Links on SYRIZA-Eurogroup Agreement

Boston--"Caution--Falling Ice!" signsLinks on Greece:  Now that the Syriza government has reached an agreement with the powers that be in Europe to extend its bailout for four months, there seems to be a lot of disagreement about how to assess it, even among commentators and sources that I trust. Most people seem to think the outcome is bad for Syriza and Greece, but some people think the jury is still out and the agreement may give Syriza some breathing room to make more headway later; others think it’s bad but Syriza was forced or even blackmailed into it; others blame Syriza’s strategy and call for it to admit failure and try a new strategy; others speak of betrayal or capitulation by Syriza. (At least none of my left trusted commentators are praising the Troika (now renamed “the Institutions”), which would really leave my head spinning!) Here is a list of links, with minimal annotation from me–I will let readers sort it out.

John Cassidy, The New Yorker, Greece Got Outmanoeuvered. His position is that Greece was outmaneuvered, did a “U-turn” in exchange for little. “In retrospect, it is clear that Tsipras and Varoufakis overplayed their hand.” But “the game isn’t over yet” because it’s just an interim agreement.

Costas Efimeros, The Press Project, “Europe trashed democracy”. The title is taken from a question that Paul Mason of Britain’s Channel 4, asked of Jeroen Dijsselbloem, president of the Eurogroup: “”What do you say to the Greek people, whose democracy you’ve just trashed?” This is a bit old–from Sunday–but it cites an anonymous Greek official as saying that “the Greek delegation were yesterday subject to outright blackmail” (the quote is of Efimeros, not the anonymous official).

Yves Smith, Naked Capitalism, ECB and IMF to Greece: No Escaping the Austerity Hair Shirt. The latest of her posts since 2/20 arguing that Syriza caved and Greece is screwed.  What really puzzles me is the commenters to this post who are comparing Syriza’s leadership with Obama’s betrayals (prompted by Yves remark that Syriza’s slogan “Hope Is Coming” is a “subconscious echo” of Obama’s “Hope and Change”). This strikes me as ultra-leftism.

Manolis Glezos, MR Zine, Before It Is Too Late.  A short statement by a Syriza member of the European Parliament; apology to the Greek people and call for Syriza supports to fight back against the Troika and Memoranda.

Stahis Kouvelakis, Jacobin, The Alternative in Greece. The “alternative” in the title is explained (sort of) in a section subtitled “How to Avert Total Defeat”:  it is to be “honest” and admit that the party’s strategy failed (“to present a defeat as a success is perhaps worse than the defeat itself.”). Cites the Glezos apology approvingly; very critical of the Syriza strategy. More from him at the website of his publisher, Verso.  One of the pieces at his author page at Verso says that the Syriza leadership was “trapped by its mistaken strategy: though I wouldn’t say it was a ‘betrayal’ or ‘capitulation’, since these are moralising terms that are of very little use for understanding political processes.” But calling for them to be “honest” isn’t moralizing, mind you.

Richard Seymour, Lenin’s Tomb, Syriza’s mauling at the EU negotiations. Another dismal view of the agreement; Seymour calls Tsipras’s account of the agreement “deluded.” A sample: “Tsipras said that the deal creates the framework for Syriza to address the humanitarian crisis.  Not with the commitment to a primary surplus and troika oversight, it doesn’t.”

William Blum, Counterpunch, The Greek Tragedy. Very interesting short piece (hat-tip Mike-Frank Epitropoulos) reviewing the history of post-WWII crushing of the Greek left (with British and American and CIA complicity and help), concluding that the Syriza negotiators may not have known what they were up against, and that: “Greece may have no choice, eventually, but to default on its debts and leave the Eurozone. The hunger and unemployment of the Greek people may leave them no alternative.”

Now for the more positive assessments:

Étienne Balibar and Sandro Mezzadra, Verso website, Syriza Wins Time—and Space. Rejoinder to the doubters. They speak of the formidable barriers that popular movements against austerity and this one left government face; “It would be naïve to imagine that the Greek government could break down these barriers all by itself.”

Mark Weisbrot, Center for Economic and Policy Research, Greek Bailout Extension Deal Represents a “Significant Retreat” by the European Authorities, CEPR Co-Director Says. This is a press release from 2/20 quoting Weisbrot, who took a much more positive view of the deal (or at least did on Friday–he may have changed his view since Monday or Tuesday).

James K. Galbraith, Social Europe, Reading the Greek Deal Correctly. Galbraith is friends with Varoufakis, who at some point taught at UT Austin where Galbraith teaches, and has been acting as an advisor to the new Greek government during the negotiations, which gives him some credibility (though maybe critics would say he’s over-invested in the same bad strategy). His reading of the deal hinges on the wording of the deal. For example:

[T]here was the lovely word “arrangement” – which the Greek team spotted in a draft communiqué offered by Eurogroup President Jeroen Dijsselbloem on Monday afternoon and proceeded to deploy with abandon. The Friday document is a masterpiece in this respect:

“The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions. This extension would also bridge the time for discussions on a possible follow-up arrangement between the Eurogroup, the institutions and Greece. The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.”

If you think you can find an unwavering commitment to the exact terms and conditions of the “current programme” in that language, good luck to you. It isn’t there. So, no, the troika can’t come to Athens and complain about the rehiring of cleaning ladies.

Again, this was from right after the agreement was signed on Friday, but before the reform measures were submitted on Monday (Varoufakis got them in on Sunday, actually). So I wonder what he would say now.

Two interviews from the Real News Network that I haven’t watched yet, but look like they are more positive toward the agreement (and by economists whose views I trust):

Michael Hudson, Real News Network, European Banks vs. Greek Labour
Heiner Flassbeck, Real News Network, Greece Eurozone Deal a Setback or Tactical Win for Syriza?

Finally, I finally got around to reading the piece from a while ago by Varoufakis, reprinted more recently in the Guardian, How I Became an Erratic Marxist (hat-tip to TM and JFS). Not an easy read, in more ways than one: it’s pretty theoretical, and it’s depressing. He is explaining why he thinks it’s more important to save European capitalism vs. letting it crumble in the hopes that socialism will emerge from the rubble. He thinks (roughly) that the left is so weak that the right would seize power if European capitalism fails. So that goes a long way toward explaining why he seems to reject the so-called “Grexit” out of hand and doesn’t want Greece to act unilaterally.

(Note: This post’s “possibly irrelevant image” is of the falling ice signs that have proliferated all over downtown Boston (they are there every winter, but there are so many more this year). I understand what I’m supposed to do when I see a “Caution–Wet Floor” sign, but what am I supposed to do when I see a “Caution–Falling Ice” sign? Reader suggestions are welcome.  And if anyone can figure out a way that the image is relevant to the post, I’d love to hear that, too.)

 

Piketty’s Model of Inequality and Growth in Historical Context, Pt 2

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Part II: The Neoclassical Response to the Classical Theories of Inequality and Growth

Mason Gaffney has shown how many individuals helped construct neoclassical economics, often with financial support from the robber barons and their successors. I will focus on two: in the United States, John Bates Clark (1847-1938), and in Europe, Vilfredo Pareto (1848 to 1923).

Recall from Part I that the classical economists divided society into three classes: Owners of land and other natural resources received unearned income or “rent” from their holdings—often derived from conquest or inheritance. Capitalists (who often overlapped with landowners) owned physical capital (like factories or ships) and received interest or profit from investing. Workers received wages. Also recall that the classical economists favored taxing “rent” by taxing land values; Henry George crusaded for this tax.

John Bates Clark of Columbia University, for whom is named the prestigious John Bates Clark Medal, transformed economics into an inequality-free abstraction.

Writing in the 1890’s, Clark merged land into physical capital, thus obliterating the classical understanding of land. In the new neoclassical world, capital (including land) originates solely from productive investment. There is no unearned “rent”, only legitimate “profit.” (Ironically, Marx merged rent into profit because he considered both illegitimate.)

Clark reduced economics to only two “factors of production”, capital and labor. In Clark’s model, “supply and demand” in a free market ensure that capital and labor each earns its “marginal product”, that is, the contribution of the final amount supplied. This outcome is supposedly both fair and efficient. Clark writes, “the share of wealth that falls to any producing agent tends, under natural law, to equal the amount that he creates. A man’s pay tends to equal the value of the product or fraction of a product that can be specifically imputed to him.” (Clark, 1898: 4)  So much for any claim that laborers are exploited!

Clark also eliminated time, —giving us the familiar time-less, space-less, context-less world of Economics 1. But without time, there can be no history, and without history, no questioning the justice of property ownership, or the legitimacy of institutions.

Neoclassical economics in the United States followed Clark, to the extent that the future Clark Medal and Swedish Bank “Nobel” prize winner Robert Solow could joke in 1955 that “…if God had meant there to be more than two factors of production, He would have made it easier for us to draw three dimensional diagrams.” (Solow, 1955: 101)

Meanwhile, over in Europe, Italian nobleman Vilfredo Pareto made two key contributions to the emerging neoclassical paradigm. First, he estimated that 80% of the land in Italy belonged to 20% of the population, from which he concluded that inequality follows a natural law: the 80:20 rule, with which we shouldn’t tamper. More famously, he developed the policy rule known as “Pareto improvement.” Pareto improvement holds that we should undertake no policy changes unless they make at least one person better off and no one worse off. Sounds fair and reasonable, doesn’t it? By that logic we should have paid the slaveholders in full after the Civil War! By that logic once having cut taxes on the rich, we cannot raise them again! The status quo rules, no matter how cruel or illogical the route that got us there.

Under the new neoclassical regime, mathematical models proliferated like kudzu vines in the south, their very complexity keeping them safely obscure. Few are more famous (among economists) than Robert Solow’s 1956 simple two-factor growth model. Assuming a world of uniform depreciating physical capital (implicitly ignoring durable natural resources like land), and uniform quality labor, Solow’s model predicts that economies will grow towards a steady state where depreciation just equals new investment. And because the richer you are the slower you grow, poorer economies and poorer people within economies will catch up. Solow’s model is cute as a button!—but its extreme abstractness lies poles apart from Smith’s original common sense model explaining growth in terms of cooperation and specialization.

Almost sixty years later, Thomas Piketty has taken Solow’s model and added his own twist. In Solow’s model, the poor catch up to the rich. In Piketty’s model, the modern decline in growth does not affect investment. Consequently, now that return to capital investment exceeds the rate of growth, then inequality must inexorably increase. This model, he says, determines the fate of the twenty-first century.

Critics have torn into Piketty’s model—including some, like James Galbraith, who still give Piketty kudos for stirring up debate. In my view, Piketty’s and Solow’s models are both fundamentally flawed in that they rest on the same ahistorical, apolitical, two-factor neoclassical foundation. As the classical economists understood, inequality derives from power, ultimately the power of conquerors to extract tribute from the conquered. And as the Progressives, the New Dealers, and the civil rights activists have demonstrated, democratic societies can counter that power with well-designed tax and regulatory policies supported by an aroused public. We are not prisoners of a mathematical model.