Economists Propose Roosevelt's New Deal for Resolving European Crisis

By Con George-Kotzabasis

Professor Varoufakis loves metaphors, especially those penned by him! So I too will use a metaphor even if he will hate it. The Modest Proposal (MP) is the offspring of the comely wedlock of Stewart Holland and Yanis Varoufakis but as time passes even beautiful grooms and brides show their wrinkles and need to do something about their withering state and recover their ‘Bo Derek’ status. Thus a new younger bride was added to the old hag this time with a reputable name, though devoid of any accomplishments, that of James Galbraith, the son of the famous John Galbraith. In the two years of the MP”s existence it was unable to entice any eminent economist to support it and only one economist of run-of-the-mill standing added his name to it, i.e., James Galbraith.

The intellectual weight of both Varoufakis and Galbraith has been amply and brazenly demonstrated by a profound article of theirs published in The New York Times, in which they argued that only the left-wing party of Syriza, a potpourri of Marxists, Trotskyists, and green fear mongers, under its leader Alexis Tsipras, a populist demagogue and a mediocrity to boot, could save Greece from the crisis. That the two professors placed the salvation of Greece on the by now historically obsolete and defunct Marxism, vividly reveals their intellectual credentials and on such reputations they are trying to inveigle and persuade first class economists and serious politicians on the European continent that their MP is the panacea that will pull Europe and its periphery out of its virulent crisis.

But to come to the policies of their MP, which they are re-Christening as The European New Deal in imitation of Roosevelt’s New Deal that presumably pulled America out of the crisis and decreased substantially unemployment, they seem to be unaware that the ‘boom’ between 1933 and 1937 still occurred in conditions of depression as unemployment was still at the level of 15% and the depression only ended with America’s entry into the war as a result of the preparation for the latter and as the unemployed were recruited in the armed forces to fight the axis powers on the seas and beaches of the Pacific and on the deserts and fields of Africa and Europe. Moreover, other countries in the depression recovered more quickly than the U.S.A., for example Canada, as during the Hoover administration, from 1930 to 1933, U.S. unemployment was on average 3.9 points higher than Canada’s unemployment and during Roosevelt’s New Deal, from 1934 to 1941, unemployment on average was 5.9 points higher than Canada’s. But it was one of the greatest economists in America Joseph Schumpeter who passed his withering judgment on the New Deal when he blamed it “for the fact that the U.S.A. which had the best chance of recovering quickly was precisely the one to experience the most unsatisfactory recovery.”

The quackery, however, of their MP lies in its implied claim, after the multiple malinvestments, non-investments, and the gargantuan increase of the inefficient public sector and profuse consumption on credit all of which economically devastated the landscape of Southern Europe, that the recovery of the European Union and its periphery can be achieved without pain. That is why they are silent about any structural reforms and the privatization of the public sector, and the need of increasing competitiveness--which are primal conditions for any sustainable recovery--that inevitably involve severe pain for the majority of the people, especially in conditions of depression. But this is understandable as to admit the necessity of pain would shatter their wish and fanciful fantasy to live in the best of all possible painless worlds, and thus would debunk them from the comforts of an idyllic existence on an earth bound paradise.

Furthermore, and this is the most important factor, the crux of their MP is based on an assumption, whose chances of being realized is infinitesimally small, that the issuing of bonds by the ECB and the European Investment Bank (EIB) will be bought by public and private institutions as well as individuals to the degree necessary so the former can fund their programs and thus start the roll of the recovery. It will be hardly reassuring to these institutions and individuals however, to know that their money will be invested in countries of the European periphery with their chronic record of being economically underperforming and default looming is the order of the day. Who would be willing to invest in a seat on the Titanic? It is easy to buy bonds during a time of prosperity but is it as easy to buy them in conditions of economic crisis when there is greater uncertainty about future prospects? Moreover, what reassurance and confidence will render to the public a clause of “super-seniority status” that clearly adumbrates a high probability of “hard default?” It is precisely in highly risk conditions that such clauses are necessary. And once one inadvertently flags such a high risk one turns the market more bearish and scares members of the public from purchasing bonds. In such conditions Keynes’s “liquidity trap” reigns! So what is the fate of the MP, if the bonds purchased by institutions and the public are not adequate in number to finance the grandiose scheme of a European New Deal, other than its inglorious burial! And what will happen to Yanis Varoufakis? Will he abdicate from his vocation as an economist and enter successfully another profession, such as futurology, to compensate for his failure as an economist?

Lastly, what real resources other than artificial ones, such as the printing press and inflation, have the ECB, the EIB, and the European Stability Mechanism for launching a program of such huge dimensions? These are the questions that make the scientific validity of the Modest Proposal dubious. And these unanswered questions by the sires of the MP turn the latter intellectually untouchable to serious economists.

What is Needed for a Recycling Mechanism to Start?

A reply to Professor Varoufakis on his proposal of a recycling mechanism from countries with surpluses in his talk to the OECD.

By Con George-Kotzabasis

The working of a recycling mechanism from countries that are in surplus would primarily need the physical stature of Professor Varoufakis, that is, lean efficient competitive economies with no wastage baggage and lean governmental apparatuses. Most economies, however, of southern Europe are in a state of pathological obesity in both regards and thus are being unfavourable turfs for surplus countries to plough their money into them. For the wheels of the recycling mechanism to start therefore, it would be necessary to fundamentally restructure the economies and governments in the former case, on the ethos of a competitive market economy, and on the latter, by removing the destructive policies of government intervention and excessive regulation in the sphere of private enterprise.  Only countries free from the deleterious effects of un-competitiveness and government dirigisme and replete with entrepreneurial dynamism acting within a private enterprise system can be favoured to be the recipients of the manna of the recycling mechanism.

The above argument is reinforced by the two historical examples in Professor Varoufakis’ presentation where he shows that the Americans at the end of the Second World War recycled the major part of their surplus to Germany and Japan, the two countries that were renowned for their economic efficiency and technological feats and operating within the private enterprise system, and the second, when China and the oil producing countries of the Arab peninsula recycled their surpluses to America on the basis of the same principle, that is, of economic prowess and competitiveness. In neither case were these surpluses recycled to “Africanized” economies. Likewise, why European countries, such as Germany, that are in surplus, should recycle the latter to the economically sclerotic countries of the south unless the latter engaged in a radical restructuring of their economies that initially would be followed with a lot of pain as Greece presently shows with the radical changes that are taking place in its economy under the robust and imaginative Samaras government? It is easy to talk about the misanthropy of the elites but what about the misanthropy of those politicians of the left, such as Andreas Papandreou, who for years created a false prosperity for their peoples without telling them of the heavy price and suffering they would have to pay for it and the great crisis that they would be engulfed in?

Can Professor Varoufakis envisage that the great foundational changes that are required, so the recycling river of funds will inundate those countries that are at the bottom pit, can occur without pain? Is the Heracletian profound maxim that out of “great discord rises the greatest harmony” to be negated by the votaries of the “dismal science”?

Guest (Xenos) says,

Incorrect, in every way and on every level.

Per capita, Greece received more than any other country from the Mashall Plan and other forms of financial assistance from the USA. Germany andJapan received the most because (a) they were the largest countries lined up to receive funds, and (b) because they had been decimated by the war. It had nothing to do with your homespun nonsense about “Africanised countries” — whatever you think those might be.

Your speech is nothing more than empty rhetoric and has no relation to historical reality or economic analysis.

Kotzabasis says,

Greece was a special case due to the civil war and the threat of a communist take-over and the fact that America replaced Britain as the plenipotentiary of Greece and its protector from communism. And it goes without saying that part of the reason why funds flowed to Germany and Japan was their devastation. But the major reason was that the Americans wanted to create a locomotive of economic development in these two regions and that is why they chose Germany and Japan renowned for their past economic prowess. Professor Varoufakis himself in his presentation makes it quite explicit that China invested its surplus in the United States precisely because of the latter’s high competitiveness (M.E).

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Professor Varoufakis' "Invincible Summer" in the Midst of Difficulties of the Cold Winter of Last Year

By Con George-Kotzabasis

Professor Varoufakis, let us hope that the New Year is a year of corrections of past mistakes,  mea culpas and success. With the more than possible policy success of the Samaras Government in 2013, it seems to me that your “invincible summer,” policy wise, is a will-o-’the-wisp and will turn out to be your ineffable “winter of discontent” as a result of the political and economic triumph of Antonis Samaras in pulling Greece out of the crisis, and your dire predictions of the hopelessness of Greece, as the present government continues, according to you,  to implement, without creative revision, the dead end policies of the European Union and the IMF, which have been so destructive to Greece.

A reply to a criticizer who lambasted me for the above comment on Professor Varoufakis.

It’s not in my character to insult anyone and least of all our morally and mentally robust Professor Varoufakis. You are confusing “no quarter will be given” criticism with insults; the typical confusion of an effete person delving in critical matters or in intellectual discourse. As to the rest of your comment, it’s wise to take the advice of Wittgenstein and stay silent. The same applies to all other comments to my riposte to Professor Varoufakis.

Antonis Samaras Will Save Greece from Ominous Catastrophe

By Con George-Kotzabasis May 20, 2012

Professor Varoufakis I don’t share your conclusion that the next election will be as “inconclusive” as the previous one. Already there are signs, and my strong belief is, that Syriza, the radical left party, will be a big loser on June 17 and its fickle flip-flop and slipping, as adumbrated by some recent statements of its chameleon leader Tsipras, from its original position of denouncing the Memorandum--by which it boosted its electoral results--and by replacing it with its gradual revision, that essentially is no different from the position of New Democracy (ND) and Pasok, will clearly expose it to the electorate as being blatantly inconsistent and fraudulent and therefore no longer trust it as a serious-minded party that could get Greece off  the hook, especially when its political dilettantism, thoughtless and dangerous policies would push Greece out of the Eurozone. Also to consider, as you do, that New Democracy’s and Pasok’s anti-austerity stand is “rhetoric,” is to be a fugitive from reality, especially in the case of Samaras who was the only politician both in Greece and Europe from early on May 2010, to denounce austerity measures as barren without rekindling the economy and led ND not to vote in Parliament the first Memorandum which embodied these infelicitous measures.

Syriza could not have been taken seriously by anyone with a serious disposition in politics, and Varoufakis, who so egregiously supported it prior to the May 6 election, should have known better. All of its leaders, breast-fed by Stalin, Trotsky, and Mao, are habituated and stuck to the nostrums of communism that have been built on sand and have been washed away by the sea long ago. The socialist Pasok, with its preposterous economic policies and political ‘sins’of the past and deep-rooted corruption, has lost all credibility among the populace, and therefore is unable by itself   to get the country out of the crisis. All the other parties with their ‘certified insanity’, and I would include in this group Syriza, are Napoleons locked up in mental institutions.

Ergo, my choice is the much maligned Antonis Samaras who since his incumbency as leader of New Democracy two-and-a-half years ago has demonstrated magnificent qualities of leadership in political and economic insight, in resiliency and swiftness of approach to the critical issues—an example of this was the rejection of the first Memorandum and the forced acceptance of the second in circumstances when Greece was at the edge of the abyss and had to be saved--in his unflappable determination to convince the European leaders that austerity without growth would fail, and in his brilliant success in persuading them of the correctness of his argument and thus opening  the second Memorandum to the necessary modifications that would include growth. Samaras is gifted with high intelligence and a strong character without the big ego  that considers le tout c’est moi, to paraphrase Louis XIV, that often negates the strength of character, and he is the only  Greek leader who has better than a chance to pull Greece out of the crisis.