Global Minotaur, The – Book Review
Publisher: Zed Books, www.zedbooks.co.uk
Reviewed by: Lynard Barnes, 2 February 2013
Summary: The complete title of this book is THE GLOBAL MINOTAUR: AMERICA, THE TRUE ORIGINS OF THE FINANCIAL CRISIS AND THE FUTURE OF THE WORLD ECONOMY. It tells of the rise of the American super-state, post-1929, and the cause of the 2008 financial crash. Part of a series: ECONOMIC CONTROVERSIES by ZED BOOKS.
It takes a certain mindset to really appreciate the art and science of Economics. Concepts as simple as production, distribution and consumption can, under the right hands, become a labyrinth of ideas free-floating above a sea of esoteric numbers: ideas are the art, numbers the science. Thus, economics is a social science. THE GLOBAL MINOTAUR proves the point.
In THE GLOBAL MINOTAUR, Yanis Varoufakis uses economics to deconstruct the rise and, after 2008, fall of the United States as a financial superpower. What is so fascinating about Varoufakis’ perspective is his recognition of the artificiality of the foundation upon which American rose to dominate world finance, and his perpetuation of the perspective to suggest the decline of America’s dominance in the world of finance. Granted that this shaky logic is the foundation of his argument, wading through THE GLOBAL MINOTAUR is well worth the effort.
VALUABLE STUFF AND STUFF OF VALUE
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.
Adam Smith – quoted from Smith, A., 1976, The Glasgow edition, vol. 2a, pp. 26–7. WIKIPEDIA, “Adam Smith” accessed 2 February 2013
Though Adam Smith, the Scottish moral philosopher and headmaster of economics, never mentioned the term capitalism, he is the premier advocate of the capitalistic system. He lived from 1723 to 1790. Jump ahead around a hundred years and we find the German philosopher Karl Heinrich Marx and his co-heart, Friedrich Engels. Together, these two hashed out the philosophy of socialism which looked at capitalism and arrived at dialectical materialism—the evolutionary class struggle between those who own the means of production and those who must consume “production”. The clash between the big C of capitalism and the big S of socialism remained in the philosophical sphere until Russia went through Marx’s evolutionary economic system within the space of two years: oligarchy to socialism to the “dictatorship of the proletariat” —communism. How did that work out? Not too good obviously. It should have been obvious to the man who erected the Russian “socialist” state, Vladimir Lenin. The only reasonable explanation for Lenin’s shortsightedness is that he focused so narrowly on the numbers part of economics that he cavalierly dismissed the idea that there are people involved.
So it goes with Economics 101.
Yanis Varoufakis has come up with this analogy of America as a global Minotaur. In this analogy, the United States is the monster in the center of the financial world to which all nations pay tribute in the form of goods and capital. America needed the tribute in order to sustain its twin deficits of expenditures and trade. The analogy is built upon a foundation of numbers: the science of economics. Varoufakis does an excellent job of explaining all this. We have a nation—the United States— after World War II in which the greatest industrial society still standing has no outlet for the goods and capital it produces. So, it concocts a world trade system (the Global Plan resulting from the July 1944 Bretton Woods, New Hampshire conference of 730 delegates) that would prop-up the capitalist system and prevent another capitalist system melt-down as occurred in 1929 (the Great Depression). From Bretton Woods we got the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), now known as the World Bank. America would rebuild the industrial base of the defeated nations of Germany and Japan and remake these nations in its own image. By the numbers.
In reading Varoufakis’ history of these developments, one must keep in mind Adam Smith’s observation that we cannot expect our dinner because of the benevolence of the butcher. The butcher acts out of self-interest. This is the people part of economics, the art, if you will. The Global Plan instituted after Bretton Woods “was a grand success”. Economic cynics might see the numbers and art of the scheme and wonder why it’s worth mentioning at all. Upon the “largess” of the United State, Germany, Japan and most of Europe began a road to recovery that would last until the 1970s. Meanwhile, the United States “continued along a path of healthy growth.” The “butcher” was happy: consumers and workers were happy. The world was tittering along in a haze of exuberant expectations of higher living standards for all. Of course, the 1970s came along.
A CAPITALIST’S NIGHTMARE
Adam Smith has his butcher. Under the economics of Marx, there is no butcher, only people who want stuff. At a fundamental, realistic level, Marx’s economics reflects the real world better than the idealized picture of a butcher dispensing lamb chops for profit. The butcher, who wanted a butcher shop, got his butcher shop from somewhere. It did not just appear out of thin air. (“No Mildred, you didn’t build this!”) Varoufakis glosses over the foundational basis of modern economic activity—surpluses giving rise to commerce, commerce giving rise to butcher, baker and vegetable shops. But he makes up for it in a big way by going directly to the dynamics of any economic system. In so doing, he arrives at a succinct description of all economic systems. On page 30, he writes that “the manufacturing of a surplus and the manufacturing of consent (regarding its distribution) [his emphasis]” is the basis of all “dynamic societies”. Some sixty pages later, he delves into the heart of the matter with the introduction of a phrase that really clarifies Economics 101 and beyond. A global surplus recycling mechanism (GSRM) that works within a common currency “union” keeps “imbalances constantly in check”. A global recycling mechanism is a more detailed way of expressing the idea of a redistribution of wealth.
In THE GLOBAL MINOTAUR, Varoufakis starts his scrutiny of the U. S. economy and its relationship to the world economy at the start of the 1929 Crash. From the way Varoufakis tells it, a global recycling mechanism is not an option in a dynamic economic system, it is intrinsic to the system. The New Dealers of the Roosevelt administration realized that capitalism really wasn’t an economic system but rather a state of mind. Capitalism required a recycling mechanism if it was to be truly functional. Hence, the so called “welfare state”. The effects of the 1929 Crash would have continued “into the 1940s” had it not been for the recycling mechanism of World War II. Varoufakis goes on to say that the Global Plan, distinct from the actions of the Global Minotaur, became the roadmap for saving capitalism and ensuring that no other Great Depression befalls the American and world economies. Bretton Woods allowed the New Dealers to institute a global recycling mechanism on a world-wide scale and a hegemonic role for the U.S. dollar.
Not only was the Global Plan fueling the greatest advancement in the standard of living the world had ever seen, it was expanding the availability of U.S. dollars. According to Varoufakis, the U.S. world currency, the reserve currency used as exchange, reached a saturation point (“dollarizing the world . . . to create foreign demand for America’s exports”) where Europeans and the Japanese began to fear that the United States would not be able to back-up its dollars in the “standing commitment to swapping an ounce of gold for $35.” To address the ruckus, in 1971, President Nixon simply decoupled the U. S. dollar from gold. There would no longer be a dollar-to-gold swap. Thus ended the Global Plan. It was a by-the-numbers consequence of the wealth being spread around.
The most salient observation Varoufakis makes about the world economy from 1950 to 1970 is the institution of the global surplus recycling mechanism coming out of the Bretton Woods conference. While he credits the American “New Dealers” with the foresight to implement the system, he pretty much leaves out the people part of the equation. This is both forgivable and understandable if your focus is simply on the numbers: the accountants taking a look at economic numbers and devising a means to keep the debits and credits in balance. What he leaves out of the equation are people: as he mentions on page 73 of the book, the 2 percent of American Gross Domestic Product (GDP) siphoned off to rebuild the industrial capacities of Germany and Japan required the acquiescence of the American people. Rather than acknowledge this, Varoufakis paints an artful picture of a nefarious cabal in the form of the “New Dealers” executing a master plan to control the world. Interesting. Economics by the numbers can lead back to squiggle lines converging on the devil. It is tough reading if you don’t believe in the devil. It is even tougher reading if you believe in the devil and can see his face in the bubbles floating atop a cup of coffee.
MORE CONSPRIACIES PLEASE!
In the 2012 presidential election, one of the charges leveled at Barack Obama was that he was a socialist. It is a distinctly American brand of political put-down. The charge, leveled with a straight face, was that his desire to tax the rich more than they were currently taxed was income redistribution. While the charge was true, few expounded on the definition of a socialist. The term is, after all, an economics term and if not yet clear, economics is the artful interpretation of numbers. Charges of socialist behavior are relevant here because the people who toss the charge around believe that the opposite of being a socialist is being a capitalist. While a socialist is a believer in the redistribution of wealth, a capitalist is a believer in free-enterprise and “my money”. The problem of course is that there really are no capitalists in modern societies. There are only people who want stuff—more stuff than the stuff possessed by others, but stuff nonetheless. The art of economics. This, believe it or not, brings us to Varoufakis’ Global Minotaur.
The nefarious cabal that crafted the global surplus recycling mechanism, allowing the United States to support its trade and budget deficits, had to come up with a different strategy after abandonment of the gold-dollar commitment. This abandonment left the industrialized world of Europe and Asia (primarily Japan at the time) on their own. America no longer had an investment sphere through which it could recycle its deficits. According to Varoufakis, American policy makers decided a different track to sustain U.S. world economic dominance. First, they had to increase U.S. “relative unit costs of . . . competition” by lowering labor costs and increasing production. Second and most important, they had to attract foreign capital. This was done by making investment in the U.S. attractive by promoting high interest rates. The world oil crisis of the 1970s laid the foundation for this two-prone strategy. By the 1980s, the U. S. had effectively established a domestic economic regime known as supply-side-economics, or the more aptly named “trickle-down” economics. The people who wanted more stuff could have more stuff and all those who merely wanted stuff would get it from those at the top of the wanting-stuff hierarchy. Of course, the curious economic flare-up resulting from this form of economic existence was that those who wanted more stuff, freed from any rules on how they could acquired more stuff, invented novel ways to achieve their goals. Thus, along came the 2008 Crash.
THE 2008 CRASH
One day, someone will write a tomb called The Rise and Fall of the United States of America. I will go out on a limb here and say that by the time such a book becomes feasible, the world will have become so much like America that the book will be more about numbers than the art of economics and governance. But for some looking at present day America, Varoufakis included, the end is near.
The age of the Global Minotaur, from the late 1970s to 2008, saw a relative precipitous decline in the ever-upwards trajectory of living standards for middle class America. In a way, the decline was inevitable. Once a greater proportion of the world achieved a foothold in the realm of managed economic activity—what Varoufakis calls the vital space of a surplus producing country—competition for who distributed what to whom became more intense. To side-step this intense competition, American policy makers opted for the two-prone approach of reducing the cost of labor and attracting world excess money to Wall Street. Selling the idea to the American people, accustomed to the idea of selling stuff such as widgets and produce to generate profit, required an emphasis on the art of economics. Hence, as Varoufakis points out, the New Deal era had to end and “supply-side economics, balanced budgets, the withering of big government (ironically, an expression first coined by Marx)” came to the political fore. For the American economy, economic activity became financial activity. Financial activity is simply credits and debits see-sawing across the pages of a ledger book, tangentially related to stuff sold and brought. The result, with relatively high interest rates and a stable political system, America became even more the financial center of the world than it was under the Global Plan.
Between 1992 and 2007, the Global Minotaur was in full stride. A little savings and loan bubble here, a little tech bubble there. By 2007, Wall Street had taken the final step available to anyone who wants more stuff than they already have. Wall Street invented stuff that nobody had and nobody even knew they wanted. They stuck a label on it (Credit default swaps—CDS) and sold it. Barely regulated, ensconced in a bubble of numbers for the sake of numbers, the market place for this stuff start unraveling in 2007. In Chapter 7, Varoufakis lays out the time-line in some detail with the April 2006 bankruptcy filing of New Century Financial, a real estate investment trust and mortgage finance company followed by Bear Stearns’ announcement that it would not pay its hedge fund investors.
A NEW WORLD ORDER, AGAIN
America was the cause of the 2008 Crash. Varoufakis makes an iron-clad case. The numbers don’t lie. The reason America crashed its “exorbitant privilege” of being the center of world economic activity was an “inability to exercise self-restraint”. In this assessment, he is probably only half-right. Again, it’s that pesky people thing—the art part of economics.
This reviewer has always been leery of conspiracy books. However, in reading anything related to economics, certain indulgences are allowed. While comforting to believe there are master-minds hovering in the background of economic affairs, the master-minds are revealed only in the retrospect of spinning the history. In other words, the “New Dealers” who begot the Global Plan became identifiable only after the plan failed. Likewise the Global Minotaur—effect lead to identity of financial system deregulators and Wall Street brokers as the spark behind an unprecedented level of greed. If there were master-minds involved in any of this, they, like Vladimir Lenin of the “dictatorship of the proletariat”, should have foreseen the outcome. Cynics might say that they did know.
In reading THE GLOBAL MINOTAUR and dissecting its underlying premise, it is nearly impossible to escape the impression that there is a lot of hubris here or, at the least, propaganda. Not only is it okay to construct an economic theory based on the vicissitudes of past economic and social activity, it is the essence of economic theorizing—Economics 102. But to attribute sinister motives to the actors, those seekers of stuff and more stuff, is so far beyond science that it leaves an ungainly monolith of philosophizing in its tracks. How else to explain Varoufakis’ contention that the European Union resulted from the ingenious and nefarious push of America to strengthen its own economic condition. What about the 1814 Congress of Vienna? What about Prince Klemens Venzel von Metternich? What about eleven hundred years of senseless European territorial wars? Does any of this play into the dream of some Europeans for a United States of Europe, with the European Union as a precursor?
Despite the shortcomings of this book, shortcomings attributable more to the science of economics than the Varoufakis’ packaging, THE GLOBAL MINOTAUR is a must read.