And the good ship Greece sails on: A 'letter' to an Italian colleague

Dear Colleague,

Like you, I suppose, I grew up with black and white images of movies depicting a southern Europe struggling to recover from the calamity of the mid-war era.

Like you, my mind is still full of images of struggling people whose trials and tribulations gave rise to waves of Italian and Greek migrants to far away places, as well as to films like Ladri di biciclette or similar Greek ones, where whole comic sequences were constructed around the yearning of a grown man for a cheese-pie or a bowl of dessert. However, there came a time when it was no longer easy to recall the poverty and dispossession that gave those images and comic sequences their poignancy. As a result, our societies, Italy and Greece, drifted away from the cultural tradition of de Sica, Fellini, Koundouros and Kakoyiannis, and descended into the black hole of Berlusconi-esque vulgarity. During these years of ‘growth’ and consumerism, many of us hoped that our societies would find in themselves a capacity to rediscover the lost balance; to combine a full stomach with a preference for decent cinema over crass lifestyle shows on television.

Alas, we never got there. Before such a balance was struck (assuming that it could be struck), our generation’s 1929 hit. It happened in 2008 when, just like in 1929, Wall Street collapsed, the common currency of the era (the Gold Standard in 1930, the euro in 2010) began to unravel, and very soon our elites failed spectacularly to respond rationally to the crisis’s triumphant march. Two short years after the crisis hit my country, Greece, we have found ourselves, yet again, capable of relating to the comic sequences of the 1950s and 1960s movies revolving around the craving for a cheese-pie or the dream of dessert.

When I was studying economics, as a young man, I recall I had serious difficulty understanding how it was that the governments of the mid-war era, from 1929 onwards, could have failed so consistently to arrest the economic malaise that led us, tragically, to the Second World War. I was reading about President Hoover’s commitment to reduce swiftly government expenditure, and to cut wages, while the US economy was imploding, and I just could not understand how he and his merry advisers could countenance such idiocy. I simply refused to believe that they were bad men wishing ill of their compatriots. But at the same time, I could not understand how they managed to convince themselves that their actions would bring relief to their suffering voters.

Well, many years passed since then and, at long last, I understood. Watching our government in Greece since the debt crisis erupted, observing Europe’s leadership dither and adopt one calamitous policy after the other, I finally got it. It is, come to think of it, not dissimilar to what happened in the United States in the late 1960s and early 1970s. Inside the Pentagon, smart generals understood perfectly well that America’s war in Vietnam could not be won. That sending more troops to fight in the jungles, unleashing more napalm bombs over Vietnamese towns, cranking up the war effort in general, was pointless. We know full well, courtesy of Daniel Ellsberg’s heroic efforts, that they knew individually, and in small groups, the error of their ways. And yet they found it impossible to coordinate with one another, to synthesise their views, so as to agree to a change of course. A change that would have saved thousands of American lives, hundreds of thousands of Vietnamese lives, not to mention a huge amount of money.

Something similar is happening in Athens, in Rome, in Frankfurt, Berlin and Paris today. It is not that the members of our elites cannot see that Europe is like a train that is derailing in slow motion, with Greece being the first carriage to leave the tracks, Ireland and Portugal following, leading to the derailment of the larger carriages that follow: Spain, Italy, France and, finally, Germany itself. No, I believe that, in the eye of their mind, they can see it, at least as well as American generals could envision the final scenes in Saigon – with the helicopters airlifting the last Americans from the rooftop of the US Embassy. But, just like the American generals, they are finding it impossible to coordinate their viewpoints into a sensible policy response. None of them dare speak when they enter the conference rooms in which the important decisions are reached, lest they are accused of going ‘soft’ or of having ‘lost it’. So, they stay silent while Europe is burning, hoping against hope that the fire will put itself out, while knowing, in their heart of hearts, that it will do no such thing.

While they are dithering, fiddling as Athens, Rome, Madrid, Lisbon, Dublin are burning, our societies are descending into a mire in which hope vanishes, prospects are annihilated, life is cheapened, and where the only winners are the misanthropes, the ‘haters’, the seekers of scapegoats in the form of the ‘alien’, the Jew, the ‘different’, the ‘other’. As the lights are literally going out in my country, with families ‘choosing’ to have their electricity supply discontinued in order to put food on the dinner table, thugs ‘patrol’ the streets in search of the ‘enemy’. Nazi ideology is getting another chance, like hunger and dispossession, to infect, once again, our social fabric. And as our institutions, our trades unions, our cultural norms and organisations are turning into empty shells, little, if anything, stands in the way of the bigots, the racists, the exploiters of generalised pain and helplessness. Alas, the serpent’s egg is hatching again in Europe, and for the same reasons it did back then.

Your country and mine share a lot more of this sorry history than we care to admit. Before the war, both our societies spawned and tolerated fascist regimes. Your Mussolini and our Metaxas may have ended up waging war against one another, but they were both products of political failures and economic disasters that are eerily similar to the shared fate of our two countries today. I know that a strange and weird geography is at work in Europe today: Ireland is at pains to argue that it is not Greece, Portugal to claim that it is not Ireland, Spain screams that it is not Portugal and, of course, Italy wants to believe that it is not Spain. We must, I submit to you, cast this idiotic denial of our common malaise aside. Sure, Italy is not Greece but, nevertheless, the predicament that Italy is increasingly finding itself in as I am writing these lines cannot be usefully separated from the predicament of my country. Our disease may have resulted in a higher fever than the one you are experiencing, but, believe me, it is the same virus. Your fever will rise tomorrow to the level at which ours is today.

Many people I know outside of Greece, including fellow economists, make the mistake of thinking of what Greece is experiencing as a deep recession. Let me tell you that this is no recession. This is a depression. What is the difference? Recessions are mere downturns. Periods of reduced economic activity and increased unemployment. As you and I teach our students, recessions are to capitalism that which Hell is to Christianity: unpleasant but essential for the ‘system’ to function. Periods of recession can be redemptive, in the sense that they ‘weed out’ of the economic ecosystem the less efficient; the firms that should not really be in business; the products that are out of fashion; the productive techniques that are obsolete; the dinosaurs, to coin a metaphor.

However, what is going on in Greece is no recession! Here, everyone is going under. Efficient and inefficient alike. Productive and unproductive. Potentially profitable and loss-making enterprises. I know of factories that export everything they make to satisfied customers, that have full order books, a long history of profitability; and, yet, they are on the brink of bankruptcy. Why? Because their foreign suppliers will not accept their bankers’ guarantees in order to provide them with the necessary raw materials, as no one trusts the Greek banks anymore. But with the credit circuits well and truly broken, this crisis is sinking every ship, wrecking every boat, ensuring that the whole of society drowns. And the more we cut wages, the more we increase taxes, the more we reduce benefits to the unemployed, the deeper the hole into which everyone is drawn. If anyone wants to explain the concept of a vicious circle, today’s Greece is a perfect case study.

Between you and I, from one economics professor to another, I need to convey to you a deep sense of shame about our profession. You know that other academics often compare us economists to seismologists, jesting that we are equally useless in predicting the phenomenon at the heart of our discipline. This is quite right. As a profession, we have never warned the world ex ante of an impending ‘earthquake’. Some isolated economists may have done so but, then again, a broken watch tells the time correctly twice a day. No, as a body of ‘scientists’ we have proven just as bad as seismologists are in telling us where, when and with what force the next earthquake will strike. Only we are much, much worse than seismologists.

Come to think of it: Behind every toxic CDO, behind all lethal financial engineering, there lurked some pristine model of one of us. Behind every economic policy that was responsible for ponzi (that is ‘pretend’) growth prior to the crash of 2008, one can find some celebrated, some well-respected economist who provided the ‘ideological’ cover for that policy to be adopted. Behind every austerity measure that suffocates our societies again there stands an academic colleague of ours, whose models and theories provide the powers-that-be with the audacity to inflict such policies onto our peoples. In short, you and I are guilty for what our fellow Greeks and Italians are suffering. Even if we did not believe in these particular economic models, we did not do enough to alert the world to their toxicity. We are, indeed, guilty.

Last week an ex-student of mine, who is suffering from cancer, could no longer find the chemotherapy drugs that she depends on, following the collapse of the state’s agreement with pharmacists (who are in strife as a result of not having been paid, by the state, for 18 months). A number of her former professors (all economists) got together and paid for the drugs to be purchased in cash. Helpful as this gesture was, it does not exonerate us. Our guilt is just as current as it was before that kind gesture. For we were the ones who taught students about the efficacy of financial markets; we had allowed the era of ponzi financialisation to become known as The Great Moderation; we asked our students to have faith in the capacity of financial institutions to price risk properly; we sat idly by while our students read textbooks which taught them the great lie that markets are self regulating and that the best the state can do is get out of the markets’ way, letting them perform their miracles. Yes, my dear colleague, our heads should be hanging in shame. Even if individually we objected to the conventional ‘wisdom’ of our trade.

Before closing this letter, I want to evoke a lasting image by which to describe how my people, the people of Greece, are feeling right now. Do you remember Fellini’s brilliant E la nave va? Do you recall the war refugees on deck, being treated like an inconvenience by the crew? I shall not continue describing them. I am sure you recall Fellini’s masterly depiction. Well, this is how Greeks are feeling today, with good cause too, given the scapegoating that they have to suffer as the first domino to fall in a long chain of dominoes that threatens the whole of Europe with a postmodern version of an hideous, earlier era.  {jathumbnailoff}

In sadness,

Faithfully yours,

Yanis Varoufakis

yanisvaroufakis.eu

Image top: SnowViolent.