If Conventional Economic Weapons Work “Nuclear Option” is Out

The Samaras Government by stupendous, sagacious, and painful efforts, and by using “conventional economic weapons,” is pulling Greece out of its economic crisis. For the first time after four years, Greece next week will be able to borrow funds on the international financial markets.

I’m republishing this short reply that took place early in 2012, for the readers of this blog.

By Con George-Kotzabasis

A reply to Bruce Wilder, suggesting default for Greece and Italy as the remedy for their economic crisis.

In serious discussion it is wise to enter it carrying a sieve in one’s hands to separate the wheat from the chaff.

Your crystal clear “efficient calculating machine” that would implement your proposal of default, would be no other than a wise, brave, imaginative, and humane technocrat. So what exactly you have against technocrats? They are OK if they adopt your plan and only transported to Hades in toto for their ‘mortal sins’, if they don’t! Default was and is always an option. The distinguished economist Deepak Lal and exponent of the Austrian School of economics, long ago suggested such a schema. Lucas Papademos and Mario Monti, Prime Ministers of Greece and Italy respectively, both presumably have this option in their arsenal to be used as a last resort if everything else fails. But before they use this ‘nuclear’ option, they must try, and be given the right by all objective analysts and commentators, to resolve this economic crisis by ‘conventional’ means that could avoid a default which would open a big hole in their countries GDP and throw their people into pauperization for decades to come.

Marxistoid Economists Consider Bankrupt Left as Saviour of Greece

Fair is foul, and foul is fair, /Hover through the fog and filthy air (Witches of Macbeth chanting their cursing ditty)

By Con George-Kotzabasis— July 04, 2013

In their article published in the New York Times  on June 23, under the title “Only the Left Can Save Greece”, the two politically ‘pinkish’ economists teaching at the University of Texas at Austin, James Galbraith (the son of the famous John Galbraith) and Yannis Varoufakis, argue that neither America nor Europe should fear an ascension to power of the Left wing party of Syriza in Greece on the contrary, they should applaud it, as a government of the left would reverse the defective policies of the European Union that have been so destructive to the Greek polity and to its people as well as to many other European countries.

The two economists were shocked at the closure of the Hellenic Broadcasting Corporation (ERT) and denounced the Samaras government for its authoritarian and undemocratic action, of depriving Greeks of a public service of information and entertainment that was invaluable to them. The government however closed the public broadcaster temporarily and planned to replace this cesspool of administrative corruption, opacity, and cronyism, for which each Greek household had to pay a levy of 50 Euros per year, with a new public broadcaster not run by the government but by personnel chosen on meritocratic criteria and professionalism that would upgrade the service provided to Greek viewers and at a cheaper price.  Galbraith and Varoufakis, in their support of this corrupt and inefficiently run public entity  and demand of its reopening, found a kindred political ally in the leader of the Marxist party of Syriza, Alexis Tsipras, who had committed himself to re-open with all its personnel intact if he became prime minister. Tsipras’ crocodile tears for the public broadcaster, which in the recent past had condemned as being the mouthpiece of the extreme right, exposed his blatant political opportunism in this U-turn from hate to love for ERT. But they found him also to be an invaluable ally to their economic proposals of how to lift Greece out of the crisis. .

Galbraith’s and Varoufakis’ solution to the crisis springs from the growing of a hundred blooming flowers in the luxuriantly prodigal Keynesian garden. Their package of Keynesian remedies consist of “a kind of European equivalent of America’s post-crisis Troubled Asset Relief program; an investment and job program; and a European initiative to meet the social and human crisis by  strengthening  unemployment insurance, basic pensions, deposit insurance, and the expansion of core public institutions like education and health.” Notice, that all of these remedies are to be financed by  government and taxes from private enterprises. How then government can finance all these things when its coffers are empty and depend on European loans to pay for primal services such as schools, hospitals, and public servants, and when private enterprise has no incentive to function or remain in an unstructured economy that has been for many years inimical to it? And the two economists do not make  a pip about the necessity of private foreign and domestic investments that are the only economically sustainable and viable investments that can initiate growth and economic development that are the sine qua non that will pull Greece out of the crisis. And that these investments can only be made under the incentive  of structural economic reforms that are favorable to private enterprise, and strict fiscal policies that perforce can only be accomplished by hard measures which are inevitably painful to the general populace.

Since neither the political color nor the gray matter of Galbraith and Varoufakis were able to convince serious politicians and economists in the Euro zone, or Greece, of the correctness of their Keynesian mirage as a solvent to the European and Greek crisis, they found in the fiasco leadership of Syriza, of Tsipras, the intellectual salvation of their by now withered flowers of their Keynesian remedy. (This speaks volumes about the value of their proposals in that they found their support and cerebral salvation in the intellectual and moral bankruptcy of the Greek left.) Tsipras bereft of any tenable economic policies, and rationalizing this vacuity in policy making by populist rhetorical denunciations of the policies of the Samaras government, eagerly embraced the policies of Galbraith and Varoufakis, which ideologically are cognate to his own as a ne plus ultra government interventionist himself, thus giving to his own policies some sort of academic prestige from this ‘south of the border’ economists that he is unable to get from more serious experts in the profession. (But beggars cannot choose.)

Indeed, the policies of Tsipras have their source in a variegated coterie of Marxists getting their inspiration from the flashing pan of Marxism, as the rising sun of the latter has long ago disappeared from the astral constellation of the universe, never to rise again. Tsipras, as a true believer of the great man, Karl Marx, attended the Marxist organised Subversive Festival of Zagreb in Croatia last March, which was likewise attended by both Galbraith and Varoufakis. Indeed, the former announced with pride his attendance of the Festival, in a lecture he gave to socialists in the German Parliament last week, where the gladiators of the great imperator Karl Marx had gathered together from all over the world and rushed into the arena of the Amphitheatre of Zagreb, with nets in one hand and swords in the other, to fight and slay the wild animals of capitalism, which their predecessors in the socialist camp, even better armed with technological weapons, had failed to slay. Moreover, Tsipras was an aficionado of Chavez and had visited Venezuela last year with the hope of getting financial help  from its president with an implied commitment of making Greece a protectorate of Venezuela, if not the European Venezuela. And yet Galbraith and Varoufakis in their political naiveté write in their article in the New York Times that the Americans have nothing to fear from a Syriza government.

Galbraith and Varoufakis, like the witches of Macbeth cursing the Samaras’ government as foul, undemocratic and authoritarian, slavishly implementing the dictates of the European Union, and as economically incompetent, are predicting its downfall while stirring the pot of their quackish remedies which nobody will ‘buy’ other than Tsipras. Meanwhile, Samaras wisely, assiduously, and decisively is transforming Greece within the short span of one year by an unprecedented series of structural reforms that are increasing competition–Greece is in the 22 position internationally for the first time–reducing the bureaucracy, especially its inefficient part that was an obstacle to investments, and planning to make it more efficient on meritocratic standards, changing the economic milieu by making it friendly to business and investments, and leashing the arbitrary and ruinous power of unions which for many years had prevented foreign investments in the country. Moreover by his virtuoso performance in the negotiations with the European Union and the IMF, Samaras  has blunted some of the austerity measures that have been a major factor in obstructing the re-igniting of the economy and artfully polishing these measures that will put Greece on the track of development. He was able to convince the leaders of the EU to provide Greece with extra funds for employment programs that will materialize by the beginning of 2014, more resources from the European Bank of Investments so they can be ploughed into small and medium sized businesses. He has started building Autobahns that have created 25,000 new jobs and he has enticed the economically hard thinking Chinese government to invest 350,000 million Euros in the port of Piraeus thus making it the entrepot of commerce between south-east Asia and Europe. ( The European Council announced that the port of Piraeus will be named as the capital port of Europe for 2015.) Also the Chinese are interested in making more investments in the infrastructure of the country, especially in its railway network by which they will transport their goods into Europe. But the most important and greatest achievement of the Samaras’ government up to this moment has been the building, through Greece, of the conduit by the Trans Adriatic Pipeline (TAP) that will convey natural gas from Azerbaijan to the heart of Europe. TAP will invest the huge amount of 1.5 billion in Greece and will generate 12,000 jobs by 2014 in the country. This, according to one authority in the energy industry, has been the personal accomplishment of Samaras who in his visit of Azerbaijan and meeting with the Prime Minister of the country three weeks ago, convinced the latter that it would be more efficient and economically cheaper to build the conduit through Greece instead of through Bulgaria and Romania, a project which the international consortium backing it was favorable to win, and lost it only, with the intervention of Samaras. Furthermore, this enormous investment, behind which one of its investors is the global gigantic company BHPBilliton, engenders confidence to other investors that Greece is about to pull itself out of the crisis, and hence, encourages and attracts more investments into the country and thus will increase employment which is one of the major challenges of the government.

The government under the statesmanship of Samaras is determined to pull Greece out of the crisis and not to squander the sacrifices Greeks had to make for the economic, political, and cultural Renaissance of the country. The great, fair achievements of the Samaras government, in an unprecedented short span of time, are depicted and cursed as foul by the two Marxistoid economists, James Galbraith and Yannis Varoufakis. Ignominy, loss of intellectual honor, is of no concern to them.

I rest on my oars:Your turn now 

An Exchange between Kotzabasis and Professor Varoufakis on the Merits and Demerits of Capitalism

The following exchange between me and Professor of  Economics Yanis Varoufakis at Athens University took place on his blog

http://yanisvaroufakis.eu/ about the capitalist system under the post:

Ending 2011with a fable for our times-December 24, 2011

December 24, 2011 at 03:14 #

Kotzabasis says,

Is Amartya Sen’s absolute prosperity and relative inequality of the capitalist system vulgarly to be replaced by Yanis Varoufakis’s “despicable inequality?”

Professor Varoufakis distorts and defames the whole history of the dynamism of entrepreneurial capitalist wealth that shot up the standard of living of the masses to “Himalayan” heights. To claim that capitalist “wealth …needs poverty to flourish,” is just an ornamental academic trapping empty of history and fugitive from serious thought. Capitalism, like everything else in life, was never meant to be “stable” but a process of Schumpeterian “creative destruction.” But this can only be understood and accepted by realists and not by heroic ideologues, like Professor Varoufakis.

Professor Varoufakis says,

December 24, 2011 at 15:32 #

It is always good to encounter intransigent Panglossian views in the post-2008 world. There is something touching about undying faith, even when of the toxic variety.

December 25, 2011 at 01:48 #

Kotzabasis says,

Professor Varoufakis

Are capitalist entrepreneurial creativity, wealth, and prosperity based on “intransigent” “Panglossian” naivety? And is the history of capitalism to be truncated and concentrated naively and un- imaginatively between 2008 and 2011 for you to make your uninspiring and toxic argument?

Professor Varoufakis says,

December 25, 2011 at 11:56 #

No, capitalism’s wonders have nothing to do with Panglossian naïveté. But your determination to portray it as the best of all possible systems exudes it. As for my assessment of capitalism, and your claim that I truncate the latter’s history to a period around 2008, feel free to judge it. But only after you acquaint yourself with it. (For had you read it, eg either of my last two books, you would have realized that I truncate nothing. And that I go to great lengths to analyse capitalism’s contradictions, something that entails a celebration of its achievements as well as an exposition of its failures.) Till you are prepared to become acquainted with what I am really saying, before you attack it, I shall treat you as no more than a minor Panglossian.

Kotzabasis says,

December 26, 2011 at 02:46 #

Professor Varoufakis

Thank you for your advice how to overcome my “minor Panglossian” status. But unfortunately for me I’m bound to retain it, as your crass defamation of capitalism in your POST, hardly incentivized me, to use a term of your “little man” John Howard, to read your books and be acquainted with your thoughts. And indeed, my preference is to be “treated… as a minor Panglossian” than go through the treat to major on your ‘Pandistortions’ and jaundiced strictures on capitalism.

But to come to the gist of the matter in hand, my riposte to you was not to either of your two books, which, as I imply above I have not read. My reply was specifically to your post where you wistfully and wrongfully write, “Should we dare to hope of a new era in which WEALTH NO LONGER NEEDS POVERTY TO FLOURISH,” and of the illusion that “capitalism can be stable” and where you vulgarly and gracelessly contend that capitalism creates “DESPICABLE INEQUALITY,” and in your reply to my first post where you refer to the “post-2008 world.” It might well be that these ‘populist flourishes’ had not meant to be of any intellectual seriousness and their only aim was na deleazei ( to allure) and enthuse the ignorant to rush and become volunteer workers to your construction of your ‘matchsticks’ good society, as a replacement to the infernal deeds of capitalist society. But could one do this at the cost of one’s intellectual integrity?

And it is most surprising that the Gargantuan, indeed, Cyclopean efforts that you have put in your Modest Proposal(MP)—although one must note that Cyclopean efforts without a Ulysses are fated to be wasted efforts—have the aim to save Europe, a system that according to you produces genetically “despicable inequality.” Fortunately, however, for those condemned to this despicable inequality, but unfortunately for you, Andreas Koutras’s fatal Jovian bolts demolished to ashes the MP, from which no contriving number of revisions to it will give rise to a Phoenix solution that will salvage the European Union from its peril.

Lastly, to state that “to analyse capitalism’s contradictions… entails a celebration of its achievements as well as an exposition of its failures,” is to state the obvious.

Professor Varoufakis says,

December 27, 2011 at 04:33 #

Impressed by your dedication to keep knocking down my (according to you) already demolished, and perpetually ridiculous, arguments, as well as by the amount of time you dedicate to a blog (mine) which you consider unworthy, I shall continue to post your comments. Carry on Sir!

Kotzabasis says,

Professor Varoufakis

With your Kazantzakian character I could never imagine that you would not post my comments.

 
 
 
 
 
 

Is the European Central Bank the Shy Bride of Lender of Last Resort?

By Con George-Kotzabasis—December 1, 2011

It goes without saying, that merely a new European treaty, as proposed by Chancellor Merkel and President Sarkozy, no matter how strong its teeth, will not resolve the crisis. But the solving of the crisis might lie in a fecund combination of new rules to be observed strictly, and new bold economic measures, including the ECB as lender of last resort. And Mario Draghi’s hesitation might only be a ruse. His guise of being the shy bride of decisive intervention might only be a pretension, and he may surprisingly shock everybody by sprightly stepping boldly and marrying the groom of lender of last resort. This unexpected nimble move from shyness to boldness will be a powerful incentive to rally the markets behind the Eurozone. And one might not dismiss lightly that “magic” and a Deus ex machina might have a role in this tragic play.

P.S. Since the above was written, Mario Draghi lowered the discount rate of the ECB to 1% and distributed to European banks nearly 500 billion euros to lend to their customers. This is equivalent of using the instrument of lender of last resort by the ECB although doing this by roundabout means and not in a formal manner. And apparently this bold and imaginative initiative of the ECB has stabilized the European markets.

 

Mount Globalization or Be its Prey

The following paper was written and published on September 2001. It’s republished here for the readers of this new blog.

By Con George-Kotzabasis

A tiger is stalking the world the tiger of globalization. Nations and peoples who, gazelle-like, are frightened and take flight before the huge ferocious “life-threatening” leaps and bounds of this tiger, are to be mauled and be eaten, as no swift flight can make them escape from the lightning speed with which globalization pursues its quarry.

For this will be the fate of nations and peoples who chose to be the prey instead of being the “hunter” of globalization. To be the hunter however, does not imply that one has to slay the “beast” of globalization. Instead, it implies that like a consummate broncobuster, one has to mount the tiger and adapt to its fast and sinewy movements while at the same time “taming” it.

This is the only way that countries can save themselves from the threatening onslaught of globalization. More importantly still, to be among its winners. But it’s fundamentally important to be prudent winners, that is, the winner does not take all. No clever country or wise person would desire to be an absolute winner. Only gamblers would crave to be so. But the wins of a casino are ephemeral wins, and soon and inevitably are followed by loses. Hence, if the winners of globalization wish and aspire to keep and to augment their gains, it’s necessary that they look after and take care of the losers of globalization. As the latter can only be politically sustained and continue to succeed and be beneficial to mankind if it’s a “caring globalization”, if its heart is the “make –up” of its robust mien. If not, it will face the freezing winds of a backlash of a ‘winter of discontent’, of all the countries and peoples who are fearful of its storming of the globe. Its losers therefore will be diffident and distrustful of the touted benefits that could accrue to them, and hence reluctant to admit the Lexus into the groves of their olive trees, to paraphrase Thomas Friedman, of the New York Times.

The currently unstoppable revolution in technology, finance, and information, has made all nations vulnerable to the waves of global competition. Only those nations that swim on the crests of these waves will survive and be the winners in this relentless struggle. This implies moreover, that no nation can economically survive in isolation even if it possesses unique and an abundance of natural resources. Nor can it appeal to the bungled remedies of the past, such as the provision of subsidies to defunct industries. Nor can it depend on the invention of new populist nostrums, such as “fair trade” proposed by the dinosaur delegates in a Labor Party Conference in Hobart. On the contrary, only through the process of creative reconstruction in the economic, industrial, commercial, and social structures of a country, is the “waydrome” to success. In this context, to talk about fair trade is to live in dodo fairyland. Indeed, it’s like asking Olympian super athletes, like Cathy Freeman, to be fair to their lesser competitors.

 

How to Deal with the Challenge of Globalzation

Thomas Friedman in his book, The Lexus and the Olive Tree, argues, that ‘the revolution in technology, finance, and information did three things. It lowered the barriers of entry into almost any business, and it rapidly increased competition and the speed by which a product moves from being an innovation to being a commodity.’ Technology expands production to global dimensions, ‘knitting the world together.’ Finance with the collapse of regulated exchange rates, penetrates all the profitable niches of the world in its avaricious dynamic drive for profit. No raising of granite protective walls or the setting up of any barriers can prevent the ‘ “Electronic Herd’s” ‘ power to move its capital on world markets. Furthermore, information technology ‘brings home to everyone how ahead or behind they are in contrast to other countries.’ This provides a cue and spurs people to invest in countries where lucrative profits can be made by ‘investing through the internet on a global scale.’ Hence, the world is no longer carried on the back of the slow moving Atlas, but on the back of the swift electron-moving Microchip. In such a world all kind of barriers have the strength of a plastic balloon. But even if it were possible to erect impenetrable barriers, the countries that did so would bring upon themselves “the day after”, the consequences of “nuclear” economic and social devastation. That is, the result for these countries would be to throw themselves into the abyss of poverty and squalor, and hence unwittingly deprive their people the opportunity to become wealthier by being on the trajectory of globalization.

It’s by accepting the challenges of globalization with imagination and boldness that countries and their peoples will not only be strengthening their intellectual and moral fiber that will position them on the launching pad of globalization, but will also be transporting them to the land of cornucopia, to material and spiritual abundance. It’s imperative therefore, that political leaders deliberately and consciously decide to prepare their people to enter into this benign circle of feedback. That is, the intellectual and moral strength and knowledge of their people will maximize the benefits accruing from globalization and minimize its disadvantages. And the successes of actively being engaged with the cutting-edge of the globe will in turn further enhance this intellectual and moral vigor and knowledge of their people. In such a brave new world, one has to tell people to ‘remove their belongings’, to use a phrase of Vladimir Nabokov, of moaning. There is no room for resentment and gripe against countries and peoples who succeed. Success itself will be redistributed and will not remain in the same hands. Everyone will have the opportunity, endowed with grit, chutzpah, and entrepreneurial flair, to succeed.

For the first time in human history, globalization has the potential to bring in its wake the “democratization of success”. No scion of elites will be able to capture its benefits and lock them up ever safely and ever after in their vaults. The microchip is sovereign. Hence the corridors of wealth will be accessible to all who have the knowledge and ambition to use it. And if Shakespearian sovereigns could trade their kingdoms for a horse, business scions, like James Packer, will have to trade their wealth and power for a microchip.

Globalization also has the potential to usher in the empowerment of all classes and creeds. Ironically, capitalist globalization might realize Marx’s dream- the fulfillment of the individual who performs his practical affairs during the day, fishes in the evening, and writes and “practices” poetry during the night. And to cap it all, the Communist Manifesto’s slogan, “workers of the world unite”, could be accomplished by globalization. The only difference being that the unity of workers will not arise out of enmity against capitalist entrepreneurs, but out of the benign desire to emulate the achievements of the latter, as every worker with the required training and knowledge will have the ability of doing so.

 

How to Raise all Boats and Canoes in this inundation of globalization

We need however to be critically aware of the downside of globalization and treat its blemishes effectively. It’s a truism that not all people will benefit from globalization. There will be losers! In all civilizations there have been winners and losers. The human race cannot jump over the shadow of this accursed fact. Either as a result of individual propensities or lack of resilience and ability to adapt to the new, and strenuous circumstances of globalization, many people will fall behind and will be disadvantaged. But because of globalization’s vast production of wealth, it has the capacity to compensate the losers, and indeed, to pull them out of their disadvantaged position. In this task governments will play a decisive role.

First, they will have to deal with the backlash that arises from people who are struck with the dire effects of globalization. While globalization shortens the distances of the world and makes it accessible to many people and improves economically their well-being, at the same time it lengthens the rusty chain of un-economic and defunct industries in many developed and developing countries. Many workers, therefore, who for years worked in these industries, are thrown out of them and find themselves unemployed and unemployable. The direct beneficiaries of globalization therefore, not only have a moral responsibility, but also a vested interest, to take care of the disenfranchised from the advantages of globalization, if the latter are to be prevented from being converted into modern Luddites, and start smashing the machine of globalization, by means of war, terrorism, and computer hacking.

Secondly, to head off and pacify this backlash, governments will have to prise open new thinking horizons, and to transform this resentment into support for globalization. Since inequality among human beings, as well as of other primates, is nature’s regime, governments must contrive clever policies to redress and reverse this order of inequality and bring some sort of balance in this inequity of nature. In the “clever” country, prosperity does not have to be equated with “equality”. People do not have to be equal in certain natural endowments with those who generate wealth and prosperity, to share the fruits of this prosperity. The process of globalization begets such huge wealth that it would not be difficult for governments to impose the burden upon, and indeed persuade, its producers, that it’s to their own interest to share part of this wealth with the disadvantaged of globalization. Especially, when this divestment of wealth will not diminish the capital investment funds of the former, as we will show below.

Thirdly, governments will redistribute this part of wealth by the following international multilateral policy mechanism, by imposing a levy or surtax on the profits of all “globetrotting” corporations, financial institutions, and foreign currency speculators. Once, these funds of the levy are collected by governments, they will be transmitted to an international body set up by these governments. Let us name this body the International Globalization Fund (IGF). The central task of this entity will be (a) to identify those nations and peoples whose livelihood has been affected negatively by globalization, and (b) to subsidize the buying of shares in multinational corporations and world financial institutions, by these nations and peoples. In the case of some people who might not have any financial savings of their own, the IGF will provide them with special securities or bonds, thus enabling them, despite their lack of savings, to be shareholders in this international economy. Moreover, such a policy will not engender any disincentives to private enterprise. As the funds accruing from the levy will not be spend by governments in fuzzy, boondoggle industrial plans or in subsidizing defunct industries, at the expense of the private sector. The build up of a “hydraulic pipe” between the international economy and the disadvantaged of this economy, will allow the funds that are transmitted to the latter in the form of subsidies and securities by the IGF, to be sluiced back through this pipe to the multinational corporations in the form of equity capital. Hence, the investment funds of these entrepreneurial entities will not be diminished.

Thus, the eyes of all, not only of those who gain directly from their engagement with globalization, will be focused on the screens of the computers. Even people who lack knowledge and adeptness to use the modern technology will enter and be denizens of this brave new world of the internet, as equity holders. Sharing the wealth that is spawned by the Midas microchip touch of globalization. The magic flying carpet of globalization will have everyone aboard.

It depends on the creative thinking, imagination and Thatcherite will and determination of governments whether globalization will be politically and economically sustainable. And whether by riding it, the fruits of its wealth will also be distributed to all those nations and peoples whose livelihoods are going to be lost in this process of ‘creative destruction’. Whether the opening of the floodgates of globalization will raise all boats and canoes in this global inundation of its waters.

 HIC RHODUS HIC SALTA

The article was written on September 17, 2001, and was first published in the English supplement of Neos Kosmos in Melbourne on the same date