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'Talking to My Daughter About the Economy', and Putting Economists In Their Place

Yanis Varoufakis treats with disdain the idea that economics is a real science – it's more like a contemporary form of religion, propped up by ruling elites to make gullible everyday people remain subservient and go along with the elites' bad and self-serving ideas, he says.

Talking to My Daughter About the Economy or, How Capitalism Works--and How It Fails
Yanis Varoufakis

Farrar, Straus and Giroux

May 2018

Other

Yanis Varoufakis is the sort of economist one wishes there were more of in the world. If there were, the world might be in much better shape. At the least, it would be a lot more comprehensible.

Some might describe Varoufakis as an anti-economist. He studied economics because he didn't like being told he was at the mercy of larger forces that he didn't understand. He set himself to understand them: and eventually came to realize they were more myth than monster.

His latest book to appear in English translation (it was published in Greek in 2013, and has been translated into other languages since then) is titled Talking to My Daughter About the Economy: Or, How Capitalism Works – And How it Fails. It's more than simple Economics 101, however. Constructed as a series of letters to his young daughter, seeking to explain economics to her, it's broken into FAQ-style headings and sub-headings, and uses very simple questions to jump from one point to another, weaving a thread that stretches from the early emergence of markets and currency to speculation on the future of cryptocurrency and the ecological crises facing the planet. He addresses the letters to his daughter, but really they're designed for a broad audience, from older children to adults. He explains a number of economic terms and ideas in simple, straightforward language, but it's his broader and recurring themes that are of especial interest.

One of his over-arching aims is to put economics and economists in their place. Many of us, surely, have become skeptical about economists in recent years, with the spate of economic crises, rising inequality, and deteriorating standard of living across much of the industrialized world. It must be akin to what people thought in olden days when astrologers promised sunny skies and instead destructive hurricanes ravaged the land for weeks on end. But what else is there to do, besides reassure yourself that predictions are a very complicated thing to do, and go on hoping that the astrologers (or economists) eventually get it right?

That's more or less what's going on, Varoufakis argues. He treats with disdain the idea that economics is a real science – it's more like a contemporary form of religion, propped up by ruling elites to make gullible everyday people remain subservient and go along with the elites' bad and self-serving ideas, he says. When you think something you're told by the economists doesn't make sense, you're often right, is his frequent conclusion: they're pulling the wool over your eyes much the way astrologers or high priests did in previous eras. Just because economists use math, formulas, and complicated charts doesn't mean they're performing credible science any more than astrologers or phrenologists were (who also used math, formulas and charts). His clear, common-sense method of disposing with too-rarely-challenged capitalist feats of faith is refreshing and at times downright delightful.

His other recurring theme is that even where economic theories appear to make sense when you read them, they invariably fail when put into practice, because they neglect to take into account human psychology. People do not act rationally nor as economists hope they would, in the real world. They act out of fear, uncertainty, passion, greed, altruism, and a range of other conflicting and often unpredictable motivations which undermine even the best theories. This is an argument which historically has been levelled against socialism and communism – 'works in theory but not in practice' -- but it's even more true of capitalism. Right-wing economists argue, for instance, that lowering wages, or lowering interest rates, will encourage aspiring business owners to hire more workers, or borrow more money to expand operations. Wrong on both counts, says Varoufakis: they're equally if not more likely to take it as a sign that the economy's going down the tubes, panic, circle the wagons and restrain both hiring and growth, thereby intensifying the crisis. That's just one example of a broader phenomenon: economics fails to account for the commonly irrational behaviour of human beings. Economists are not scientists, he reminds us; they're really more like philosophers.

Economics is, and always will be, political, Varoufakis also reminds us. That's not a bad thing. Governments are needed to respond to the many ways human beings – especially bankers, economists, corporate CEOs -- mess up the economy, through greed, competition, and other short-sighted motivations. What's bad is pretending it is or should be otherwise. That's one of the reasons cryptocurrencies will inevitably fail, he argues. They're designed to operate as a currency free from government (read: human) control. Yet one of the main functions of currency is precisely to enable governments to influence, or at least respond to, human economic behaviour. Human behaviour will necessarily provoke economic crises, and without the political control of government-directed currency, there's no way to correct and resolve those crises.


"[I]f money were to be depoliticized," he writes, "if its supply were to be separated from the world of politics, then all of the following decisions would have to be made independently of politics: how much government spends and on what; how much tax the state collects and from whom; what bankers should be allowed to get away with; how to deal with bankers when they go bankrupt. To the extent that these decisions are the very definition of politics, they can be undemocratic when made by the oligarchy, but they can never be apolitical… money is, and must always be, political."

Throughout his book, Varoufakis deliberately avoids jargon and instead draws on a range of anecdotes, metaphors, personal stories, and Greek myths.

Humanity is rapidly approaching a crisis, he says, as our technological capacity, coupled with our adherence to capitalist economics, means that we are on track to destroy the planet—and ourselves. Indeed, strict adherence to capitalist economics would demand that we proceed with destroying the planet since destructive crises are always much more profitable (in terms of economic growth) than peaceful harmony.

What is the solution? While the small minority who benefit from the status quo argue that the solution is to commodify everything (including the environment—as witnessed for instance in emissions trading or cap and trade responses to pollution, which essentially creates a market out of pollution), he advocates for the opposite response: democratize everything. Only when we realize that economics is implicitly and profoundly political, and demand to assert mass democratic control over economic decisions, which are now reserved to the handful that benefit from making decisions that are bad for the rest of us, will we have a chance at building a path through the crisis and toward a collective future. Yes, democratizing economic decisions will likely prove messy and imperfect, he admits, but it would be a far better system than any of the alternatives, including what's going on now.


Bankers and Capitalists Are "Idiots" -- Literally

In the time since the publication of Talking to My Daughter About The Economy, Varoufakis briefly served as finance minister for Greece in 2015 under the left-leaning Syriza government. After several months of negotiating Greece's economic situation with other European governments, he resigned, essentially in protest at a bailout agreement which his government signed against his advice. His critics will probably point to all this in an effort to discredit him; in effect, however, it was the consequence of his own government not having the backbone to carry through with the policies he advised, against the combined, scheming might of Europe's bankers. (But that's another story, and one he tells brilliantly in his book Adults in the Room: My Battle With Europe's Deep Establishment).

In a roundabout way, we ought to be grateful for Varoufakis' foiled stint as finance minister -- far from discrediting his ideas, it's revealed the scale of banker-led resistance to his democratizing approach to economics. He's since started his own political party, affiliated with the larger European DIEM 25 democratic movement, but Talking to My Daughter indicates a different strategy: trying to engage a broader and perhaps younger audience with the tools and courage to confront the economic theories they are raised to believe in by schools, media and governments.

Varoufakis closes off with a potent critique of capitalists. The ancient Greeks had a word for selfish people who pretended they were alone in society and pursued only their own self-interest. That word was idiotis: "a privateer, a person who minded his own business"; "a person who refused to think in terms of the common good," Varoufakis explains.

"[O]ur market societies have turned us into idiots," he observes.

What's the solution? That's up to us to figure out, he says, having spent the book trying to help the reader cut through the fog that economists have woven around economic life. But there are two recurring points which indicate the direction he wishes us to take. One is to democratize everything, especially the economy and control of money. The other, he says, is to shift our focus away from the exchange value of things – how much money they will bring us or take away from us in the market – and turn it back toward the experiential value of things.

Experiential value is what makes us appreciate a beautiful sunset, a delightful conversation, a swim in the pond just as much or more than the produced items advertisers try to make us crave and purchase. It's what makes us jump to help a friend in need fix their car, or move their furniture, without asking for compensation – just out of the joy at helping a friend; whereas if we were offered money to do similar drudgery we might grumble, drag our feet, or refuse to do it.

Democratizing economic decisions, and reasserting the primacy of experiential value over exchange value, are among the first steps toward reversing the damage economists have done to our economy and our world, says Varoufakis. Reading his brilliant, persuasive and timely book, too, is surely also a step in the right direction.

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