Talking to my Daughter About the Economy — Yanic Varoufakis
A couple of statistics in a recent article in the New York Times surprised me. The article, What is the Stock Market Even for Anymore, takes a look at why the stock market is recovering from COVID-19 handsomely while the general economy remains in destress. (The short answer is that the market is usually looking more than a year in advance and represents the general consensus on where things will be then…)” I’ve been trying to educate myself more about the general economy and the stock market and this article makes the case that the stock market isn’t really a reliable litmus test for how the overall economy is doing at all. And it’s not really supposed to. But as someone who is still learning the nuts and bolts, this somehow surprised me. So often watching the news, the health of the stock market always seemed to be synonymous with the health of the economy. The two aformentioned statistics brought this home for me. First, “even including 401(k)’s and individual retirement accounts, only 55 percent of Americans are investors in the market, according to Gallup, down from 62 percent in the early-to-mid 2000s…” And second, “the wealthiest 10 percent of Americans owned, in dollar terms, 84 percent of the total stock held by U.S. households.” Holy crap.
I make no claims of understanding much beyond the most basic of economic and stock market basics but that pushed me to try and deep just a little deeper into the underlying concepts. With a quick Google search, I came across Talking to My Daughter About the Economy or, How Capitalism Works — and How It Fails by Yanis Varoufakis. Varoufakis is the former finance minister of Greece and apparently wrote this quick book as a basics overview of economic concepts in his native country but it quickly gained traction and was soon being read all over the world. The book starts out with the extreme basics of what a market and what an economy is, but by the middle and end of the book, he is clearly making economic arguments about the role of the government and politics and economy. Being on the same progressive end of the political spectrum as Varoufakis, I agreed most of what he was arguing but I didn’t come to the book looking for ideology. It’s just about guaranteed that there are arguments against some of what Varoufakis writes towards the end of his book so rather than outline them again here, I’d rather get a more rounded out perspective on the topics before making a judgement on what he argues. Therefore, I’m going to focus on some of the underlying economic concepts I got a better grasp of below.
Modern Society Began with Debt:
“When we talk about the economy, this is what we are talking about: the complex relations that emerge in a society with a surplus. And as we examine these relations, what also becomes clear is that a state could never have been born without surplus, since a state requires bureaucrats to manage public affairs, police to safeguard property rights, and rulers who — for better or worse — demand a high standard of living” (pg. 16)
Society with Markets vs. Market Society
“Money may have always been an important tool that helped people achieve their goals, but it wasn’t a goal in and of itself to the extent that it is today. Under the feudal system a landowner would have never thought of selling his castle, no matter how much money he was offered” (pg. 49)
Public Debt
“It public debt is like an elastic band holding everything together, capable of stretching during the bad times to prevent the system from breaking” (88)
“It is the public debt that pays for the infrastructure on which the whole functioning of the economy depends, that boosts the recycling process when it slows, that provides overexcitable bankers with their most liquid of assets, that is the elastic band that holds everything together when they get carried away” (154)
Economists as Scientists or Economists as Philosophers
”…we can keep pretending we are scientists, like astrologers do, or admit that we are more like philosophers, who will never know the meaning of life for sure, no matter how wisely and rationally they argue. But were we to confess that we are at best worldly philosophers, it is unlikely we would continue to be so handsomely rewarded by the ruling class of a market society whose legitimacy we provide by pretending to be scientists” (196-197)
Some other Quotes:
“The instability that bankers create in market societies can be reduced but it can never be entirely eradicated for the simple reason that the economy is fueled by the thing they provide: debt. And so it is the case that the more successful the stat is in begetting stability, the safer the conditions are for creating more debt, the more exuberant the bankers are allowed to become — and the greater the instability they cause.” (79)
“A brilliant economist once said that ‘ the process by which banks create money is so simple that the mind is repelled’” (69)
Overall, this book illuminated some basic economic concepts for me but also brought to light a whole slew of general topics that I still need to become more literate in. If I had to take one talking point from Varoufakis’ book, it would be that broad scale economics is not an exact science. It gets labeled as a highly technical field because, a lot of sub-elements of the field are extremely technical. But the broad questions and principles of the field are inherently value-laden and are deeply reliant on human behavior, making it impossible to predict. As he says at the beginning of the book, economics is “the complex relations that emerge in a society with a surplus.” That involves technical things like interest rates and models and financial predictions, but it, unfortuntely, also involves billions of tiny interactions by humans.