Growing up as a baby economist, you learn very quickly that the world is split into two types:
- The economists that turn right; and
- The crazies that went away after the Soviet Union fell. Although there are still some left in China. And obviously, the Obama government.
Then you enter adolescence, and you either become enamoured with free markets to the point of religious fanaticism, or you become a much-frowned-upon hippie who’s all up for social re-ordering, dude, and check out these tomatoes that I grew in my communal garden.
Then you become a young adult economist, and you start to question whether it really is either fully free markets or fully regulated markets, and why all the polarisation, and who is filtering this information for me because all these answers seem too easy.
I’m not sure what happens after that. I’ll have to let you know as I go along. But I suspect that you end up as a pluralist who talks about being a paradoxically pragmatic economystic – but one that generally prefers to turn right wherever possible.
Why am I mentioning all of this?
My friend Kosta recently pointed his facebook fans in the direction of this youtube clip of a BBC Newnight interview with the new Greek Finance Minister, Yanis Varoufakis (email subscribers, you’ll need to click on the link to watch it).
Firstly, I’m not sure what Emily Maitlis was doing. It seemed like she was doing her best to go all Christiane Amanpour on his political rhetoric – but instead, she just came across as abrasive, rude and obnoxiously biased.
Also, she speaks as though there is no real alternative to:
- Reversal of Minimum Wages
- Paying off the full debt
Which, to be frank, is really sh*tty journalism. Either that, or the BBC owners are really big fans of the neoliberal agenda (or both). Which would make total sense – the really big beneficiaries of neoliberalism (the loose term for the “cut taxes, slash government spending, privatise, deregulate, de-unionise, free trade” dogma AKA the IMF Structural Adjustment program) are the rich holders of capital who also own things like the BBC because, well, they’re holders of capital.
Here’s the trouble with her point of view:
It’s not working five years on. In fact, Mr Varoufakis has a fairly awesome blog post about this from earlier last year. Check it out here.
Also, it doesn’t help if the austerity is in exchange for “debt relief”, because it’s not really debt relief, now, is it? For the most part, Greece has been given more loans to pay back the old loans. So the debt position is mostly unchanged, except for having a stretched out repayment period.
And in exchange for this longer repayment period, government spending had to be slashed, along with other reforms (I’ll get to the privatisation and minimum wage ones now).
I’m not saying that overboard government spending should be allowed. No.
But you know how seriously obese people can’t have surgery until they’ve already lost some weight because otherwise the operation is too risky? Well, cutting government spending in a recession is like trying to perform a gastric bypass on a 600lb woman: you’re going to kill your patient.
- Cutting government spending is like making a 600lb woman run a marathon because running is good for you and healthy economies can run marathons so you may as well start by just biting the bullet and getting your first one out the way. Only, she’s bedridden. And she’ll break her ankles. Also, chafing. And heart attack at the start line.
- Cutting government spending is like making a 600lb woman go on a crash diet of no food or water until she looks like Angelina Jolie. Only, she’ll die from dehydration.
You have to start slowly. Not all this shock therapy. Economies are people too.
Actually, privatisation doesn’t always work that well. Sometimes, the private sector is really bad at being efficient.
In the UK, my understanding is that the National Rail Service is re-nationalising some formerly-privatised lines, because they can offer a better service for less (and they’re actually doing it).
And we don’t even need to look at privatisations specifically. My new favourite example of free market failure comes from “Economix” and it involves the US telecommunications industry. A quote from Nomi Prins, a former investment banker:
Wall Street raised $1.3 trillion of telecom debt and sparked a $1.7 trillion merger spree, bagging $15 billion in fees for the effort. Then the accumulation party ended. The industry collapsed amidst a $230 billion pile of bankruptcies and fraud, wiping out $2 trillion in market value and defaulting on $110 billion of debt (half of all defaults). Telecom execs pocketed $18 billion before they cut 560,000 jobs. And in 2003, over 96% of the capacity built lies dormant.
“96% of the capacity built lies dormant”? How is that for malinvestment? The point is – even if you put a central planner in charge and the whole US telecoms industry was nationalised, they would have to work really hard to achieve that kind of inefficiency and, dare I say it, corruption.
But even if you accept that privatisation is a good thing (and sometimes, it is) – I am totally with him on the point of timing. Selling off valuable national assets when your economy is deeply contracting is a really bad time to be privatising. After all, valuations are based on cash flow forecasts. And when your forecasts include negative growth, you get valuation numbers that look a lot like “Actually, you should just pay me for taking this over”.
In fact, when Greece tried to sell its Public Energy monopoly in 2013, the only bidder was Russia’s Gazprom (virtually a parastatal itself); and Gazprom eventually walked away from the table because it didn’t like the deflationary forces in the Greek economy.
Forcing privatisation on a deflating economy makes no sense.
On Minimum Wages
When Syriza talks about reversing the minimum wage cuts, there is much shock and horror and “Do you know what you’ll do to employment and international competitiveness?!”
The minimum wage cut did nothing for employment or international competitiveness.
Unemployment got worse. Exports got worse.
In short, the minimum wage story seems to be, at best, economically neutral; so why not let Syriza have it?
On Paying Off The Full Debt
The current solution to Greek debt seems to involve giving Greece more debt to cover her old debt, leaving her with much the same amount of debt.
Which is like asking the 600lb woman to lose weight on a diet of chocolate.
And truth be told, in a free market space, Greece would have declared herself insolvent, gone into Chapter 11 bankruptcy, and re-emerged down the line as a new version of her former self.
As a final observation, I want to point out that acknowledging validity in some of the Left wing policies does not mean that you’re suddenly a Marxist/socialist/commie. I’m just not sure why we can’t say “There are times for free market policies and there are times for socialist policies and those policies need not be treated as mutually exclusive.”
Paradox. Because life is filled with paradox. So why not economics as well.