Votersway

There is an interesting interview over there at Naked Capitalism. The interviewee is Yanis Varoufakis, an economist with a left bias. I don’t mean to be offensive by that characterization. In fact, I would rank him solidly above average among the professional economic educators. Mr. Varoufakis has written a few books, the latest of which describes its own achievement as:

“The main finding is that all economic theory is inherently flawed. Any system of ideas whose purpose is to describe capitalism in mathematical or engineering terms leads to inevitable logical inconsistency; an inherent error that stands between us and a decent grasp of capitalist reality. The only scientific truth about capitalism is its radical indeterminacy, a condition which makes it impossible to use science’s tools (e.g. calculus and statistics) to second-guess it.”

I do think that this book presents some insightful ideas, however my main contention is with its main conclusion. In short, the book is saying that “the capitalist reality” is pure chaos, impossible to comprehend scientifically. It’s an old cliche in the left vs. right confrontation – the mythical unicorn called some-ism denounces the mythical unicorn called another-ism, implying that there can be only one mythical unicorn, not many. Not unexpectedly, the Greek author uses the name “Minotaur” for the wrong unicorn… But enough mythology, we have a very specific reality to deal with.
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It’s not easy to understand what’s going on in the global economy today. It seems, we lack the economics knowledge necessary to pinpoint the reasons for the observed turbulence and crises – it’s just not in the books! The information disseminated by schools, universities and media is unusable for anything but entertainment. Every economic calamity is as unexpected as they have always been – since the emergence of economics as a science. Similarly, every corrective measure boils down to one thing – printing more money. The printing press has become an article of worship – from top politicians to lowly local newspapers. When we ask “Why?” we hear a similarly unanimous answer – “Because Keynes said so”.

The problem is that he didn’t. Since Nixon’s “We are all Keynesians now”, the works of Keynes have been horrendously misconstrued. He never approved of the naked money printing practiced by the Fed today, he advocated building up government surpluses in good times and spending them during hard times. He admitted deficit years only as a counter-balance for surplus years, as a way to smooth out the business cycle. His views on trade were similar, in both cases he proposed policies that would maintain long term balance – for both international trade and government budgets. Indeed, balancing the books is simple accounting sanity… unfortunately, “sanity” is not a financial term.

Is there a method to the madness? If there is, it must be somewhere in the books of our trusted academia, we have to only put the effort to find it.
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The Blame Game

Economics  is a peculiar science. Most  economists are very passionate about their own explanations and recommendations but their predictions almost never materialize.When confronted with reality, the economists habitually blame the amount of regulation – it’s either too little or too much, the actual quality of regulation is never discussed. Therein lies the root of irresponsible politics – after a crisis, the politicians claim to have followed economics theory, they always have some economist to blame and another one to follow… until the next crisis.
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