Published on Jun 24, 2016
Yanis Varoufakis, former Greek Minister of Finance
: [paraphrased & condensed:] Wherever the "sound economics" of neoliberalism was applied, it created the Third World.
: The pattern is just uniform, but somehow hasn't entered economic theory. I wonder why. You're an economist.
: The reason why it never entered economic theory was because economics, in universities, begun to evolve from the 1950s onwards as the queen of the social sciences, and what gave discursive power (and monopoly power)—within the academic environment—to economics, was the claim that it was the only social theory which was peddling universal truths, to be proven by mathematical means. And it succeeded. When sociologist and anthropologist and economist applied for a grant, it was always the economist who got it, on the basis of this discursive monopoly. However, in order to close the model mathematically, the only way to solve the equations, is by making assumptions that distance the model from really existing capitalism. So for instance, you have to assume that there is no time, and there is no space, because if you allow time to interfere with your model, or space to enter, you end up with indeterminism. In other words, you end up with a system of equations that cannot be solved, or have an infinity of possible solutions, and then you have no predictive power. You can't say, "This is what's going to happen." So we have a very interesting inverse Darwinian process. The more successful economists were at creating models that said precisely nothing about capitalism, the greater their success in the academy. So they became the opposite of the public intellectuals that you've been writing about. They create wonderful abstractions—aesthetically pleasing models—that I spent quite a few years studying, in the same way you go to a museum and look at a piece of abstract art, but you don't expect to find the truth of capitalism in its form.
: So, this is the interesting sociology of knowledge within the economics profession. But then there is there is a parallel shift. The end of Bretton Woods, which unleashed banking. Remember, Roosevelt made sure that in the Bretton Woods Conference, which designed the first postwar phase, between the 1940s and 1971, 1973, he had stipulated that one kind of person should not be allowed into the Bretton Woods Conference, bankers. Not one banker attended the Bretton Woods Conference, and that was at the explicit order of FDR. And so you had ¿boring? banks between 1944 and 1971. But after 1971—and we can discuss why that is—suddenly banking was unleashed and their capacity—effectively to mint private money—became unlimited, and essential to the second postwar phase of global capitalism, of American capitalism, of American hegemony. During this unleashing there was a need for a theoretical and ideological cover. So, I don't blame my fellow economists for pulling the trigger that created so much devastation in 2008 and before and after that, but I blame them for providing the economic mathematical models—the sermons—which steadied the hand of the financiers, and allowed them to believe that what they were doing was perfectly ok, consistent with science, provable mathematically that it was riskless, and therefore allowed them the mental and emotional strength to do a lot more damage than they would have done otherwise.
: Actually, one of the more interesting moments in the history of science and scholarship was actually in 2008. For, as you know, decades, economists had been claiming, with extreme arrogance, that they completely understood how to control and manage an economy. There were fundamental principles, like the efficient market hypothesis, rational expectations, and anyone who didn't accept this was dismissed as a ____, strange kind of moron. The whole system collapsed, the whole intellectual edifice collapsed, in a most amazing fashion, and had no effect on the profession.
: None at all. Well, it did, it had the effect that sometimes, when we're driving on a freeway, and I usually go well above the speed limit—condemn me if you will—and I get stopped by the police. For the next twenty minutes I drive below the speed limit. But it doesn't last more than twenty minutes, then after a while I just go back to where I was. This is exactly like the economics profession. They had a brief moment of—[*C*: some did]—some, at least of being a bit humble, and keeping their heads under the parapet, for a bit. But then within twenty minutes they forgot about it and they carried on teaching the same rubbish to their students. But what is interesting, Noam, is two small points. It's not that economists went headlong into this mathematized religion—because that's what it is, religion with equations and a bit of bad statistics. What happened was, two things: firstly, there was a kind of ethnic cleansing, of anybody that had retained their wits about the economy. So there were economists who challenged this view, and who were simply not reproduced by the system. They never got the grants, they never got the PhD students, their PhD students never got lectureships, never got assistant professorships. So there was a purge of ____.
: The second, which is far more interesting phenomenon, is that the wonderful minds that created the general equilibrium models—the popes of the Catholic church—were not believers. So take for instance Ken Arrow... and Gérard Debreu. They're the ones that established—John Nash. They established the mathematical theorems upon which all this hypocrisy is based. Now these people, Ken Arrow, I remember in the early 1990s, he was giving a talk at NYU, there were about twenty people, it was a highly mathematized paper, so he was enthusiastically going through the equations and one of the professors there interrupted him at some point and said, "Professor Arrow, equation 3.3 reminds me of the argument in favor of this kind of tax as opposed to that kind of tax." Ken stopped him immediately and said, "My dear boy"—he was a bit condescending...—"You're confusing that which is interesting with that which is useful. This is interesting. If you try to apply it to anything real, it is dangerous." So the gurus, the popes, understood that this theory was examining a post-capitalist world, a world without labor markets, without labor exploitation, without monopolies, without even the slightest of capacities to alter prices on behalf of employers, of entrepreneurs, of conglomerates—a world without firms. Because what is a company? A company is a market-free zone, it's a hierarchy. It's a small Soviet Union with cost plan and central planning. If you look at Google, if you look at Microsoft, that's what it is.
: Then you have Coase's theorem, that's a big help.
: Yes, but the Coase's theorem is taught for five seconds and then forgotten [ C
: yeah ], in order to make them feel that they've said something about why firms exist.
: But then in those models that produce the macroeconomic policies that were applied—even under Clinton, especially under Clinton—there's no time, no firms, no space, everybody resides on the same point in space so there are no costs of transport or anything like that. So imagine a world in which economic policy is predicated upon models that assume there is no time, space, firms, profit, or economic rent [ C
: or monopolies ]. It's time to get really scared.