[Presenter]
My dear fellow students, dear professors, dear ladies and gentlemen. My name is Anna-Katharina Kothe and as a member of
rethinking economics TĂĽbingen it is my great pleasure
to welcome you here tonight to the last talk of our lecture series, "Introduction to pluralism in economics". This entire lecture series
would not have been possible without the help and financial support of
the Department of Economics the Young Scholars Initiative, and the Forum Scientiarum. Thank you very much. [Applause] This special event tonight
would not have been possible without the Democracy in Europe
Movement, DiEM25 and the tremendous work of their team. Thank you very much for
initializing this opportunity and the fruitful collaboration. [Applause] Furthermore we would like to thank
the TIMMS service of the University of TĂĽbingen for making the broadcasting
to two more lecture halls, possible. [Applause] Some of you might not know
rethinking economics TĂĽbingen that well and wonder why
we organize such a large event in our free time. First of all we do this
for all those of you who do not study economics
or business administration and for all those of you who
have the feeling that there's something going wrong
with our global economy. Only a plurality of perspectives
in economics together with other sciences can explain
the state we are in and help to develop solutions
for our future. We want to bring to you those perspectives hence this lecture series
"Introduction to Pluralism in Economics". We also do this for the
Department of Economics. We consider ourselves
aligned with [inaudible] since we refer our activity to
a scientific discourse about different paradigms in economics. We do not want to fight an ideological war
with our professors. Nor do we want to persuade them to change their analytical focus in their research. But, we organized this lecture series to support the claim that
neoclassical economics is only one way of doing economics. Other schools of thought can
no longer be marginalized. We organized this lecture series to voice our demand
for a curriculum change. We demand the institutionalization
of plural approaches in our field of study. To be fair, there has been change made on the side of the department but we still see a long way to go. Rethinking Economics TĂĽbingen
will publish a report on pluralism in economics next semester in order to summarize our arguments and assess the status quo
of the Department of Economics. We hope to continue the dialogue with our
professors from there. And last but not least,
we organize this lecture series for our fellow classmates from the
economics and business administration. We do not only want you to have
an opportunity to get to know economics from a different
perspective. We also want you to have
an opportunity to become that kind of economist you want to be. It takes some bravery and guts
to go against the mainstream and we want to encourage you
to carry on with critical thinking. Whether you would like
to join us or not. After all, we are the
economists for our future. With the motivation of
this lecture series now laid out, I have nothing more to do
than to introduce our speaker for tonight and make one more
organizational comment. We will use this online tool
for you to ask questions. Please follow the link
and enter the code here on the blackboard. I kindly ask you to help those out who do not have a
smartphone or a laptop. Please note that
we cannot consider all questions. We will do our best. We will only look at reasonable
questions about this talk tonight. It is a great honour that
Professor Yanis Varoufakis has come to TĂĽbingen tonight. He is a mathematical economist
and statistician by training and a gifted game theorist. He has taught economics
at various universities around the world, and
he is currently a professor of economic theory at the University of Athens. Professor Varoufakis is also a member
of the Greek Parliament and a representative of DiEM25. And tonight he will talk about
the future of our economy and the status quo of our economics
under the title: "From an Economics Without Capitalism
to Markets Without Capitalism". Please welcome Professor Yanis Varoufakis. [Applause] Let me begin by thanking you profusely
for being here. Thanking the university and the
department of economics, the students who organized this. For somebody who spent his
entire life in universities either as a student or as an academic and who came to politics very late in the
piece in 2015, I can assure you that the transition from the academy
to politics is a cruel one. The fundamental cruelty is that
when we are in this context, when we are in an academic seminar, when we're in class, you have a process by which, as academics, we state hypotheses
and our colleagues have a holy duty of shooting them down. And any hypothesis that
survives that process has some degree of fitness,
of evolutionary fitness. Not that it is the truth,
but it's likely that it is approaching the truth. Whereas think of the
pain of being on the television panel amongst politicians,
as a politician yourself. And just for a moment imagine that
you are representing some party. And your interlocutor from
an opposite party says something smart
which you hadn't thought of. Suddenly you agree. But what you agree with now goes against the grain
of your own party. If you admit it, you are out. You are out, you are finished. This is why you have an inbuilt process of a dialog of the deaf in politics. Until and unless politics starts
becoming more like the academy rather than academy becoming
more like politics, we are never going to restore democracy to the pedestal that it deserves. So I'm very pleased to escape politics. Because you heard that I'm a professor.
I'm not really a professor. I have the title. My professorial position is suspended officially
while a Member of Parliament and I am in this murky
cruel world of politics. But whenever I can escape and
be in an university environment like this, I do it. Sometimes I do it incognito. I go back to my own University and either listen to people talk or give a
sneak lecture without anybody knowing just to get a dose of academic freedom. So enjoy your academic freedom, use it. Do not squander it and do not allow anyone
to take it away from you. This is a duty that you have. [Applause] Now, I was asked
not to stray away from the main theme
of this lecture series. And I'm very pleased not to stray. The them being, 'pluralism in economics'
or 'pluralist economics'. Allow me to start with a kind of
devil's advocate question. Why do we need pluralism in economics? You would never have physicists gathering
in this great amphitheater discussing pluralism in physics. You don't need pluralism in physics. But why is it that you don't need
pluralism in physics and you may need it in economics? Well, because economics
is not like physics. And what is the profound difference? If you look at the curricula of
economics departments, – I don't know this particular
department, I'm sure it's similar – if you look at textbooks, if you look at mainstream articles
published in econometrics in general and political economy, it's not obvious that economics
is not like physics. You start with assumptions.
You buid theorems. You prove the theorems.
You have lemmas. Then, usually, somebody, maybe
not the same author, collects some data and tests empirically,
econometricly mostly, the reduced forms of the equations
that derive from the theorems. Is this not what physicists do? More or less. But the profound difference,
allow me to say, between economics and physics, is that, in physics the phenomenon
doesn't give a damn about our models of the phenomenon. So a meteorologist does not have to worry that the weather may change it's ways because he or she
has made a particular prediction. Whereas in social science, whether is sociology, economics, whatever. The phenomenon really cares about
our theories about the phenomenon. Because, as theories have the capacity to
alter our behavior in accordance to the theory. So you get – to put it
in statistical terms – you get a plethora of false positives
and false negatives. Let me just give you an example. Suppose that our friend here
is a financier, an analyst of the financial markets,
with an impeccable record of correct predictions
of the financial markets. By the way, there has never
existed such a person in the history of capitalism. Nobody has ever predicted systematically and with
any degree of consistency. Only by accident. A Marxist like myself [might say]
"Capitalism was going to have a crisis". At some point capitalism has a crisis. "You see I was right." [Laughing] That's not science. But let's assume that our friend here is such a mythical person. And let's say that after tonight we go out to the pub,
to the restaurant, whatever we have a few drinks and she gets tipsy. And she tweets in her state of merriment that tomorrow the stock exchange
is going to crash. To the extent that her reputation
is a good one, the stock exchange is going to crash. That's not because the theory was good.
She was drunk. [Laughing] But it is because
the stock exchange responds to our theories of it,
and our predictions based on who has actually made the predictions. Excuse me, I've got a terrible cold. It's not of the Chinese variety
(Note: Reffering to Covid-19) [Laughing] That's a false positive
that I've just described. But there are false negatives as well. Suppose you are a remarkable
traffic system designer, modeller, and in the same way that a meteorologist or the financial expert has a model, a mathematical model
embedded in a computer, in the case of the meteorologist to
predict the weather given input of data from different weather
stations, satellites and so on. You have data coming in from various roads and sensors measuring traffic flows. And you have a mathematical model in there
that turns out predictions about... Google Maps does this
all the time these days. You don't even need
a very sophisticated model, right? And let's say on the basis
of all these inputs the excellent predictor of traffic jams
comes up with the prediction that tonight at midnight,
in Stuttgart, there is going to be, on that particular street,
a major traffic jam. And because this person is renowned
for her/his capacity to predict traffic jams, let's say that the radio stations
and the television stations of the local area transmit it. There's not going to be a traffic jam there. But is it because the theory was bad
or was it because people believed that it was correct and that they didn't go. So that is a false negative. That interdependence between
the phenomenon under study and our theory of it... Think about it. All those theories about efficient markets the theories about the real business cycle the theory of rational expectations, – those of you who've studied economics – those became part and parcel of the ideology
of post-1971 capitalism An ideology that crashed and burned
together with Lehman Brothers in 2008. But those theories really altered
the way financiers thought. They did believe. Alan Greenspan,
the head of the Federal Reserve Bank truly believed
– he acknowledged that later – that he had believed that
those theories worked and therefore markets
could not fail the way they did. And then he came out in a senate committee and did his 'mea culpa'. He said, "My model of the world,
crashed and burned that day. The day Lehman Brothers collapsed." So that is why we need pluralism
in economics, one reason. Because we don't have
empirical means by which to ascertain the quality
of our hypotheses. One may say that, "Well what exactly
is econometrics all about?" Let me tell you my experience of
what econometrics is all about. My PhD was in micro-econometrics
at a time when microecometrics had not been invented yet. So I had very, micro, micro level data. Data from individual negotiations between employers and trade unions
from the United States. And there was a contest
of faculties between an MIT professor –Â
Hank [Henry] Farber was his name – who published an article
in the American Economic Review, in which he claimed to prove that employers, companies, boards of directors,
CEOs are smart intertemporal optimizers and unions are dumb,
mechanistically behaving resisters to what the firm is doing. So he had a very complicated
intertemporal optimization model where the firm was maximizing
its long-term profits, smartly, like an impeccable computer, and the workers were silly. They simply asked for 5% pay rise
and then if a strike happened after a week they would settle for 3, two weeks they would settle for 2-and-a-half, [and at] four weeks they would settle for anything. And this was a mechanical, resistant,
non-optimizing behavior. And the mathematics was splendid. The microeconometrics was very, very good.
He was using very sophisticated maximum likelihood estimation
techniques back then. And he showed that the model produces a reduced form, equation, that
fits with the data. He said, "Proof". So my PhD was really very simple. I'd stood this model and said, "Imagine that we have trade unions
that are very, very smart. And they are maximizing their
intertemporal, aggregate wages. And the employer is stupid and resists mechanically. He offers 0.5% pay rise, if there is a strike
for a week he goes up to 1%. So exactly the opposite. And you know what happened? The model behaved or fit the data just
as well. What does this mean? It means that the data and the empirics
cannot settle the ideological question. Of course neither of those models
was close to the truth. Because neither the employers
nor the unions are super rational. Neither the employers nor the unions
are dumb. What happens when neither of them are
fully dumb or fully smart? We have no idea.
[Laughter] Because the mathematics cannot be solved. That's what got me into game theory. So the second reason why we need pluralism
is because unlike in physics where you have
laboratory conditions that can test precisely
the relationship between the data and the theory, because you designed
the experiment in such a way to control exactly what you want in order to try out all the different
configurations of the theory that can predict and fit the data – in economics we don't. But you will say that we have experimental
labs. I know. I've spent 10 years doing experiments
in laboratories. It was great fun. There were two problems with it. First whenever I came up with a result
that would have empirical regularity and could replicated again and
again and again, you know what some of my fellow economists
said? "All you have proven is that this
is how people behave in your lab." Which is not untrue. You can't do this in physics. If molecules perform in a
particular way in the lab, that's it, it settles the issue. We move on, right? Second objection. Some of you who have suffered economics
[Laughter] would have heard of the theory
of expected utility. It's a particular model of how people
behave under conditions of risk. Now, we know, from countless
experiments in labs, that expected utility theory doesn't work. It's a beautiful theory, but there are countless examples
of where it fails to predict how people would behave. Do you know what most economists do? They say: "Ah, that's because they're not
rational enough." So it's not, you see? Think of this, what it means. It means that in the end in the lab you do
not test the theory. You test the subjects. You can easily escape. And it's not completely mad. Because, if you take a bunch of idiots in a lab and you ask them to do
mathematical, a bit of arithmetic, and they get all
the arithmetic wrong, this is not the fault of the arithmetic. It's because you have idiots.
Right? But if you have economic experiments where in the end you're judging the subject,
not testing the theory, then you're not testing the theory. Let me give you another reason. Even when we don't disagree about numbers we have huge disagreements
about how to interpret them. Disagreements that cannot
be settled empirically, because the numbers are common. Let me give you an example. Suppose you are in Africa somewhere and you observe the political economy of a
small village. It's a village which is on the verge
of subsistence, between subsistence and hunger and poverty. And there are good years and bad years. Good crops, bad crops. And let's say that during the years of the
good crops the supply is high, price drops in the local market where they take
their wheat, whatever it is, corn, that they produce. But nevertheless the total revenue
is sufficient divided per family for them to buy enough
rice or whatever it is they eat, sweet potatoes, in order to be just above
subsistence level. In the bad years, produce is not enough so we have a really tough time
for this village. At least, however, because supply
is low the price is higher. So they make up some of the losses from the drop in quantity by means
of the rising price. So, on average,
they're just at subsistence. Average between good years and bad years. Now suppose that one year
a middleman comes. During the good times,
during the bumper harvest. And buys a quantity, the excess
produced during the good year, and stores it in some warehouse. By doing this – and why would he do this? He would do it in order to sell
during the bad year. But then what happens is, supply rises because of the wheat that is being
provided during the bad year so the farmers during the bad year suffer
the loss in quantity without the gain in price. And then they starve. Let's say that we agree on the numbers. We just did the analysis, we're
all in agreement. Now consider, compare and contrast
two different interpretations. One interpretation is this middleman,
on the strength of his capital – the fact that he has some money that allows him to buy a part
of the produce during the good years – is profiting at the expense of pushing on
average that village below the level of subsistence. She should be forced, either through price
controls, taxation or legislation to stop doing this. Interpretation number two. The middleman
is providing a service to society. Because by buying during the good years and selling during the bad years
he is stabilizing price. And to the extent that the bakers
in the local towns require price stability he's offering a service. So do you see what I mean? Here you got the same situation, the same
numbers – we are not disagreeing on the numbers – it's not even a theoretical difference. But there is a political difference.
There is an ethical difference. You have to choose as a
political economist, as a citizen, whether price stability is more important than the fact that some
people starve. That is an ethical issue. That is why economics
can never be a science. And that is why we need pluralism. Because if you teach
only the second interpretation or only the first interpretation
to your students, you're doing them a major disservice. Unlike the physicists who can never
do students a major disservice as long as he or she is good at
taking the results from the lab and transferring them into a beautiful
lecture theatre like this one here. This is why whenever I taught economics
to first-years – especially first-years – I made a point of presenting every major school of thought
I could imagine the neoclassical school of thought, the Ordoliberal in German terms school of
thought the Hayekian school of thought,
Shumpeterian school of thought Keynes, Marx, and every time, I presented one particular
interpretation of capitalism, I would present it as if my life depended on convincing the students
that it was the correct one. And then the next day, in the
next lecture or the next week, I will do the same thing
with the opposite school. Now that confused my Asian students
in Australia. [Laughter] And some of my Greek students,
because they would say, "But professor, you just taught us
something else last week. Which is the correct one?" And I would say,
"That's for you to decide." They say: "No, no, no, no.
We're students, you're the professor, you tell us which is the right one." That's the first lesson.
The first piece of education. No. There is no authority. There's no expert in pointing out which school of thought is right or not.
It's like in philosophy. Can you imagine what a terrible professor of philosophy one
would have to be to give a Kantian view of the world
and say, "Everything else is rubbish." And not to teach Hegel or David Hume. Economics is much closer to philosophy, than
it is to science. And unless we understand that we are doing ourselves and our students a
major disservice. So, again, speaking as a former professor, I think they optimal way of teaching
economics in a way that honours the students and honours the whole
breadth, width and richness of economic discipline is – especially at the beginning of students'
careers – to teach simultaneously economic history and the progression of economic ideas. That is, when professors try to teach
the concept of opportunity cost or the division of labour as if it is an abstract clinical thing. You can do it but students would be bored and they will miss out on the importance of the context that gave rise
to these concepts in Adam Smith. And unless you explain why Adam Smith
happened in the 1770s? Because there was an
industrial revolution happening at the river Clyde just below his office. And he had to explain to his students what
on earth was going on. And he had to explain to his students that "See those factories by the river Clyde?
Where 12-year-olds work 20 hours a day, in there? That's the beginning of the good society." And they said to him,
"You're a moral philosopher. How can you say that the exploitation of these kids
is the beginning of the good society?" And then he comes out with
unintended consequences. That these industrialists who're
exploiting the kids are terrible people but by pursuing their own greed,
without realizing it, they're bringing about the facilitation of
the public interest. I'm not saying that I agree with that. But unless you put it in this
historical context, so ... Let's teach our students
economic history, effectively how capitalism came into being and how the crises of capitalism, moral crisis, economic crisis,
financial crisis, unemployment crisis begat concepts. Keynes would never had come up
with the fallacy of composition if it was not for 1929. It's really very simple. So anybody who tries to teach Keynes
without what happened in 1929 effectively he does a great deal
of disservice to Keynes and to the world. Now. From an economics without capitalism. Let me explain that. When you look at a text book,v standard textbook of economics, – well at least when I look at one – there's no capitalism in it. There is demand and supply. There is a process leading to equilibrium. The prices and quantities are going up and
down. There are markets. Capitalism I never find. I look for it,
I've looked for it all my life, it wasn't there. And let me explain why. Even those of you who
have not studied economics, you remember,
you must have seen the diagram
of a demand of the supply curve. Prices ... – imagine now, I don't have it
on the board, thank god for that – the vertical axis is price,
the horizontal axis is quantity, you have the demand curve
downward-sloping, upward sloping supply curve
and the professor says, the equilibrium is
where they they meet. That's where at which demand equal supply. Okay. Very powerful visual tool. And then the tragedy begins. Because the poor professor has to explain what happens once you trade,
a situation (when)... How do prices change? They say: "Ah, if demand increases,
if people for some reason, the tastes of customers change,
suddenly they want to buy more for the given price of whatever it is, you
know, balloons. Then the whole demand curve goes up. And then the price follows up. Hang on a second. That cannot be supported mathematically. Why? Because those demand curves
and supply curves are there all other things being equal. If they are not equal, that is, prices of
other goods, incomes. But if all other things are not the same,
then those demand curves move anyway. So, for instance,
when you're buying coffee, this is standard example,
and the price of tea changes or the price of something else,
some substitute, then the demand curve changes. But if the demand curve of coffee goes up
and the price goes up, the price of tea will change, the price of tea will change,
your demand curve will shift again. So it would be like
a cat chasing its tail. So you can't tell a story about the change
in prices in real time. So poor professors, feel for them, they have to tell a story
based on hypothetical reasoning. They have to tell a story, listen, – compare and contrast
the two different sentences – demand goes up and price follows. That involves time. You are not allowed to do it
if you want to be correct mathematically. So what do you say? "This is where demand is
and this is where price is. Had the demand curve
been somewhere else the price would have been somewhere else. This is called comparative statics. This is all we teach students. But it's very difficult to tell them, "You're not allowed to speak
in terms of time." So time does not exist in
any of the microeconomics textbooks. In any of the microeconomics textbooks,
anybody who speaks of time is wrong. Should be immediately either
fired as a professor or failed as a student. So there's no time. And there's no money. Think about it. If you have a mathematical model,
a system of n-equations and you have n + 1 or n + 2 unknowns,
you can't solve it. If you have an economy, let's say,
with two goods. Machines and corn. – to make it simple – Then you have a system of two equations and the unknowns are the two prices. Sort of manageable. Especially if you have 20 equations and 20
unknowns. But to bring money in
as a separate entity, you have to add another equation. So you will have n + 1 unknowns and n equations. You can't solve it. So that's why in microeconomics in
General Equilibrium Theory, money is impossible
to add to the model. So there's no real time
and there's no money, in economics that students learn. Most of them don't realise it. Because they talk about prices, they say,
"The price of coffee" But that's not the monetary price. It's the relative price. How many grams of coffee
do you get for one tea bag. But that's barter. That's an economy that is non-monetized. So all economies in the
economics textbooks that you get taught not just in this great university, but in
every university doesn't have time in it,
doesn't have money in it. Doesn't have debt either. Because if you don't have money, you don't
have debt. And if you throw debt into any
macroeconomic or microeconomic model you can't solve it. So, you don't have money,
you don't have time, you don't have debt, then you don't have interest rates really. And you have no risk. Because if you don't have time,
where is the risk if there is no time? There's no unemployment, unless you introduce it
through the back door. Because if you assume that
the market for labor ... ... is like the market for potatoes, what happens in
the market for potatoes? You have excess potatoes, you reduce the
price of potatoes, you get rid of them. So why doesn't unemployment, which is excess supply of labor disappear
when the wage falls? Then we have to start blaming things. Because, in reality,
unemployment perseveres especially when wages
fall catastrophically like in the Great Recession,
like in the Great Depression, like in Greece, since 2010 we had 42% reduction in wages
and unemployment was going up. Doesn't happen in the market for potatoes. You never have a situation, where, the price of potatoes comes down and more
potatoes are unsold. It doesn't happen. But if you are determined to model labor as if it is potatoes
then you have to say: "Ah, it's the unions." "The unions are resisting
the reduction of the price." "It doesn't allow the price of labor,
the wage, to fall sufficiently." So it's the unions' fault." Of course the unions employ
some other economists who say, "No, it's the fault of monopolies." Because if you have a monopoly,
or monopsony in the labor market you don't have a competive market. So, it's a blaming game. So, politics enters into the realm of bad
economics. And you have bad politics
and bad economics. It's not a good mix. One of the things, the first things that
the students of economics learn is the IS-LM model,
the macroeconomic model, the simplest macroeconomic,
beautiful diagram, which explains the rate of interest – which of course cannot
be explained microeconomically, so you just assume that there is
such thing as the rate of interest – but in order to even do that then,
you have to assume that investment equals savings. Which is perfectly true
in a barter economy. If we have no money, what would the point be for the farmer to
set aside corn and not eat it, or sell it, to be eaten? The only reason why you'd
want to set corn aside is to use the seeds for
next year's crop. That's investment. So by definition when you have no money,
savings equals investment. But what if you have money? Because there's no reason
why you should assume axiomatically that money saved
will necessarily be invested. You can just put it under your bed. Or you can you
can put it in Deutsche Bank. [laughter] – very bad idea – and then Deutche Bank
can give it to Siemens to buy back their own shares. That's not investment. The price of a share of Siemens goes up because more of them
have been purchased, but there's no actual investment. No new machinery, no new jobs,
no seeds in the farm. [Reading part of the theme of the lecture]
"From an economics without capitalism" So we have spent the
last 100 years in economics developing aesthetically
superlative beautiful models of general equilibrium. I spent my youth studying them in the same way
I would go to the Louvre or to the Acropolis Museum in Greece, to look at the aesthetic beauty
of the artworks. Totally useless. From the perspective of
understanding capitalism. Because there's
no capitalism there. There is no money, there is no time,
there is no interest rate, it does not take into account the
permanent disequilibrium in the labor market, the permanent disequilibrium
between Investments and savings. So, everything that we teach our students
is irrelevant regarding capitalism. But students constantly
have to pass exams. They have to learn those models, recapitulate them,
learn them again and again and again. And of course if they ever
become professors, they have to teach their own students
the same thing. Because this is what they know. And because it's mathematically
very complicated the beauty of complicated mathematics
is that it creates monopoly power. Because if you understand it
and the folks out there don't, the folks out there think,
"I'm stupid compared to him. He must understand something I don't." And in the end of course
I understand nothing on the basis of all the complicated mathematical models
that I've learned. Because it's irrelevant to capitalism. It can't explain unemployment. But then of course I go on television
and say, "What do you think about unemployment?" "Ah, It's the trade unions' fault, or it's
the employers' fault." It's all rubbish. I may be right in what I say but that will be in spite of the fact that
I'm an economist not because I'm an economist. [Laughter] At the same time it is
my strong belief that we have a duty to learn
all these economic models. All of them. As long as it's pluralist. As long as we learn Keynes, from the original, not the textbook, that somebody that didn't
understand Keynes wrote. Hayek, the neo-classisists... Why? Because each one of those theories fails to explain capitalism. But, by studying them, we explore the limits
of human reason. We come crashing onto the wall
of our incapacity to seriously understand the beautiful indeterminacy
that is the capitalist beast. And when you're studying
the neoclassical model, you hit one wall. You study the Marxist model,
you hit another wall. You study the Keynesian model,
you hit another wall. Hit as many walls as you can. Because then,
you have a capacity, to rise above all these theories. Set them aside. Your logic, your mind, your faculties will
have been trained sufficiently as long as you realize that
the truth of capitalism is not in those equations. And you have a capacity to then maybe, maybe, maybe have a chance, an iota of a smidgeon of a possibility of
saying something sensible, which will not be provable. The one thing that I've learned
from Keynes – people ask me to ... I don't know who has read [Keynes']
The General Theory? It's an impossible book. It's lovely. It's very well written, okay? But it's completely ...
one chapter contradicts another chapter sometimes it's so wonderful the prose that
I don't know what it means. One thing I've learned from Keynes, if I'm to sum up what Keynes said and what
I've learned from Keynes ... We are damned if we know. We're damned if we know. We have no idea why why markets fail. All we know is that
they have a tendency to fail, and when they fail we
have to do something about it. Αnd markets will not fix themselves. Τhat is a celebration of
the beautiful indeterminacy and horrific indeterminacy
of capitalism. Now, let's look at capitalism. Because so far I've been telling you
why I think that there's no capitalism
in standard mainstream economics. I want to begin with a distinction
that I've already made and I want to make once more. Capitalism is not markets. Societies always have markets. The Phoenicians had markets,
the ancient Greeks had markets, they were not capitalist societies. They were societies with markets. Something happened towards the end of the Middle Ages and it was elevated to a higher echelon, towards the end of the 18th century
in Amsterdam and in Britain that transformed society
from being a society with markets to being a market society. And by that what I mean was to start the process
where almost everything was commodified. Before that land was not for sale. You either inherited land or you were a landless peasant or sometimes if you raised an army
you conquered land. There was no real estate market. You know?
The classifieds ... There was no labor market. Either you worked
for some baron, and if you opposed that
social arrangement your head was removed
from your shoulders, or you never worked because
you were the baron. There was no labor market. You couldn't quit saying, "Look I don't want to be your peasant. I'll be somebody else's peasant. So the creation of labor markets, of real
estate markets, of capital markets is a very recent phenomenon
and that's capitalism. For the purposes
of what I want to say today, I want to hone in on a particular year. Quite early in the piece. It's the year 1599. On the day or week
when Shakespeare, William Shakespeare, was at his theater
struggling to complete Hamlet, something remarkable happened. The first joint stock company
was founded. The first company whose
shares were tradable and anonymous. Where you could buy a share
without declaring who you are. And if I bought it from you
I could sell it to somebody else as if it was a piece of paper. It was called the British India Company. Within three years,
the British India Company, had effectively destroyed
all the markets in India. and had taken them over,
with an army of 200,000 soldiers, much larger than Britain's Army
or France's Army. That was one company, you're familiar with
the story. Tradable shares unleashed
a very powerful genie that had the capacity
to turbocharge and weaponize capital formation. It was an essential moment. Then you had the period of
late 18th century, early 19th century. Very tepid capitalism. When Karl Marx was writing his wonderful Communist Manifesto
– the first four pages is the greatest eulogy
for globalization ever – he talks about the way in which
the bourgeoisie is through the spread of global markets, battering down the
Chinese walls of prejudice and liberating people from
wrong conceptions of the universe and of themselves. It wasn't happening. That was in
the imagination of Karl Marx. It happened much later, much later... He was prescient. When did it really happen? If happened after the 1870s when Maxwell came up with his wonderful
equations of electromagnetism. Those equations that blended, unified the
theory of magnetism with a theory of electricity gave rise to what we
know now as capitalism. Because it was the basis
for telecommunications, electricity, the radio, and of course, and that is crucial,
the networked firm. When Thomas Edison designed ...
invented the lamp, the electric lamp,
immediately in his mind he had the power station
that produces electricity. And he was the first one to create a totally vertically-integrated
gigantic monopoly. From the factory that pumps out
the electricity owning the grid,
the cables that go through people's homes and businesses all the way to the electric lamp and
the oven in the kitchen. Now of course the reason
that why I'm mentioning that is because here we have the true nature of capitalism, which is not the competitive capitalism
that Adam Smith had imagined of the baker, the brewer
and the butcher, whose small family-owned businesses
compete with one another converting private vices
into public virtues. No. Here you have monopoly capitalism. The profit margins
of the networked firms, whether this was railroads or telephone companies or electricity grids and then of course
Henry Ford comes in with mass manufacturing of automobiles
and other products. These huge economies of scale
and networked economies do two things. Firstly, they make sure that competition is a joke. Rivalry yes. You have General Electric pushing for a particular kind of current,
the alternative current, and DC is what Edison [was promoting] ... So it is like the Soviet Union
versus the United States, not like the butcher
against another butcher. The networked company,
by it's very construction was extremely expensive to fund. No bank had the capacity to forward to Edison the money he needed to build that structure, that network. So what happened? The mega-firm gave rise to the mega-bank. Consolidation of different
banks into hyper-banks. And where did they find the money? Because if you and I get together, or even
a 100 of us get together. We put 10 euros together. We don't have
the capacity to fund a network company. So the money came out, of – as John Kenneth Galbraith once said –– "if people understood where
money comes from there would be a revolution." It came from thin air. So effectively the mega-banks go together,
they had enough political power, to offer the mega-firms, credit lines. So the money was ficticious. It was a little bit like the mega-bankers pushing their hands through
the membrane of the timeline into the future, grabbing value
that has not been created yet bringing it here, giving it to Edison, to provide, to produce the value that will
repay the future. And if you can do that that's like having an ATM
in your own living room. But of course the more
you reach out to the future and bring it
to the present, the more difficult it is for
the present to repay the future. At some point that is a crash.
1929. And then of course we all know
what happened in the 1930s I don't want to stuck into this. But I want to take you to
the golden era of capitalism which began with Bretton Woods in 1944. Which lasted for two decades, not even
two decades, let's say two decades. This was the only time
when unemployment crashed to 2%. Inflation was between two
and two and a half percent, everywhere. In Europe, in Japan, in the United States,
in Canada and for the first time, – something that matters to us today – inequality dropped profoundly. For the first time, and last time. That system was predicated
upon a single currency. The Euro is not the
first single currency. The gold standard was
the first single currency. And the Bretton Woods system, effectively replaced gold
with the American dollar. So we're all dollarized
after the Second World War. That's what happened. Especially in this country, and my country to some extent. But that dollar zone
which was global capitalism was predicated upon a constant surplus recycling
by the American economy. The Marshall Plan is just one example. It was not philanthropy to Germany,
to Greece, to Europe, it was not just a mechanism
for subduing the Soviet Union. – it was that as well – but it was a very smart
and deliberate process of taking the surpluses
of the only surplus economy at the time the United States,
bringing them here, to finance the aggregate demand which was
necessary to buy the net exports of the United States. That system collapsed. Why? Because Germany rose up. Japan rose up. And the United States
became a deficit country. And on that point, unlike Europe, the Americans
are far more pragmatic than we are. When they see that a design of theirs
no longer works do you know what they do? They destroy it. Whereas we keep hanging on. Remember the exchange rate mechanism? We were hanging on for dear life until the
very end. The Euro now. We're hanging on
to the Euro, with the same structure of the Euro
even though we know it's not working. You have negative interest rates that are
destroying your banks. It's business as usual. The Americans don't
do business as usual. When their own design, even if they love
it, like Bretton Woods, doesn't work ... They kick it out. And they replace it with the opposite
surplus recycling mechanism. They use their trade deficits in order to
turn the American economy into a huge vacuum cleaner that was sucking into the territory
of the United States the net exports of Germany, of Holland, of
Italy, of Japan and of course later China. How were they paying for it? Your industrialists, your bankers, were sending 70% of their profits
to Wall Street. That's how they paid it. The Chinese, they bought bonds. They invested in America. The Japanese, the same. So that was a very disequilibrium
situation, but a stable one. Or ... You can think of it as
a stable disequillibrium, or an unstable equilibrium. Choose your language. Same situation. And that crashed and burned in 2008. This is where we are now. We're experiencing
a crisis of capitalism that takes different forms
in different parts of the world. In some parts of the world
it's negative interest rates. In other parts of the world
it's very high unemployment. In other parts of the world,
it is the bubble of private credit in China. But all these are different manifestations
of the same crisis. In Australia they were floods,
two years ago in North Queensland and forest fires in Siberia. One was flood, the other was fire. They were both
the results of climate change. They were the same crisis. In the same way that you
have negative interest rates strengthening the
Alternativ fur Deutschland [AfD], in Greece we have whatever we have I'm not going into it,
it's too depressing. [Laughter] [Phone ringing] The network company, with digitization,
has become a total and complete monster. Take Facebook. Facebook is a separate world. Anybody who goes into Facebook
leaves capitalism behind, leaves society. You enter a world,
created by software, which is a gigantic economy,
gigantic economy. There is no competition. It's owned by Zuckerberg. They charge you for
advertising events like this, they charge politicians for pushing their
political campaigns, they have a remarkable
behaviour-altering mechanism. The only reason why two of you can communicate through some kind of app
or software application is because somebody thinks
they can manipulate you. And you know what?
They're right. And they do manipulate all of us. We have been proletarianized
without realizing it. We all work, posting stuff on Twitter
on Facebook and so on... What is the capital of Facebook? It's your posts. That is the ... The proportion of ... You know how much, what is the proportion of Facebook's
revenue paid to its workers? To its designers. You know what it is? 1%. Even Walmart that is the most exploitative
large company in the world pays 40% of its revenues to its workforce. Facebook only pays 1%. Because all of you work for Facebook. And you don't even know it. You are simultaneously
the proletarian and the consumer. This is remarkable. There is no capitalism in Facebook. It's like the Soviet Union. It's Gosplan. There are three people
who make all the decisions. And they are far smarter
than the Soviet Union was because the Soviet Union
had to have the KGB, they had to threaten you, they had to send you to the
gulag if you didn't behave, Facebook doesn't need to do that. They don't need to do what the
British India Company did. Which is to have 200,000 soldiers. They have the American Army. American capitalism, whenever there's
a problem, they send the troops. And they're paid by the taxpayers, and some of them by us in Europe or by Saudi Arabians or whoever. So, it's important,
whatever your politics are, to forget for the moment the
economics without capitalism, because there is a
real beast called capitalism, that is doing things to our lives and whose crises
jeopardize both the planet and our soul. You know, back in the 1970s, --I was always a leftist,-- Back in the 1970s I remember the great conflict, political conflict, ideological
battle was between free marketeers who believed that
the free market is a fantastic device for coordinating our preferences
and allocating our resources, but the objective was the satisfaction of
the sovereign agent's preferences. My preferences were mine. My life was mine. I finish work at 5 o'clock, 9 to 5 work, then I worked in order to do
what I want as a human being. Now we have this situation, where with digitization... Young people. Take young people. Most young people, fall in two categories. Either those without a trust fund who have to face the prospect
of precarious work for 20 years. Or some of them who, maybe
because they have some skills, maybe they have a lot of social capital they are much more connected to the high-value adding businesses. But even they have to constantly worry
when they go to an interview, they know that the interviewers are going
to check their social media. They need... I meet young people who constantly worry,
have they found their vocation? Because they go to interviews and there are these very, very
modern sounding interviewers who say to them: "We want you to come and
work for us, if it's your passion." So they start worrying:
"What is my passion?" And they constantly try
to discover passions. They go to shrinks.
They buy self-help books. This autonomy of the
liberal individual has gone. Everybody now is trying to
emulate everybody else's view of what should their passion be. That is a kind of tyranny that
the KGB could never imagine. It's too cruel even for the KGB. Because even when you are
a prisoner of the KGB or the Greek right wing fascist
dictatorship when I was growing up, even in the cell, you were in
command of your own faculties. And you knew who you were. And they couldn't -- as
Immanuel Kant would say-- they couldn't take this
autonomy away from you, however small the cell
in which you were incarcerated. Today, we are all free in the land of the unfree. That's, for me, where capitalism is. As for democracy. Where do I start laughing? The technostructure,
the network firms, the hyper-banks, they are... they own, - don't worry with that - they own our politics. If you look at the way in which the powers that be in the
European Union took 3.6 trillion 3.6 trillion since 2010.
If you want we can break it down. 3.6 trillion to save the banks. And now they are
nit-picking over climate change. We have the Green Deal of the new president of
the European Commission who is promising
a hundred billion a year and she only has 7.5 billion. The rest is going to be
conjured up from thin air in the same way Juncker was
going to conjure up stuff. Let me now, finish up, with the last part. Markets without capitalism. My critique of capitalism is that liberal capitalism is not possible. Never was, never will be. It is just an ideology. It has as much to do with the reality, as Marxist emancipation theory had
to do with the Soviet Union. Zero. If we're going to save markets,
because I believe in markets. Markets for potatoes. We need to liberate them
from the 1599 moment. Have you heard of companies like BlackRock,
State Street, Fidelity. Do you know that they own 90% of the corporations
that feature in the Standard & Poor's 500
in the United States. From airlines, to JP Morgan, to Google, we're talking about two guys. It's guys, not girls. Maybe there's a token girl somewhere. They control 90% of capitalism. What is the connection between
this and Adam Smith? Zero. As a recent study showed,
that where airlines compete that belong to the same mega equity firm. When they compete, prices go up by 5%. Because they collude. Because the CEOs of all these airlines, have to report to the same financier. So this is the point I'm making, that if you really want markets
and you don't want central planning, you better do away with
the model of capitalism you have because it is centrally planned. There can be a no more centralized
system than the one we have. So what would a world look like, where markets breathe
in the absence of capitalism? Allow me to finish off,
and then we start the conversation, with a dream. Can I do a 'I Have A Dream' moment please? [Laughing] Will you allow me? The dream is multifaceted. But I'll just stick to three points now. Imagine a corporation
where there is no boss. You enter, you are hired
by a committee. A sales committee that
got together because they wanted an economist.
They wanted a graphic designer. So, some of them formed a committee. They interviewed 20 people.
And they hire you. You get one share, for the company.
You can't buy any. It's like a library card. You come to university
and you get a library card whether you like it or not. And that gives you
a vote for everything. You vote for the distribution
of the revenues of the firm between research and development,
what's the basic income should be. And also you vote for bonuses. Not everybody gets the same. How do you vote for bonuses? Do you remember
the Eurovision song contest? Imagine everybody getting
100 bonus points, votes. You can distribute them
to any of your colleagues in proportion to your estimation of their
contribution to the company. And then when
the tally of votes is in, everybody gets a percentage
of the bonus fund in proportion to the votes
they got from their colleagues. And when you leave the company,
you take the accumulated capital depending on your years
and the bonuses you have. And you take it
to whatever company. You form another company
with friends or you join another
such cooperative company. Now that's not pie in the sky. I've worked for such a company in Seattle,
in Washington State. This is exactly how it worked. 330 people sharing 1.2 billion revenues. I'm not talking about
some kind of rickety cooperative. Imagine further that's each one of us had
another bank account. A triple bank account
comprising of three subaccounts with the European Central Bank. A digital one. We'd never have to go to Frankfurt. Who wants to
go to Frankfurt when they are in TĂĽbingen? One part of the account
is a trust fund for every baby. A certain sum of money
goes into that fund, by the central bank, to every newborn. The second one is where
your bonuses accumulate. The third one is where
a Universal Basic Dividend flows. A dividend of what? By the way, before I answer that question, the moment you have that,
the banks die. There's no need
to have commercial banks. It's a free digital bank account. Why on Earth would you want to have an account
in Deutchebank to pay their fees? And also Investment Banking has already died. Because if you ban tradable shares if you reverse the mistake of the British
India Company of 1599 and you have one share, one worker. Shareholding, together with commercial banking
producing money out of thin air. Those two combine
to create investment-banking. Once you have no tradable shares
and you have free banking, investment banks have
no purpose anymore. There is a very boisterous bank for debt. For private debt. So what happens is (that) your savings,
through this digital network there can be some brokers as well you can lend it to other companies you can
lend it to anyone. But it is money
you've already earned. It's not money that's
created from thin air, and finally land. Imagine that every municipality has a citizen's assembly
whose job is to divide the land in two lots. The one is the commercial zone
and the other is the social zone. The commercial zone is exploited
commercially through markets. in order to make money to build social housing in the social zone
and social enterprise space. And how does the commercial zone work? Full fledged markets. Totally neoliberal markets. This is what I'm proposing. What do I mean by that? Imagine your you
have a building, your workplace, you have your company,
or a residential house. Maybe you don't
want to live in social housing. Maybe you have enough money
accumulated and you want to live in a house of your choice
in the commercial part. Every first of January,
or first week of January, have to go into a website,
and you have to declare your estimate on the commercial
value of the properties. And you pay your rent,
or a tax, land tax, proportional to your declaration of
what you think the value is. Of course that means
that you have an incentive to give a very low evaluation. Aha. No. Because there's a second rule. Anyone can come and
bid for your home or your place of work,
your office space. If they outbid you,
you're out within 6 months. So now you have an incentive
to push it up. And all those rent accumulate
to be a universal basic dividend and to pay for social housing. Now the reason
why I'm telling you this is because I want to
open your imagination up to how you can have
fully fledged markets without capitalism. That I think is
a nice juxtaposition against the economics without
capitalism that students are taught. Thank you. [Applause] [Female Student]
Well thank you for your talk tonight. We've collected several questions
from the audience. We want to ask you the questions now. I'm going to read the first one and then
Nicholas is going to go on. The example of your dream of a flat
hierarchy obviously is convincing. But how can we manage to
break the power of global capital to realise it on a transnational scale? [Yanis Varoufakis]
Do you remember Occupy Wall Street? It was fun, but it was pathetic. Or the Indignados in Madrid and Barcelona or us in Greece, in Syntagma Square. We had fun. Night after night after night
we protested. We had assemblies. Everybody spoke. It was, you know... It reminded me of
Oscar Wilde saying "Socialism will never happen
because the discussions take too long" [Laughing] but it was
completely ineffective. People got fired, people went home and the
bankers were bailed out anyway. So, nothing changed. Now, I loath violence. I don't like revolutions. Because I just get scared
of what will happen. I've been on streets
where the revolution, the demonstrations
were getting ugly, and I didn't like it. Maybe I'm a coward. But, if you look at
all the revolutions that have taken place, they've eaten their children up and
produced a lot of despotism. But imagine a completely different
digital campaign. Imagine, that somebody, maybe you, maybe us DiEM, organized
a day of inaction. Vis-Ă -vis Amazon. That we organized a global
strike by consumers. "On Tuesday -- such and such -- we are not going to
visit the Amazon website." Just one day. Do you know what this
is going to do to Amazon? Imagine if we had
rolling such strikes. Imagine some of the employees
at Facebook or Amazon joined us. Because they are very badly exploited,
most of them. Very few of them get decent wages. Imagine that they faced a double strike. By consumers. No-one would have to do it,
it wouldn't really hurt us. We just wouldn't buy anything
from Amazon for a day or two or a week. I can live with without buying
anything from Amazon for a week. Imagine a campaign that
also involved financial engineering. I believe in financial engineering. When they privatized... the neoliberal
drive towards privatizing water, electricity, everything. The worst aspect of it was that they securitized the future
income streams of these companies. So all the electricity bills that
you're going to pay until you die,
have already been purchased, in the form of CDOs
(Credit Default Swaps) by some company somewhere. So the company that
bought the public utility called Goldman Sachs
to create a contract where what they did
was they... They said: "OK, we project
over the next 30 years these are going to be
the revenues of the company from the electricity bills. So you take this huge amount. You cut it up in small tiny pieces. You do the same thing
with returns from railways, from water, from whatever. Then you create
little packages, the CDOs that comprise different parts
of these chunks of different future income streams. Those CDOs sell like hotcakes. The companies that buy them are buying them for two reasons. First, to receive the revenues that those chunks of property rights
generate within. Also, because they think that if the value
of the CDO goes up, they can sell it
and make some surplus value. Imagine if we had
smart financial engineers who knew what was inside
each one of those CDOs, and said: "Okay people of TĂĽbingen, if you delay paying
your bills for a month, it's not going to be
a huge penalty that you suffer. We can crowdfund and
give you the money for the penalty. But, today it would TĂĽbingen,
tomorrow it would be Freiburg. The day after would be
Leipzig, Paris and so on. Together with... in other words
to have a grid of strikes. You can bring down
the whole financial system. Just bring it down completely. So, we have a lot of power. The question is,
what are we asking for? I think we should ask for
rewriting corporate law. And say that you cannot
buy shares anymore. You have to give them equally
to all your employees. I know that sounds extreme. But, it's an idea. And my job is to implant dangerous ideas
into the minds of the young. [Laughing]
[Applause] [Male Student]
So the second question is very concise and it brings us back
to the core of capitalism. Someone asked what is
constitutive for capitalism for you if markets are not? Oh, it's private ownership
of tradable shares. Really very simple. The fact that most people
who work for a company, do not own any
part of the company. Most people who, actually
own the company, do not work for company. That separation is the
height of irrationality. It generates, its begets the cruelty we had from
the British East India Company to what's going on today. Imagine that you broke down
that separation for Facebook. For Google. For JP Morgan. Suddenly you have
a complete transformation. You don't go away with markets. But you do
go away with capitalism. [Female Student]
Okay. Now we will come to the questions
about pluralism in economics. And the first question
that somebody asked is: "For you, what is pluralism in economics,
and how can it be achieved?" I've answered that. Where were you? [Laughing]
[Applause] For me pluralism in economics is... [Laughing]
[Applause] But I'll answer it once more. Because, you know, repetitio est mater studiorum.
(Repetition is the mother of learning) Two things. First, we need to teach
with equal passion, all different perspectives. Especially the ones we disagree with.
Especially the ones we disagree with. We have to give them
the best chance when we present
them to students. Second, you have to do it in parallel
with a history of capitalism that explains where
all those ideas came from. Why was it for instance,
that David Ricardo who loved Adam Smith,
and who loved capitalism suddenly went crazy
in the early part of the 19th century? The reason is that
there were the Napoleonic Wars that made a lot of money
for landowners in Britain as the result of the eradication
of international trade, the lack of imports. After the end
of the Napoleonic wars, they wanted to stop imports
so that they would keep their rents. Ricardo went crazy. He came up with
the concept of rent. It differentiated rent
from profit. This is what
we teach to our students. But unless you teach them this
from a historical perspective in the context of a Napoleonic Wars, it will go in from one ear
and exit from the other ear. [Male student]
All right. I like to believe that there is
a economics student out there who feels a little bit lost
after this lecture and who actually asked that: "With a lot of theories around
but not being true but, still being taught, with what mind-set should I approach them while studying economics
so I won't get lost in them? And maybe a follow-up
practical question: "Is there an economic textbook
that you could or would recommend to
a current student of economics?" [Laughing] Okay, first question. You should approach every model,
every theory, with enthusiasm. Because they're all beautiful. Independently of whether they are
useful, toxic, whatever. They're all beautiful. And so just have some fun while you approach them
and you study them. There are two ways in which you should
be critical of every theory. Two ways. They are very different
and equally important. The first one is internal criticism. That is (to) say:
"Okay, what are your assumptions? Give me your assumptions. I'll take them for granted. I won't challenge them. Now let's see whether
your conclusions are logically the result of a process
beginning with your assumptions. Because a lot are not. There is a lot of
sleight of hand in economics. Many economists I'm afraid, especially the second rate ones,
not the first rate ones. The second rate ones,
there a bit like Cardinals who are more papist than the Pope. They cut corners. You can easily
expose them. And you say: "Look, what you just said, doesn't follow
from your own assumptions." I'm not criticizing your assumptions. That's really very important. An aside regarding this: one of the greats of economics, of neoclassical economics is
of course Kenneth Arrow. Have you heard of Arrow-Derbeu theorems? If you studied economics,
Arrow's impossibility theorem. Kenneth Arrow was one of the first to win the fake Nobel Prize in economics, the Nobel Prize in Economics
let's call it. An unbelievable mind. I remember, he taught me a huge lesson. It was 1991, I was visiting New York, and he was already an old man.
He was giving a talk at NYU. NYU, Columbia, I'm not exactly sure. Small, seminar room,
about 15-20 professors. I was the youngest at the time. So, he fills all the boards
full of equations. One of the professors,
it was an academic seminar, says: "Professor Arrow,
I think that the (equation) 3.1 and especially the lemma that
corresponds to that, probably indicates that
a lump sum tax would not be as efficient
as a pro rata tax." Arrow looks at him
and says: "My dear chap, you are confusing that which
is interesting with that which is useful. This is interesting, it is not useful. If you try to apply it to tax policy,
it would be dangerous. Okay? So that's something you can do. It's fun doing it. The second kind of criticism
is external criticism. You say: "Hang on a second. What is this assumption
of yours here? You are assuming that people
maximize something called utility. Let's look it philosophically. Does it correspond to introspection? Is this what I do in life? This is a more philosophical critique. Every theory has its assumptions. All of them are questionable. So criticize the way which assumptions are
used in order to derive theorems. And then criticize the assumptions. That's the the answer
to the first question. As for textbooks... Will it sound awful if I tell you that at some point I had to write a textbook
because I couldn't answer that question. [Laughing] There.
[Laughing] [Female student]
Okay. So, we have one more question for you. What can economics contribute
in the discourse of climate change and the challenges society
is facing through it? [Yanis Varoufakis]
Thank you. Did you notice that
the US Treasury secretary, a week ago, 10 days ago at Davos tried to denigrate
Greta (Thunberg) by saying "Ah, go to college, study economics
and then come back and explain it to us." I tweeted... "Unfortunately he has a point. Not for the reason he says. But because if Greta
goes to college to study economics her soul would
most probably be crushed. And that's a very efficient way
of getting rid of her." And immediately I got a torrent of abuse
from colleagues, economists. Understandably, who said:
"Ahhh come on Yanis you know very well that economics, what we
teach our students contains a lot of concepts that are
extremely useful for understanding climate change,
market failure and so on. Which is completely true. The concepts of externality,
adverse election, information asymmetries; you can use all those concepts
to explain why markets fail and why in the case of climate change they
fail so spectacularly that they will destroy human life
on this planet. So there's no doubt. But the point that I was making was that for Greta, if she were to study economics,
to get to those concepts she would first have to go through
the normal standard model in which there are no externalities. You have perfect competition.
Everything works angelically. Then externalities are presented
as an exception. An externality, something external to the
mainstream to what really is going on
in the marketplace. But it's not just that. Because somebody would then say: "Okay. So why don't we just
reverse the order of teaching? Start with the externality,
and then teach competitive markets of efficient competitive markets." Well you can't do that. Because the moment
you introduce externalities you can't solve the mathematics.
You have no demand curves. You have no supply curves. Or the demand curves you have
are very funny looking. Like, you know, the market for lemons,
George Akerlof's model. And you can't build the whole
panoply of economics textbooks on the basis of externalities. So there is an inherent
bias in mainstream economics against treating climate change
as the real game in town with fictitious markets that
work perfectly in some realm of
our collective imagination. That's it. [Male student]
Well thank you very much. In fact we're very happy that someone
in the audience asked that question because, as it happens,
if you're interested in the topic of
ecological economics or economics and sustainability,
we are organizing a lecture series the same that has been organized
for this semester but with the topic of ecological
economics, economics and sustainability, starting in April at this university. We would love to see some faces again
next semester for that lecture series. [Female Student] And now we want to thank
Professor Yanis Varoufakis for his talk and
his presence here tonight. And we want
to thank the wonderful audience here and the other lecture halls and also all our helpers
that were here tonight, thank you. [Applause] [Yanis]
Thank you. Thank you very much. [Applause]
Interestingly his wife being the heirress of one of the wealthiest families of Greece's 20th century. The famous British pop song "Common People" , which is about rich people slumming and acting poor, was likely written about her when the writer met her while she played around in London under the pretext of art schooling.
This video needs to be watched by every leftist. The system he sets out the end is the most credible and fleshed-out market socialism we have