Making sense of the post-2008 world
Yanis Varoufakis, Joseph Halevi and Nicholas J. Theocarakis
Routiedge
Taylor &. Francis Croup LONDON AND NEW YORK
First published 2011 by Routledge
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© 2011 Yanis Varoufakis, Joseph Halevi and Nicholas J. Theocarakis
The right of Yanis Varoufakis, Joseph Halevi and Nicholas J. Theocarakis to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patent Act 1988.
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British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data Varoufakis, Yanis.
Modem political economics : making sense of the post-2008 world / by Yanis Varoufakis, Joseph Halevi, and Nicholas J. Theocarakis. p. cm.
Includes bibliographical references and index.
ISBN 978-0-415-42875-0 (hb) - ISBN 978-0-415-42888-0 (pb) -
ISBN 978-0-203-82935-6 (eb) 1. Capitalism-History. 2. Economics-History.
I. Halevi, Joseph. II. Theocarakis, Nicholas. III. Title.
HB501.V362 2010
330.9-dc22 2010037780
ISBN: 978-0-415-42875-0 (hbk)
ISBN: 978-0-415-42888-0 (pbk)
ISBN: 978-0-203-82935-6 (ebk)
Typeset in Times New Roman by Glyph International
Printed and bound in Great Britain by TJ international Ltd, Padstow, Cornwall
10 A manifesto for Modem Political Economies: postscript to Book î
289
vi Contents BOOK 2
Modern political economics: theory in action 301
|
11 |
From tlie Global Plan to a Global Minotaur: the two distinct phases of | |
|
post-war US hegemony |
303 | |
|
12 |
Crash: 2008 and its legacy (with an addendum by George Krimpas | |
|
entitled ‘The Recycling Problem in a Currency Union’) |
343 | |
|
13 |
A future for hope: postscript to Book 2 |
442 |
|
Notes |
457 | |
|
Bibliography |
497 | |
|
Index |
520 |
Three authors, three forewords
This book’s origins can be traced to 1988 and, in particular, to a sedate corner of Merewether Building (Sydney University’s economics department) where Joseph Halevi and I used to loiter until well after all our sensible colleagues had gone home. The conversation monotonously, but also fiercely, negotiated the thorny question of whether one had the right to pursue happiness in a troubled world. Joseph thought that the very idea was preposterous, adopting a position somewhere between Schopenhauer and Comrade Barbuchenko (a fictitious character with whom 1 identified him). I, on the other hand, having recently escaped England, could not resist a sunnier disposition, one that enraged Joseph.
Then came 1991. The end of the Cold War gave a new twist to our continuing duel. For Joseph it was not just an end of an era but the end of a raison d’être ™ the dissolution of an identity that allowed him to subvert his origins, to exist as a progressive human being and to wage battles against the sirens of racism, of sectarianism and, in the end, of idiocy organised at a planetary scale. For myself, it was a relief that one no longer had to defend the indefensible but, also, a portent of a bleak future both within the microcosm of academic life and more broadly.
As the 1990s unfolded, our debate lost its antagonistic edge and our conversations edged us closer and closer. In 2000,1 decided to leave Australia for my native Greece. It was my first decision that Joseph approved of wholeheartedly, perhaps because a similar move was not, and would never be, open to him. Geographic distance brought our narratives even closer together. The Global Minotaur storyline, which appeared in 2002 in Monthly Review, was our first joint publication and also a marker of a deeper convergence. And when Joseph became, against all prior signs, a gym addict, the foreshadowed union of perspectives was complete.
Soon after arriving in Greece, I met Nicholas Theocarakis, the polymath and a friend-in-waiting. It only took a cruise in the Aegean (during which Joseph, Nicholas and I drank and ate far too much for three days and nights) to forge the Joseph-Nicholas bond. After they passed hours ignoring the splendid scenery in order to debate the most irrelevant and utterly boring minutiae of political economics, it was clear that our trio would, at some point, attempt to inflict some book or other on the world. You are holding the evidence.
Now that the ink is dry and the printer’s job is done, it is becoming clear that our book lies at the intersection of a number of failures, some heroic others less so. Capitalism’s spectacular failure in 2008, and the unmitigated defeat of the Left that preceded it in 1991, form the bulk of the book’s backdrop. Then there are the personal failures of the authoring troika, and a fair share of loss that ail three of us experienced, in different contexts, during the book’s formative period.
Leaving the personal losses unsaid, the personal failures alluded to above are mostly related to our condition as economists. All three of us, though of slightly different vintage, chose economics with high hopes of bringing & scientific disposition to bear upon economic life. We embarked on our separate academic trajectories with a conviction that, even if the mainstream of economics had got it wrong, it is not only possible but essential that the light of scientific Reason be shone upon late capitalism. Years before we met, we had attempted to blend mathematical rigour with a progressive political economy approach. We failed in a variety of instructive ways.
Some time in the 1990s, Joseph and I converged on a difficult belief: that in economics, error is not just what happens until one gets it right. It is all one can expect! Serious, Inherent Error is the only thing that can come out of even the most sophisticated economics. The only scientific truth economics can lead its honest practitioners to is that the study of capitalism is guaranteed to lead to superstition if predicated upon a determination to extract truth from the theoretical models and their empirical applications.
Our conclusion that all theoretical certainties, upon close inspection, turn into dust was not easy on our minds or hearts. It did not come naturally to us. Yet we embraced it, and even shouted it from the rooftops, once we became convinced of the basic truth therein: namely that a scientific economics is an illusion leading one closer to astrology than to astronomy and more akin to a mathematised religion than to mathematical physics.
Not having been privy to the many years of the rowing between Joseph and I, the interminable quarrels that led us ‘effortlessly' to that joint thesis, Nicholas took some convincing. After many conversations and a daylong Athens Summit (that Joseph happily compared to a bygone Cold War institution), the common line was agreed: economic theory is (and can pretend to no other office) a series of necessary errors that one must use as a training ground for the mind before turning to an historical, open-ended analysis of capitalism. It ■is upon that idea that the method of Modern Political Economics is founded (see Chapter 10 ■for a'full summary of the method and then to Book 2 for an historical analysis in concert with our method).
At this point in a foreword, an author would, normally, offer a long list of acknowledgments. Not so here. From the very beginning, we knew that this book will annoy even our dearest colleagues. Not wishing to implicate anyone in what is certainly going to be a disreputable volume, we desisted from communicating any of its ideas in advance. Thus, we shall not be acknowledging the assistance, contribution, insights, collaboration of any colleague. None was sought, no one read any of the book prior to its publication and, thus, no one ought to share the blame.
No one, that is, except for one accomplice who must be exposed: George Krimpas. He read every page, returned a red ink filled manuscript to Nicholas for urgent attention, was exquisitely encouraging throughout, even contributed two important addenda (one at the end of Chapter 6 and one at the end of Chapter 12). All blame for encouraging the authors to get on with the book must go to him, save perhaps for a small portion of the blame that ought rightfully to be directed at Robert Langham for believing in this project from the outset (as he had done before with other less foolhardy projects) and supporting it throughout.
The final acknowledgement must address my personal debt, gratitude and appreciation to Danae Stratou - my partner in everything. The cover is based on one of her photographs. It not only revisits a journey during which we both perished but also echoes a sense of precariousness not unlike that which permeates our post-2008 world.
For me, this book is the completion and the end of 30 years of economic theorising. When push comes to shove, I think that the most relevant economic ideas for the present world are those of the late Paul Sweezy, Paul Baran, Harry Magdoff and Paolo Sylos Labini. As I worked and developed strong friendship relations with all of them (but Paul Baran who passed away too early), I wish to remember them with the deepest respect that world intellectuals command.
A central feature of the ideas of Sweezy, Baran, Magdoff and Sylos Labini was that economic theories must be historically grounded since history is the laboratory of economics. In this context, I should mention also the themes put forward by Michat Kalecki, who significantly influenced the above authors as he was the first economic thinker to have developed the theory of effective demand, which later became trivialised into Keynesian economics. In Kalecki, thanks to his Marxist-Luxemburg background, the problem of effective demand is not resolved by clever financial and policy tricks. Instead the question of profitable market outlets becomes the central internal and systemic contradiction in the advanced stage of capitalism. Wasn’t he right all along?
Yanis in his foreword reports that it took some convincing before I conceded the main point of this book and decided to go along in publicising our thesis. I still feel uneasy about it, but I do not regret it. For an academic it is a major cognitive dissonance and admission of personal failure to accept that all his training, teaching and work had inadequately prepared him to speak with relevance on his subject-matter as a scientist. It can be always the case that this is indeed a matter of personal failure owing to limited ability, a manifestation of some quirky psychological trait or a sublimation of some life grudge. Maybe it is the ship that has gone astray, not the shoreline. I believe such ad hominem arguments will be raised by those who will be annoyed by the book. I welcome reaction infinitely more than indifference.
The disillusion with the scientific pretensions of economic theory was even greater in my case. The largest part of my working life was spent outside academia, with only a foothold in it as an adjunct lecturer, and only for the last five years am l a full-time academic. Having left industry to ‘serve’ science, it was harder for me to accept that the greener grass was a wasteland. I had been trained as a labour economist in the ‘80s in Cambridge and this was then a discipline where relevance and subtlety were still practised. My later retreat in the safe haven of the history of economic thought, where my main research interests now lie and where true scholarship is still evident, made me more reluctant to acknowledge the poverty of theory, although more equipped to see how it came about.
Moreover, I quite liked the mathematical constructions of economic theory. I do not find them boring or daunting. (Indeed, none of us do.) What I found boring was inane models expounded in Diamond (and Ashes) list journal articles and departmental seminars with no mathematical interest whatsoever (apart from convoluted irrelevant formalism and adhock-ery) that pretended to be based on some essential, asocial and eternal human trait or condition that provided the solution to real problems.I found it deeply offensive to see how quasi-rigorous mental gymnastics are increasingly being used to dress up reactionary political positions and end up in justifying policy measures that result in the misery of millions and being hailed as “harsh but necessary” by “embedded economists” - a phrase borrowed from my friend and colleague Thanassis Maniatis - singing in chorus with embedded journalists serving specific class interests. Living in besieged Greece in the last two years made this point even more painful.
Listening to Yanis’ recollection of the fall of the Soviet Empire, I must confess that I never felt obliged to justify the indefensible or felt sorry for its demise. I think I saw it then for what it was. But I was taken aback by the viciousness with which the 1 free-market system’ was used by turn-coat kleptocrats to enrich themselves and turn their vengeance on the people of the ‘liberated’ states. And I admit that I also failed to see to what extent the countries that purported to be exemplars of ‘really existing socialism’ served as a countervailing power for the assault on the social rights of the working classes in the West that has been unleashed in the last three decades.
Mainstream economic theory has played a sinister role as an ideological prop for this assault. The practice of presenting political positions as scientific necessities, while paying lip-service to a wert-frei, but truly wertlos, science, was one of the first reasons that convinced me to reconsider my views on economic theory. The failure of the Left, and concerned economists, to articulate a consistent, cogent and fruitful discourse convinced me that the problem had to do more with the nature of our science than with the choice of the appropriate paradigm. Equally annoying I found the self-proclaimed heterodoxy of alternative schools of thought, where heterodoxy (with the appropriate flavour) was worn as a badge rather than as an intention to do true political economy. Marx, Keynes and Veblen were my intellectual heroes, but I always had a disdain for hero-worshippers.
Another aspect of our science that always worried me was that it pretended that you can ostracise the political element from it. Siding with Protagoras instead of Plato, I believe that you can never argue that politics, and economics, is a science that can be left safely in to the hands of the experts. Scientific pontification in economics is often an attempt to win a political argument with false pretences. The hoi polloi may never be able to argue competently about physics, but a democracy requires that those who participate in it must be able to debate political and economic arguments and take sides. This essential political element is what renders inescapable economics’ duty to retain an irreducible and significant non-scientific element two and half centuries after its birth.
Meeting Yanis when he came to our Department in Athens was a breath of fresh air and gave hope for optimism. There it was a true intellectual force who wanted to do things about our discipline and our students. We quickly became friends and established a common way of thinking. We collaborated in an article and in a textbook and I joined in his efforts to create a different doctoral programme that served economics as a social science. It was through Yanis that I met Joseph, It was love at first sight. His erudition and profound thinking impressed me and when they proposed that I should be part of their book I was thrilled. This thrill was not to last. The best part of the writing of this book was shadowed by the illness and eventual loss of my long life partner and wife Catherine. Apart from iny personal devastation, her loss prevented my contribution to be what I had hoped for, even though I proudly sign the product of a common belief of what we can do with our science and dedicate it to the fond memory of my beloved and truly remarkable Catherine.
Once in a while the world astonishes itself. Anxious incredulity replaces intellectual torpor and, almost immediately, a puzzled public trains its antennae in every possible direction, desperately seeking explanations of the causes and nature of what just hit it.
2008 was such a moment. It started with some homeowners finding it hard to make their monthly repayments somewhere in the Midwest of the United States, and graduated to the first run on a British bank for 150 years. Soon after, the five grand American merchant banks that were capitalism’s pillars had disappeared. Financial markets and institutions the world over were plunged into what was euphemistically termed ‘chaotic unwinding’. Governments that had hitherto clung tenaciously to fiscal conservatism, as perhaps the era’s last surviving ideology, began to pour trillions of dollars, euros, yen, etc. into a financial system that had been, until a few months before, on a huge roll, accumulating fabulous profits and provocatively professing to have found the pot of gold at the end of some globalised rainbow. And when that did not work, presidents and prime ministers with impeccable neoliberal credentials, following a few weeks of comical dithering, embarked upon a spree of nationalisation of banks, insurance companies and automakers. This put even Lenin’s 1917 exploits to shame, not to mention the modest meddling with capitalist institutions of mid-twentieth-century radical social democrats (such as Clement Atlee and Ben Chifiey, the post-Second World War prime ministers of Britain and Australia respectively).
What had happened was that the world had finally woken up to the brittleness of its financial system; to the stark reality of a global economic system that was being held together with sticky tape and that most precarious of materials: self-reinforcing optimism. From Shanghai to New York and from Moscow to Pretoria the world came face to face with the awful realisation that the 1929 crash was not just a worthy subject for economic historians but, rather, the sort of calamity that constantly lurks around the comer, scornfully laughing in the face of those who thought that capitalism had outgrown its early childhood tantrums.
While these words are being written, the Crash of2008 has not, as yet, played itself out. While the first two years after it proved that governments can arrest the system’s free fall when they concentrate their minds and loosen their purse strings, a new crisis is looming. For as the public sector takes on its shoulders the sins of the private sector, the latter turns on its saviour with new financial instruments with which to gamble that the saviour will buckle under its new burdens. Thus, the aftermath will remain unknown for many years to come.
What we do know is that tens of thousands of American and British families lost, or are in fear of losing, their homes daily. Migrants abandoned the Meccas of financial capitals, such as London, returning home for a safer, more stolid future. China is in a bind over the trillion plus dollars it holds and seeks new ways of securing its dream run, now that the
West has turned inwards and reduced its imports. More than 50 million East Asians have plummeted below the poverty line in a few short months. Countries that thought themselves immune to the ‘Western’ economic disease, for example Russia and Iran, are perplexed when their own banks and enterprises are stressed. The job centres and social security offices in Western Europe, just like the famine relief agencies in sub-Saharan Africa, are reporting unusually brisk business. The recession ‘we had to have’ is upon us. It threatens to mark a new, depressed era.
A world in shock is always pregnant with theories about its predicament. The time has come for political economics to return to a world that had thought it could account for itself without it.
1.2 Why economics will simply not do
Few sights and sounds are less impressive than those emitted today over the airwaves, and in the pages of respectable newspapers, by the privileged commentariat. Having spent the past 30 years confidently informing the world about some ‘paradigmatic shift’ which, supposedly, had put capitalism on an irreversibly steady growth path, the very same commentators are now gleefully, and equally confidently, ‘analysing’ the Crash of2008, exuding the air of self-aggrandisement befitting its prophets.
There is nothing new here. Evans-Pritchard, the renowned mid-twentieth century anthropologist, unwittingly pinpointed with brutal clarity how economic commentators weave their narratives. In his 1937 account of how the Azande soothsayers dealt with significant events they had failed to predict, Evans-Pritchard might as well have been writing about contemporary commentators of the Crash of2008 (just substitute ‘Azande’ with ‘economic experts’):
Azande see as well as we that the failure of their oracle to prophesy truly calls for explanation, but so entangled are they in mystical notions that they must make use of them to account for the failure. The contradiction between experience and one mystical notion is explained by reference to other mystical notions.
(Evans-Pritchard in his Witchcraft, Oracles and Magic among the Azande,
1937, p. 339)
Making a living out of forecasting is, of course, a risky business and we ought to be sympathetic to those who, on the morning after, find themselves with egg on their face. A wise econometrics professor once advised one of us: ‘When forecasting some economic magnitude, give them either a number or a date. Never both!’ However, there is a difference between forecasters who simply can get it wrong and forecasters who, like the Azande priests, can only get it right by accident.
On the eve of 15 October 1987, four months after Mrs Thatcher’s third electoral victory, which was fuelled by widespread optimism that privatisations and the new spirit of financial i-sation emanating from the City of London would be leading Britain to a new era of prosperity, Michael Fish, an amiable meteorologist with BBC television, read a letter during his weather section of the evening news. It was written by a concerned viewer who had a premonition that a tornado might hit southern England. Mr Fish famously poured scorn on that suggestion, emphatically saying that Britain had never experienced such a weather extremity and it was not about to. Five hours later, in the thick of the night, a tornado gathered pace in the Bay of Biscay, raced across the English Channel, violently pushed its way across southern England, flattening in the process a significant part of it, including London’s splendid Kew Gardens.
A few days after the October 1987 tornado, another calamity hit London. Only this one was not felt on its streets and gardens but in the City, the Stock Exchange and the corridors of Whitehall and of the great financial institutions. The calendar read Monday 19 October 1987, when the world’s stock exchanges suffered the worst one-day loss in their history. Originating in Hong Kong, the financial tornado raced across time zones to reach London first before hitting the New York Stock Exchange, shedding just over 22 per cent of the Dow Jones industrial average in a single session.
The hapless meteorologist would have been excused from thinking that economists must have been feeling on 20 October just like he was four days earlier; humbled. He would have been terribly wrong for a second time. For unlike him, economists are so steeped in their own 'mystical notions’ that every observation they make is confirmation of their belief system. Look at what is happening today. Even though, yet again, the economics profession singularly failed to come even close to predicting the Crash of2008 (indeed, poured scorn on economists such as Professor Richard Dale, formerly of Southampton University, who had issued warnings about an oncoming collapse), economists have issued no mea culpa, have offered no apologies, have not rewritten their textbooks in light of these momentous events, have not even had the good form to hold a conference on what went wrong with their ‘science’ (as opposed to what went wrong in the financial sector). Instead, they appear on radio and television, or are invited to speak as ‘experts’, to explain the Crash of2008 using the very same methodology that had failed to predict it.
In one sense, this might be admissible. One might legitimately, for instance, want to hear Mr Fish explain the formation of the 1987 tornado even though (or perhaps because) he failed to predict it. Meteorologists remain uniquely able to explain their own predictive failures. Who else could do it better? Astrologists? It is in this sense that economists may argue that, though they failed to predict the Crash of2008, it is they who must comment on its causes and nature. So, why be indignant towards economic ‘experts’ and sympathetic to Mr Fish? One obvious reason is their evident lack of humility. But it is not the main one.
The reason for rejecting the economists’ commentary on their own predictive failures igoes deeper. The economists’ lack of humility is not due to a failure of character. It is rather a reflection of the fact that they have no useful theory of crashes to offer. It is the subconscious realisation of that vacuum that results in their hubris. After all, nothing causes scornful self-adulation as surely as deep-seated ignorance. Economists live in a mental world in which capitalism seems like an inherently harmonious system. Their narratives derive from a mystical belief in a providential mechanism that dissolves conflicts automatically, just as the gigantic counter-opposed gravitational forces in the solar system surreptitiously beget equilibrium out of potential chaos. In that worldview, a crash is an aberration that is best kept untheorised; something akin to a rogue comet destroying planet Earth.
Mr Fish was guilty of failing to predict a tornado, yet the physics on which he relied has the only sensible story to tell about tornadoes in general and the one that destroyed the Kew Gardens in particular. In sharp contrast, conventional ‘scientific’ economics, as practised in the economics departments of our great universities, simply has nothing meaningful to say about tumults like that which brought us the Crash of2008.
1.3 The return of political economics
Along with the financial bubble, which eventually burst in 2008, another bubble had been brewing since the later 1970s: a bubble of economic theory founded on the certainties of neoliberalism and propagated by the dynamics of university life. We shall refer to it, for short, as the Econobubble. The crisis of October 1987 had played a crucial role in fostering the certainties that led to the Econobubble’s growth. The fact that the stock markets recovered quickly after Black Monday was seen as evidence that the new economic order could take in its stride even the most precipitous fail in the price of stocks. The ensuing recession of the early 1990s was blamed on the decline in house prices, following their sharp rise during the 1980s; a mere ‘correction’ that was nowhere near as poisonous as the crisis of the early 1980s, which had preceded the privatisations and deregulation of the markets (and the Big Bang in the financial sector) whose raison d'être was to end such crises by liberating the markets from the shackles of government.
More poignantly, it was not long before the early 1990s slump gave place to a long, glorious boom that was only punctuated in 2001 with the collapse of the so-called New Economy (Internet-based, dot.com companies, Enron, etc.). That collapse was also short-lived and came with a useful silver lining: while countless IT firms folded, exasperating millions of people who had invested good money in them, the collapsing outfits had bequeathed the world a spanking new high-tech infrastructure, in the form of optic fibre cables that crisscrossed the earth and the oceans, and huge computer storage ‘spaces’, making a new wave of innovation possible.
In short, the early 1980s inaugurated neoliberalism’s golden era, built on a sequence of speculative bubbles leaping from one market to another (as we shall see later in this book). The Econobubble was its theoretical reflection and fuel. The new era was, after all, initially spearheaded in the 1970s by a generation of economists (e.g. Milton Friedman and Robert Lucas in the United States; Sir Alan Walters and Professor Patrick Minford in Britain) and political scientists (such as Professor Robert Nozick) who had been canvassing powerfully for a brave new world of liberated markets only lightly overseen by a minimalist, night-watchman State. The adoption, at least in theory, of these policies first by Mrs Thatcher in Britain and soon after by President Reagan in the United States, and the eventual overcoming of the early 1980s recession (which was credited to these policies), led to a new conventional wisdom that swept the planet. Its highest form was that which, in this book, we term the Econobubble.
Underpinning these views was the conviction that, though markets occasionally fail, government meddling in ‘our’ business must be feared more. The market-based world we live in may not be perfect but it is: (a) good enough; and (b) bent on conspiring to defeat all our democratically agreed efforts to improve upon it. Journalists, academics, private sector economists and government officials embraced the new creed with panache. To those who protested that this meant free market policies which stimulate great inequalities, the answer was either that only ‘good’ inequality was thus caused (while ‘bad’ inequality was repressed by market pressures) or that, given enough time, the infamous ‘trickle-down effect’ will eventually sort that problem too. Economists who resisted the Econobubble were sidelined, often edged out of the profession. Aided and abetted by financial flows that punished any government that delayed the surrender of its economic power to the markets (e.g. that failed to march to the quickstep of privatisation, deregulation of the banking sector, etc.), governments the world over (some of them led by reluctant social democratic parties) adopted the new mantra.
Back at the universities, the Econobubbie’s dominance spread like an epidemic. Economics syllabi and textbooks were undergoing a momentous transformation. Its greatest victim, after the earlier demise of political economy, was macroeconomics. Indeed, we often heard top economists proclaim the end of macroeconomics, either as we know it or altogether. The idea was that since we now live in a stable world in which all that is required is some intelligent micromanagement, both at the level of firms and in the corridors of government, macroeconomics is passé. The fiction of the End of History, which was reinforced by the Soviets’ collapse, meant also the end of any serious debate on the dynamics of world capitalism. Whereas in previous epochs, not that long ago actually, economists of all persuasion would debate the state of the world, the wisdom of markets, the importance of planning in developing countries, etc., once economics was taken over by the Econobubble they turned away from all that, confining themselves to ‘focused’ technical subjects such as Game Theory, the design of auctions and statistical models of movements in exchange and interest rates that lacked any monetary theory behind them which acknowledged (let alone analysed) capitalism’s peculiarities.
Thus the ‘competitive’ economics departments were steadily depleted of anyone who was interested in researching the reasons why labour and financial markets may be onto-logically distinct from other markets. Since macroeconomics (the ‘holistic’ study of an economy) can only be meaningfully distinguished from microeconomics (the piecemeal modelling of individual choices) if labour and finance markets differ from the market for carrots, macro-economic debate was effectively expelled from the academy. Discussing the Great Depression as a source of interesting insights for today’s reality was positively frowned upon, unless confined to economic history seminars for the technically challenged. In fact, reading any article more than five years old was deemed a sign of scientific slippage. Books were only to be used as repositories of already published, recent technical articles. As for macroeconomics, it was kept on the curriculum either out of inertia or only after all real macroeconomics content was bleached out (and replaced by models containing a single person who saved when young and spent when older, before being reborn again to start the ‘dynamic’ process afresh).
The economists spawned by such an environment, both as students and as professors, quite naturally, have next to nothing meaningful to offer when some systemic crisis occurs. When pressed by inquiring journalists, their answers have absolutely nothing to do with their actual research (how could they, after all?), instead, as they struggle to say something pertinent, they fall back on the certainties and clichés of the Econobubble. This might have been tolerable in 1987, in 1991 or in 2001. The Crash of2008 is different. Now that the financial bubble has burst, we believe the Econobubble is next. It may not burst but it will surely deflate. The world is astonished in ways that the Econobubble can no longer placate.
In a 1998 book, one of us wondered whether the world had settled down and only ideas consistent with the Econobubble had any chance of being admitted into the circles of polite society; or whether ‘we live in a new middle ages; a period devoid of clarity but pregnant with new tectonic shifts of economic and social relations which will lead to new heated debates’? This new book was written in the conviction that the tectonic plates have already moved, producing epoch-changing tremors which make a return to a Modern Political Economics not merely possible but, in fact, inevitable.
The short answer is that the Crash of2008 is attacking social and economic classes that were not affected seriously by the crises of the early 1980s, the stocks’ collapse of 1987, the recession of 1991 or the New Economy debacle of 2001. We know, from bitter personal experience, that the early 1980s crisis in Britain (and to a lesser extent in the United States) was perhaps more calamitous for more people than 2008 has so far proven. When four million unemployed were struggling to make ends meet in early 1980s Britain, under a government determined to wreck the social fabric that kept communities together, life was perhaps harsher than now. Nevertheless, that was a crisis which concerned mainly the country’s depressed areas (mainly in the north); the working class; a segment of the nation with little or no political influence in London. Mrs Thatcher was the doyen of the south, the queen of the City and its surrounding stockbroker belt, cushioned politically by an electoral system which rendered irrelevant what went on north of Watford or in the depressed mining villages of Kent.
At the same time, the United States middle class was spared the worst effects of that crisis by a president who, while professing the importance of frugal government, embarked upon gigantic spending on weapons of mass destruction to see off the early 1980s recession. And when Black Monday occurred in 1987, it touched only a few people who panicked during that fateful week but left the middle classes largely unscathed. While the 1991 downturn worried the middle classes sufficiently to overturn certain administrations (George Bush Sr being its most prominent casualty), and 2001 shaved a proportion of previously accumulated profits off bank accounts and portfolios, these drops were neither deep nor sustained enough to dent the Econobubble.
In contrast, the Crash of 2008 is having devastating effects across the neoliberal heartland. In Britain, it is a crisis of the south; probably the first to have hit its richer parts in living memory. In the United States, although the sub-prime crisis began in less than prosperous comers of that great land, it has already spread to every nook and cranny of the privileged middle classes, its gated communities, its leafy suburbs, the universities where the well off congregate, queuing up for the better socio-economic roles. In Europe, the whole continent is reverberating with a crisis that refuses to go away and which threatens European illusions that have managed to remain unscathed during the past 60 years.
All of these people need answers. What happened? How could governments have let it happen? Why did no one warn us? Some of them will become radicalised in ways that we have not witnessed since the 1930s or, more recently, since the Vietnam War. The Panglossian Econobubble cannot survive the wrath of the middle classes any more than the pre-modern faith in fairies, witches and dragons could have survived industrialisation and the scientific revolution.
2008, of course, is too close to interpret fully. However, one thing is certain. The unshake-able belief that the cycle of boom and bust is best kept in check by minimalist states and governments whose first priority is to go with the markets’ grain has been destroyed. The idea that particular interest and general interest are mutually reinforcing within the capitalist system is bunk. The Econobubble which has infected the mind of tens of thousands of young women and men with economic nonsense has burst asunder. What will replace it? Humanity loathes ignorance. Either it will turn to a new quasi-religious faith, complete with its own myths, rituals, dogmas and equations, or it will rediscover the rational and aesthetic joys of political economics.
1929 had such an impact. It affected almost everyone. Even the rich, decades later, recalled the horror around them, well after the shockwaves had subsided. With the inanities of free marketeers torn apart by the 1930s depression, the world took eagerly to the writings of young economists who tried to tell a story about capitalism’s pathology; of its wonders and contradictions; of its unique capacity to produce immense wealth and its equally astonishing tendency to trip and fall over, thereby causing massive deprivation among the innocent. Indeed, the post-war order was designed by people who had previously suffered, or watched while others suffered, the results of the Crash of 1929. Men who differed politically, often sharply, were nevertheless united in a determination to do all they could to ensure that such catastrophes would not happen again. They lectured to politicians, designed institutions, preached at universities - all with a single-mindedness that combined the best traditions of political thinking and economic analysis in a concerted campaign against the vagaries of untrammelled markets. They, thence, revived the tradition of political economics. The welfare state, the Bretton Woods agreement, the original (and rather benign) International Monetary Fund (IMF), the fledgling institutions that preceded the European Union were all affected by such people under the influence of the 1929 episode. We call this the Global Plan that attempted gallantly to regulate world capitalism between 1947 and 1971.
We feel that 2008 is a new 1929. While we hope that it will not create the same extent of mass deprivation, nor stoke the fires of international conflict, we think that 2008 will lead, just as surely as 1929 did, to the revival of a debate on how to bring some rational order into a chaotic world that can no longer rely on the myth of spontaneous order.
1.5 A Modern Political Economics for the post-2008 world
Interesting times call for interesting responses. This book is not interested in settling old scores. The temptation for those, like us, who never lost faith in political economics, and were never lured by the easy attractions of the Econobubble (often at high personal cost), is to brag now that the theoretical foe is in dire straits. But, were it to last for longer than a few brief minutes, such bragging would be inexcusable. It would be equally inexcusable to think of the present moment in history as an ‘opportunity" to revitalise one’s favourite defunct school of thought; some -ism (e.g. Keynesianism, Marxism, neo-Ricardianism...) that the last fewr decades confined, how'ever unjustly, to the margins of academic economics.
2008 demands of us a grown-up response that eschews dull point scoring between the crashed ‘orthodoxy’ and its resurgent foes. Just because the Crash of2008 revealed to everyone the emperor’s nudity, there is no sense in bringing out of the economic theory cupboard of the emperor’s older clothes, dusting them down and giving them another airing. The world is simply not interested in newish wine being poured into ancient bottles. It is thirsty for the refreshing stimulus of a genuinely modern political economics.
Our recipe for a modern political economics tuned into the needs of the post-2008 world is simple: all of economics must be treated judiciously, critically, with contempt even. This, naturally, does not suggest that we begin from scratch, jettisoning all received economic wisdom. What it does mean is that, in writing this book, we start not only without any preconceptions about the rights and wrongs of different economic theories but, moreover, with a commitment to transcend all economic theory. This commitment of ours may strike the reader as a little puzzling, or even apocryphal. However, its point is quite simple. Over the past three centuries, economists have struggled to create ‘models’ of the economy that are as consistent as Euclidean geometry: every proposition about market societies had to be squared with the initial assumptions about it. Our simple point here is that this approach is bound to obfuscate, rather than illuminate, economic reality.
To give just two examples, some economists tried to explain the value of ‘things’ in reference to the production costs involved in their manufacture after defining fully the meaning of ‘cost’. Others built models in which the values of ‘things’ reflected their relative desirability, based on a particular (utilitarian) theory of desire-fulfilling actions. The result was two equally logical yet incommensurable descriptions of the world; two theories of the object of study (mainly of prices and quantities) that could not be brought together. When these two schools of thought looked at reality, they did so in search of evidence that the ‘other’ school, or its model, was inferior. But the more they sought empirical support, the less their own model seemed to make sense. Reality, therefore, became an irritating presence only useful as a source of ammunition to be used against one’s theoretical opponents.
This mindset will no longer do. If 2008 and its repercussions are to be understood, we cannot stay fixated within some system of economic beliefs. Philosophers worth their salt know well that life despises consistent philosophical systems and busily conspires to punch holes through them. Economic life does the same to all ‘closed’ systems of thinking about capitalism; not just to the Econobubble. It is high time economists of all schools and shades of opinion recognised this fact too. What this entails is a practical, empirical component in every layer of our analysis so as to keep it in constant conversation with reality. Now, the problem with this practical component is that it is bound to disturb any degree of theoretical consistency forged by our analytical reason (i.e. by our techniques). So be it. We are, after all, at a crossroads. One path leads to some satisfying system of interlocking and mutually consistent conjectures. The other leads to a constantly realigning set of incommensurable theoretical propositions which, if perceived astutely, may bring us closer to understanding really existing capitalism. We choose the latter.
Another way of putting the above is to describe our political economics as eclectic and the models we study (and refer to) in this book as necessary errors. Make 110 mistake: this book does not recommend a flight from theory. Theoretical models remain fundamental tools which help the mind remain sharp in its constant war against ignorance. It is just that models per se are incapable of helping us approach social reality.
So, how do we proceed from there? How do we converge with the truth about the causes and nature of wealth creation, poverty, growth and depravity in the world around us? How do we approach the Crash of2008 and the properties of the post-2008 world? There are three potential avenues that summon us, compelling us to make a choice right from the outset:
1. We may conclude that, since no consistent theoretical system is possible, no truth about world capitalism can ever emerge. Each model is, in this light, no more than an interesting story, a narrative, which may help different people differently in their own haphazard search for meaning.
2. The second avenue is more optimistic about the powers of human reason. It leads to the conclusion that truth is accessible through some sort of Aristotelian moderation; by means of a synthesis of different viewpoints founded on the belief that, in the face of antithetical perspectives or models, the truth must lie ‘somewhere in the middle’.
3. The third avenue is the most ambitious. It also asserts that truth is available to the prepared minds which not only accept the tension and incommensurability between alternative models but also celebrate it, indulge it, keenly stoke it and, ultimately, transcend it through a wholesale immersion in historical inquiry.
As the reader may have guessed, it is the third and thorniest of routes that this book takes. In the pages that follow, our book enthusiastically delves into every economic model known to humanity (see Book 1) before pitting each against the rest in a quest for theoretical tension that may later, when turning to the history and institutions of capitalism (as we do in Book 2), throw light on the darkest aspects of our world’s workings. No economic model is left unexamined but, at the same time, no economic model is left standing once we get down to the serious business of discussing the dominance of the US dollar since 1945, the role of Japan, Germany and China in the global economic order, the crisis in Europe, the scope for liberty in an environmentally challenged word, etc. Theory is but a training ground on which we practise before D-day; before, that is, we come to grips (in Book 2) with the economic and political reality in which economic concepts take their concrete form in a bid to write history and affect real lives. We call this two-part endeavour Modern Political Economics.
Modern Political Economics luxuriates in contradiction. Contradiction is indeed a concept central to every page in this book. Against the simple certainties of those nourished for vears on the Econobubble, we savour the seeming paradox of free markets which cannot breathe in the absence of brute state power; we delight in the delicious irony of dictators who cannot resist organising referenda; we assign explanatory power to the fact that the powerful have no objection when the state gives pots of money away, as long as the recipients are not those who really need it; lastly, we are unfazed by the almost tragic sight of a generation of brilliant economists who prided themselves on sticking to scientific methods (which they borrowed from physics before developing them further in technically dazzling ways) but have serious trouble even recognising the capitalist system, let alone explaining its crises and tribulations.
Our provocative stance could be summed up in the motto: away with theoretical consistency and proper systématisation! It would be a motto whose purpose is neither to annoy colleagues who have spent their most productive years tailoring their models to meet the demands of logical consistency, nor to appeal to those who think of logic as a constraint on the imagination. Instead, it would be a motto whose simple puipose is to shed rational light on the ways of our topsy-turvy world. Modern Political Economics begins with a view that, when analysis leads to contradiction, the answer is not to squeeze the truth out by further logical manipulation but, instead, to allow (as Hegelians might say) essence to appear, to make it possible for the truth to come out by exposing every theoretical contradiction to historical reality while, at once, viewing what appears to us as reality through the lens of : those contradictions.
1.6 A guide to the rest of the book
The two ‘Books’
In old-fashioned style, this text is divided into two ‘Books'.
Book I is about the major theoretical contributions of political economics as they have taken shape over the past three centuries. Classical and neoclassical political economics are introduced in a manner that distils their essence, ignores superfluous technicalities and homes in on their major contradictions. The narrative seeks to blend two accounts: an account of how the evolution of the economic system spawned the economists’ ideas about the former, and a second account of the opposite; of how the economists1 ideas influenced economic phenomena. Thus, the important debates are projected against the background of the emergence of conglomerates, the irrational exuberance of the 1920s, the Great Depression, the War Economy and, lastly, the Cold-War era that followed it. Throughout these accounts, the emphasis is on salvaging nuggets of theory and facts that will come in handy when we turn to the main task: to making sense of the post-2008 world. Chapter 10 concludes with a summing up of the different perspectives on political economics; a summary that, surreptitiously, turns into the methodological manifesto of our Modern Political Economics.
Book 2 casts an attentive eye on the post-war era; on the breeding ground of the Crash of 2008. Its two main, long chapters offer our take on the two main post-war phases: the first we call the Global Plan, spanning the period 1947-71. The end of Bretton Woods signals the second period which we call the Global Minotaur, with a chronological range beginning shortly after 1971 and coming to a head in 2008. Chapter 13 concludes Book 2 and sums up our suggestions on how to make sense of the post-2008 world.
A chapter by chapter guide Book 1
Chapter 2 Condorcet’s Secret: On the significance of classical political economics today
The chapter begins by distinguishing economic thinking from that of the natural sciences by using Aristotle’s failures as a case in point. Whereas his physics and his economics can both be safely described as primitive, the latter contains lost truths', insights that contemporary economics has misplaced at its cost. Unlike physicists, who have nothing really to learn from Aristotle about the universe, economists are, at once, bogged down by an Inherent Error (that lies in the foundations of all logically consistent economic theories) and prone to lose important truths that their predecessors once understood better. The chapter moves from economics’ basic features (the Inherent Error and the lost truths) to its foundation, which is none other than humanity’s capacity to generate surplus. A brief history of surplus is provided before the origins of political economics itself are discussed and linked to what the book defines as Condorcet’s Secret.
Chapter 3 The odd couple: The struggle to square a theory of value with a theory of growth
The odd couple of the title are value and growth. From the very start, political economics found it difficult to square the two; to create models or accounts of how the exchange value of things was determined in a growing economy. The chapter begins at the beginning, with the French Physiocrats, before moving to Adam Smith and David Ricardo’s attempts to tackle this conundrum. The Inherent Error makes its first fonnal appearance in these works, before it returns again and again in the following chapters. The essence of the Inherent Error is the impossibility of telling a credible story about how values and prices are formed in complex (multi-sector) economies that grow through time.
Chapter 4 The trouble with humans: The source of radical indeterminacy and the touchstone of value
As if the Inherent Error were not enough, economics has to deal with another spanner in its works: humanity’s stubborn resistance to quantification; to behaving (at work and elsewhere) like an electricity generator does; in a manner, that is, which allows the theorist to describe its function by means of a mathematical relationship between quantifiable inputs and outputs. This was Karl Marx’s pivotal philosophical contribution, which led him to the idea that labour is ontologically indeterminate. To convey the significance of that nineteenth-century thought to our contemporary world (a significance that will become important when discussing crises like those of 1929 and, especially, 2008), this chapter utilises, quite extensively, a narrative based on The Matrix; the 1999 film by the Wachowski brothers. The sci-fi analogy illustrates that the input-output type of analysis employed by, among others, John von Neumann and Piero Sraffa, is better suited to a Machine Empire (such as that in The Matrix) rather than to a human economy in which workers and employers retain a human core. This is important because, the chapter argues, without the indeterminacy of labour inputs no economy is capable of producing value. In short, our economic models can only complete their narrative if they assume away the inherent indeterminacy that is responsible for the value of things we produce and consume.
Chapter 5 Crises: The laboratory of the future
Labour’s indeterminacy (see Chapter 4) causes it to acquire two quite different faces or natures. One is a commodity (that workers rent out), the other an activity (which cannot ever be bought or sold, as such). This distinction then causes a similar bifurcation in capital: it too acquires two separate natures (one that takes the physical form of machinery, the other an abstract form of social power). The chapter then presents Marx’s view of capitalism as a crisis-prone system on the basis of these bifurcations. In particular, it delves into Marx’s explanation of how the same system can produce, in the same breath, growth and deprivation, wealth and poverty, progress and regression. Last, the chapter returns to Book Fs main theme; i.e. that economics of all type are afflicted by the same Inherent Error. Marx’s tussle with the Inherent Error, and the unsatisfactory manner of its ‘resolution’ by the great man and his successors, is the subject with which Chapter 5 concludes.
Chapter 6 Empires of indifference: Leibniz’s calculus and the ascent of Calvinist political economics
The chapter introduces the reader to the type of economic thinking that has been dominant for a wrhile and which foreshadowed post-war neoclassical economic theory. From 1971 ¡onwardsj the latter underpinned the Econobubble and thus aided and abetted the formation of the Bubble which burst in 2008. The chapter traces its origins in nineteenth-century Marginalist political economics, especially those of the British and the so-called Austrian Schools, and emphasises the interesting way in which Marginalism dealt with the Inherent Error. In brief, it is argued that the Marginalist school split between two factions: One (the neoclassical) dealt with the Inherent Error by ignoring it and by axiomatically imposing ‘closure’ on their models (while assuming that, in real life, the market would be imposing that 'closure’). The other faction (the continuation of the Austrian school) accepted that the Inherent Error precluded theoretical ‘closure’ (and any analysis that accommodated complexity and temporality); they insisted that, because of this source of fundamental ignorance of an economy’s ‘steady state’ (or equilibrium), the only avenue open to us is that which leaves economic coordination to the market mechanism (that is, they recommend letting the state wither and its functions transferred to privateers). The chapter concludes with a provocative description of neoclassical economics as Marginalism’s bastard and an association of its method with that of Leibniz’s version of calculus. [Chapter 6 comes with an addendum by George Krimpas entitled ‘Leibniz and the “invention” of General Equilibrium’; a piece that adds substance to the chapter’s allusion to a link between neoclassical economics and Leibniz’s mathematics.]
Chapter 7 Convulsion: 1929 and its legacy
The chapter begins with an account of the great scientific discoveries of the mid- and late-nineteenth-century and on how they spawned a transformation in the texture, nature and organisation of capitalism. Technological innovation gave rise to conglomerates and this development changed the manner in which capitalism adjusted to change and reacted to its self-inflicted crises. While a number of important authors had warned about the repercussions of the transition to oligopolised capitalism, their voices were unheard; for they were ‘outsiders’ - outside both the economics mainstream and the corridors of power. Meanwhile the ‘insiders’ developed neoclassical narratives which, due to their supercilious attitude to the Inherent Error, were becoming divorced from anything even remotely reminiscent of really existing capitalism. The chapter examines, in this context, the uses of Say’s law, the quantity theory of money and the early manifestations of rational expectations (in models like that of Frank Ramsey). Then came the Crash of 1929 that had no place in neoclassical models, not only causing a major loss in the insiders’ reputation but also giving the insider’s insider, John Maynard Keynes, his opening. Keynes’s thinking, especially his sophisticated handling of the Inherent Error, takes up the chapter’s remainder.
Chapter 8 A fatal triumph: 2008’s ancestry in the stirrings of the Cold War
During the Second World War, economic policy was in the hands of the New Dealers, who ran the economy on a trial and error basis and in the light of the accumulated experience of trying, not with great success, to kick-start the ailing US economy during the traumatic 1930s. Meanwhile, a group of scientists (mostly of Central European origin) were manning the agencies, laboratories and divisions of the civilian and military authorities whose job it was to solve practical problems (e.g. logistics, planning of transportation systems, price setting) by means of advanced mathematical methods. However, after the war ended, and the Cold War began to take hold, both the New Dealers and the Scientists lost out in the struggle for the hearts and minds of academic economics. The winners of that ‘game’ were a small group of Formalists, with John F. Nash, Jr, Gerard Debreu and Kenneth Arrow at the helm. The chapter tells the story of that triumph, which gave neoclassical economics a whole new push, by focusing on the person that the book portrays as the era’s most tragic figure: John von Neumann. His ‘fate’, the chapter argues, was an omen for the type of economics that would prove instrumental in the run up to the Crash of2008.
Chapter 9 A most peculiar failure: The curious mechanism by which neoclassicism’s theoretical failures have been reinforcing their dominance since 1950
Economics was in deep crisis well before the world economy buckled in 2008. Students had been turned off in droves by its relentless formalism; economists of renown were lambasting its irrelevance; and the informed public grew increasingly indifferent to the profession’s intellectual output. And yet, a delicious paradox hovers over formalist, neoclassical economics: the greater its theoretical failure the stronger its dominance, both in the corridors of power and in academia. Tracing the history of this most peculiar failure to the early years of the Cold War, this chapter (in conjunction with Chapter 8) tells a story of how the post-war period spawned a Dance of Meta-axioms which kept neoclassical economics both dominant and irrelevant. The analysis focuses on: the decoupling of policymaking from high-end economic theory, to a new type of economics textbook (primarily due to Paul Samuelson); the dexterity with which the resurgent neoclassicism could absorb criticism by interchangeably relaxing and tightening its meta-axioms; the sociology of the profession; and, finally, an audaciously circular mutual reinforcement mechanism (especially evident after the end of the Cold War), which supra-intentionally rewards neoclassicism with institutional power that helps it maintain a strict embargo on any serious scrutiny of (i) its own foundations and (ii) really existing capitalism.
Chapter 10 A manifesto for Modem Political Economics:
Postscript to Book 1
This chapter summarises Book 1, its overarching argument, and the method that it proposes for dissecting, and transcending, all shades of political economics. It presents once more the significance of economics’ Inherent Error, places the notion of radical indeterminacy on centrestage and hints at explanations of why economics has proven so helpful to the social forces and institutions that led the world down the road to the Crash of2008.
Chapter 11 From the Global Plan to a Global Minotaur: The two distinct phases of post-war US hegemony
This is the first of two chapters that map out the post-war evolution of global capitalism. It begins with the Global Plan which the New Dealers designed during 1944-53 for a world in ruins. For two decades, under the Plan, the US sponsored and supported the emergence of two strong currencies (the Deutschmark and the Yen) as well as the industries and trade regions that underpinned them. When, however, US hegemony was threatened by strains on the US balance of payments (caused by the Vietnam war, domestic spending programmes, falling US profits and relative productivity), the hegemon reacted by opting for a controlled disintegration of the Global Plan. In this reading, the oil crises and stagflation of the 1970s were symptoms of a change in US policy that led to a new global order: the Global Minotaur of the title. During that phase, capital and trade flows were reversed, with the United States attracting the bulk of foreign-produced capital (or surplus value) in return for aggregate demand for the output of the rest of the world. However, this new global ‘deal’ condemned the rest of the world to a slow burning, often difficult to discern, crisis which was an inevitable repercussion of the constant capital migration to Wall Street. The chapter concludes with a statement by Paul Volcker (Chairman of the US Federal Reserve, 1979 87) that seems to support its main hypothesis.
Chapter 12 Crash: 2008 and its legacy
1 his chapter completes the story of the Global Minotaur (see Chapter 11) by explaining how the mass capital flight into Wall Street (both from the rest of the world and from within the US economy) paved the ground for financialisation, securitisation and, eventually, the creation of private money (in the form of CDOs and CDSs) that was predicated upon domestic debt (mainly the subprime mortgages), foreign debt (mainly the sovereign debt of other states) and other capital flows. In this context, a new theory of European integration, and the emergence of the Euro, is offered. The Crash of2008 is subsequently placed in the analytical context that unfolded throughout this book’s pages. The chapter proceeds to explain how the Crash led to the annihilation of the private money on which global capitalism had, by that time, become hooked and how governments were forced to step in and replace it with freshly minted public money; only to occasion a fresh wave of private mottey-creation as a resurgent financial sector began to issue new derivatives which, essentially, constituted bets against the governments that saved them. The implications of this dynamic for the future of capitalism, in the United States, Europe and Asia, are discussed. Finally, the chapter concludes with a statement by Alan Greenspan (Chairman of the US Federal Reserve, 1987-2007) in tune with its main argument. [Chapter 12 comes with an addendum by George Krimpas entitled ‘The Recycling Problem in a Currency Union’; a pertinent comment on the current debates concerning the future of the Eurozone,]
Chapter 13 A future for hope: Postscript to Book 2
The final chapter is a postscript to Book 2. It begins with a reminder (from Book 1) that economic theory pushes its practitioners into an awful dilemma: either to stick to the pursuit of logical consistency in the context of ‘closed’ models, or to remain in contact with really existing capitalism. In this sense, a commitment to live in truth, while attempting to make sense of our post-2008 world, comes with a precondition: a readiness to leave behind the ‘closed’ models of economists. Taking its cue from the analysis of the post-war world in Chapters 11 and 12, the chapter looks into the fundamental choice facing us now: between a resurgent push to recover the very idea of Democracy, and put it to work in an attempt to create a New Global Plan that may just save humanity from an ignominious economic and ecological meltdown, or to surrender to the system that seems to be taking shape behind our backs: a creeping Trapezocracy (from the Greek word trapeza, meaning bank) which will render our already unbalanced world more unstable, precarious, irrational; and thus shape a future that is simply a considerably nastier version of the past.
Book 1