classic song; “There’s a hole in my bucket” ……. So where are they going to borrow the money to fill the hole – when the hole is caused by the borrowing in the first place?
Then again, the latter is surely a repeat of the statement made to me by bankers asked to interview me by the Bank of England in 1994 when they told me “It is the government’s responsibility to create jobs”. Conveniently forgetting that all G20 governments spend taxation, (to cover the total costs of their borrowings), created by millions of private sector businesses creating hundreds of millions of……. private sector jobs.
With the VERY greatest of respects; it is the lack of private sector jobs that is the underlying problem; allied to governments trying their best to cover up their total inability to create private sector jobs, by borrowing money they cannot afford to continue to borrow, (let alone to borrow even more), to try and create new government inspired jobs as a short term replacement.
On your final point I do completely agree. “Establish a WTO-like framework for recycling surpluses at a planetary scale”; and is exactly what I have proposed with The Capital Spillway Trust and the use of Vanishing Bonds to transfer funds from the financial sector back into new, free enterprise based equity capital investment, and thus directly into new, very small private sector businesses; which in turn will create new jobs as the only way to get at the necessary investment; In turn again, depositing the new equity capital back into the retail banking system as new business banking deposits.
Central banks with QE have failed to achieve a result; and the G20 cannot agree to borrow and spend when the only place they can borrow such funds is from the very same system that is currently holding them all to ransom.
The only way out is to convert the grossly over leveraged bonds sloshing around the financial system into new job creating free enterprise equity capital. And dare I remind you that when I asked you if such conversion of debt into equity capital was possible at the dinner debate organised by the European-Atlantic Group; your answer was a very loud “YES!”.
So, why NOT try some new thinking?