It is a great honour to be here at the OECD. This is an Organisation which historically had a significant role in fashioning the kind of ideas on which I will be basing my talk today. A Greek economist speaking on the theme “There is no such thing as a debt crisis” sounds a little bit like a hanged man disputing the concept of rope, but if you bear with me I will try to convince you that I am not in the business of denial; unlike the EU and my government.
I know that Greece, as well as other countries, have been twisting in the wind and hanging by the neck from the proverbial rope of debt. Nevertheless at the same time, allow me to say that I truly believe that the notion of a debt crisis is analytically unhelpful and discursively dangerous. It is detrimental to our society’s chances of recovery and of shared prosperity. When I say there is no such thing as a debt crisis I do not mean that there cannot be a debt crisis; indeed in the so called third world in the 70s, 80s and 90s there was a major debt crisis which could be uniquely and legitimately described as such. What I am saying is that in our generation’s 1929, which is of course what happened in 2008, we did not have the creation of what can be usefully termed as a debt crisis, at least in the west – in the EU, the US and in Japan. Instead, we had what I call the twin peaks crisis. We have a mountain of un-payable debts and banking losses, which is what provokes people to talk about the debt crisis. Behind that mountain there is a second peak, a mountain of idle savings of surpluses too frightened to be invested productively and in a manner that produces the income by which to repay the losses and the debts.
So what we have is a failure of recycling of surpluses which are flooding the private sector banks and various other instruments, incapable and too paralysed by fear to be invested in the economic activity which would generate the income from which the current debts would be repaid. I suppose we can talk about a debt crisis today, but equally, we can also talk about an accumulation of too much money – nobody of course talks about a crisis of too much money and of idle savings, it is however the other side of the same problematic coin. I prefer to state that instead of a debt crisis, we have a crisis of recycling. Economists like to assume that markets have the capacity to sort out these lumps automatically and through suitable adjustments in various prices, and to create the circumstances by which the idle savings get energised through suitable movements of interest rates, of profit rates, of wage rates and of all sorts of price signals that will cancel these two mountains out.
This has not happened, these mountains remain and the fact that one is not cancelling the other out is the real reason that wherever on the planet you scratch the surface, what you find underneath is either explicit crises or terrible angst; as in China for instance.
Why can’t markets sort out this mess?
Professor Yanis Varoufakis is a Greek-Australian political economist. He was born in Athens in 1961 where he attended the Moraitis School before leaving to study in the UK in 1978.
He obtained a Bachelor’s degree in mathematical economics from the University of Essex in 1981; a Master’s Degree in mathematical statistics from the University of Birmingham in 1982; and a PhD in economics from the University of Essex in 1987.
Between 1982 and 1988 Mr Varoufakis taught economics at the University of Essex, the University of East Anglia and the University of Cambridge. Between 1988 and 2000 he moved to Sydney where he taught Economics at the University of Sydney. During this time, he was also an economics fellow at the University of Glasgow and the Université Catholique de Louvain.
Since 2000 he has been teaching political economy at the National and Kapodistrian University of Athens and has been chiefly responsible for setting up the university’s doctoral programme in economics.
Mr Varois also a visiting Professor at the Lyndon B. Johnson Graduate School of Public Affairs at the University of Texas at Austin.
Between 2004 and 2007 Mr Varoufakis served as economic adviser to George Papandreou, before he became Prime Minister of Greece. He is a recognised speaker and often appears as guest analyst for news media like the BBC, Sky News, Russia Today and Bloomberg TV among others. He has also published several books on economics, game theory, and the financial crisis.
Mr Varoufakis is the co-founder (with his partner, the artist and photographer, Danae Stratou) of VitalSpace.org, a non-profit organisation aimed at promoting the role of artists in today’s society through the organisation of art projects, research programs, conferences, and publications.
Mr Varoufakis was appointed finance minister of Greece by Prime Minister Alexis Tsipras on 27 January 2015. In the January 2015 parliamentary election, he was elected to the Greek parliament, representing SYRIZA.
©OECD Observer February 2015