Yanis Varoufakis: Europe Resorts to Authoritarianism to Paper Over Banking and Austerity Failures

Yves here. Because the European slow-motion train wreck is turning out to be particularly slow, it’s almost become background noise in the US, almost a lesser version of the now two lost decades in Japan. But what is happing in Europe is less benign and less likely to be able to continue anywhere near that long.

Japan, despite its economic malaise, continues to rank at or near the top of advanced economies in social wellbeing indicators. Part of that may be that the island nation exaggerated how bad things were so as to allow it to run a really cheap currency (at least until the financial crisis induced the unwind of the yen carry trade) and maintain a robust export sector. But another big element was that Japan opted for a model of shared sacrifice (particularly an even further narrowing of the gap between average worker and executive pay) in order to maintain employment levels.

By contrast, the Troika has lurched from the verge of crisis to verge of crisis so often that it’s not hard to adopt a “wake me when it’s about to be really over” posture. One can credit the Eurocrats with having perfected the art of doing the bare minimum to get them through successive emergencies without resolving any of the underlying issues. For instance, I’ve been remiss as far as commenting on the European plan, such as it is, for resolving failed banks. You might understand why after reading the money section of today’s discussion of it by Delusional Economics:

Reuters has more on this point…

…the new authority will be handicapped by the fact that it will have to wait years before it has a fund to pay for the costs of any bank wind-up it orders. In practice, this means it could be very difficult to demand any such closure.

Officials say the plan foresees tapping banks to build a war chest of 55 billion to 70 billion euros ($70 billion to $90 billion) but that is expected to take a decade, leaving the agency largely dependent on national schemes in the meantime.

So by 2025 there maybe a credible backstop fund. But seriously who is going to wait that long ? Spanish banks are already in serious trouble, and you’ll note that Spanish house prices continue to fall at pace, the Portuguese are also looking shaky, The Netherlands is on the beginnings of what looks to be a very slippery slope, and many other nations, Greece and Cyprus to mention just two, are still in significant economic strife.

But that’s not the truly immediate issue with this proposal. That, once again, is the German camp:

Germany has warned this may violate the EU’s basic laws by usurping national control over finances.

“We have to stick to the given legal basis, as otherwise we risk major turbulence,” German Finance Minister Wolfgang Schaeuble said yesterday in Brussels. “I would strongly ask the commission in its proposal for an SRM to be very careful, and to stick to the limited interpretation of the given treaty.”

Or in other words, German banks don’t want to be saddled with the burden of allocating capital to support the banking systems in other nations. This reaction should, of course, be no surprise to anyone following the European crisis for any length of time. German EU policy has always been about protecting domestic banks. Anything that levels the playing field against Germany, including things like EU-wide deposit insurance, has always been knocked back. With Basel pushing for further reform on risk-weightings, I can only see this getting worse because the German banking system has a significantly understated capitalisation issues that it would like to keep as quiet as possible.

This one certainly isn’t over, especially with just 2 months until the German elections.

So shorter: the banking resolution plan is not only certain to be too little, way way too late, but it’s not even a credible plan because the Germans haven’t agreed to the fundamental mechanism of sharing banking risk across the Eurozone. We are way way into the Herbert Stein land of “that which is unsustainable won’t continue” but the Eurocrats have managed to defy what ought to be inevitable for an impressively long period of time.

But all this increasingly expert can-kicking is coming at a cost, and that’s the destruction of democracy in the periphery, and potentially of functioning societies. Greece is being turned into a failed state. Basic services like garbage collection and hospitals are breaking down. If there was any logic in breaking Greece on the rack, one assumes it was meant to serve as some sort of example.

But even if the Troika harshly punishes the defiant, quiet submission to its dictates isn’t looking like a much better alternative. The obedient followers of austerity are simply digging their countries into deeper and deeper holes. What happens when you have a half a generation of young people who’ve spent the early part of what would normally be their early careers not working or barely working? They’ve lost time, skills, no doubt become demoralized. And if these economies were to miraculously start showing some life again, they’d not be the first one hired. It would be new and more recent graduates.

The behavior of the putative European leaders is wildly reckless and irresponsible. It’s a fundamental renunciation of what society is supposed to be about, which is a sharing of effort and burdens for the collective good. The elites may think they can stay in their cocoon while the masses suffer, but as social decay progresses, you’ll see a breakdown in services, in public health, and more and more difficulty in maintaining security.

Varoufakis argues that the failure to address the economic problems means the Troika will rely more and more on authoritarianism.

By Yanis Varoufakis, professor of economics at the University of Athens. Cross posted from his blog

This blog was initially established to discuss the global crisis of 2008 and, in particular, to promote our Modest Proposal for Resolving the Euro Crisis. As Version 4.0 of the Modest Proposal is being prepared (and will be published early next week), it is perhaps time to take stock of almost four years of Euro Crisis.

The Eurozone Crisis used to have three components. Now it has developed a fourth; possibly the most toxic.

As we all know, it all started with a banking crisis, which caused investment and liquidity to fall into a hole, which spawned a public debt crisis, which in turn reinforced the investment crisis, the result being more bank failures and higher public debt. In its infinite wisdom, the Eurozone decided to treat this multiple crisis as if it were just a debt problem, and to implement savage budget cuts and mammoth tax hikes. Incomes fell sharply reinforcing all three of the sub-crises: banks fell deeper into their black hole, debt to GDP ratios rose and, naturally, investment crossed into negative territory.

Our Modest Proposal, from its first version in 2010, identified these three crises and urged Europe’s leaders to deal with them in an integrated fashion; to avoid dealing with the debt problem as if it were independent of the banking malaise or of the dearth in investment; to desist from pretending that Greece’s crisis was separate from that of Ireland’s, Italy’s or indeed Germany’s. The Modest Proposal offered three simple policies, which could be implemented without Treaty changes, without fiscal transfers, even without troikas, haircuts or bank account confiscations (recall Cyprus).

Three and a half years passed and Europe remains in denial, committed to the same toxic remedy. While there has been movement along the lines of the three policies that we prescribed back then, Europe’s leadership always made sure that its baby steps in that direction would be cancelled out before there was a chance of making progress. On debt, they insisted on funding the EFSF-ESM with CDO-like eurobonds that came with the domino effect built into them. On direct bank recapitalisations, they chose to make these conditional on a banking union project which, naturally, ended up as the red herring that our leaders pretend to be chasing after; a ploy by which to avoid breaking up the cosy link between national politicians and local bankers. On investment, apartt from some interesting ideas from Mr Draghi (on how the ECB could incite the money markets to treat more kindly investment projects in the Periphery) all we have had was the re-labelling of unspent (pitiful in sum) structural funds as a ‘Growth Pact’. The only policy on which Europe has shown remarkable decisiveness is universal, self-defeating austerity.

Of course, by now, everyone sees that this policy is the century’s greatest own-goal. So, the only way of continuing with its implementation is by turning to authoritarianism; by turning nasty; by bending the rules of democracy; by persecuting the weak so that the less weak fall into line; by winking to the neo-nazis and closing down public broadcasters (re. the Greek government’s social policies and closure of ERT); by cutting the meagre support that the unemployed and the sick receive – all in the name of reform and efficiency.

In short, Europe’s governments must increasingly rely on authoritarianism in order to ‘maintain course’, both in the manner in which they treat their citizens and in the manner in which the treat each other; the Northern governments their Southern counterparts in particular. Thus we have the fourth crisis: the crisis of European democracy. And the longer Europe remains in denial about the systemic nature of its crisis the larger the democratic deficit and the more Europeans will look at Europe as the problem (rather than the solution)

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  1. chris Rogers

    As a longtime supporter of a closer European entity, on that could act as a counterbalance to the USA and China – be it in geopolitics or geoeconomics, one is aghast at how the European Union has abandoned any pretext of ‘democracy’ when it comes to economics within the EZ member nations.

    Indeed, as a Brit, and usually cynical of centralised governance, my once pro-Europe credentials have been replaced by a anti-European temper, anti-European as is totally against the anti-democratic direction the EU has taken since 2010 and the Irish/Greek sovereign debt crisis – Cyprus was the last straw as far as I was concerned, that, and the arse licking attitude the European politicians show to the USA in relation to Snowdon and a multitude of other breeches of faith too numerous to catalog.

    The Euro has been a disaster for Europe and the majority of working class across the 28 member nations – not even the German worker has benefited in reality – the monied political class though is lauding it.

    The sooner the Euro implodes and we get back to national economic common sense the better – basically, our Euro master wish to sacrifice more than 60 years of peace and social gains on the alter of a failed economic experiment conducted to force a Federalism on Europe – one look at the USA and its Federal governance should make us think twice about this madness – closer European ties, yes, a Federal dictatorship though, driven by economic neoliberal madness – NO THANKS!!!!!!!

    1. Lambert Strether

      Then again, World Wars I and II, you know. When the generation that actually remembers them dies off, a newly nationalized Europe will do what comes so naturally to nation states, especially facing domestic crises, perhaps?

      1. Chris Rogers


        As a European born 20 years after the end of WWII, but as a Brit raised on a diet of WWI and WWII gung-ho exploits by our armed forces, most of which was drivel, I have no camp with ardent nationalism, rightwing extremism or globalisation, the globalisation of the European Economies – neoliberalism and blind economic madness are the cause of Europe’s problems, not nationalism, which by the way, the original concept of Europe under the Schuman Plan was mean’t to tame.

        Presently, many of the nation’s of Europe are seeing the destruction of the Social Contracts we took for granted for ourselves, our parents and our children – and for what purpose, to feed fucking bankers and keep the charade of the Euro afloat.

        I would also remind you, that it was the ruling elite, now know as the 1%, that originated the destruction in Europe in 1914, however, the Continent was like a tinderbox well before that date as a result of the Ottoman Empire being rolled back out of Europe, a desire by Austria-Hungary not to become the ‘sick man’ of Europe – hence the blank German Cheque to them, and rampant nationalism in the Balkans – a powerful powder keg – none of these conditions exist today, and to put it bluntly, as a working class person, the last people I’d turn my guns on are my own class – so, you may get a surprise, and finally we may actually turn on our masters as we really cannot take too much more – regardless of what the neoliberal muppets in the EC, ECB or IMF think.

        To summarise, Europeans want a social democratic system of governance that looks after the majority and not a minority – we also recognise and welcome national differences – language differences may keep us apart, but I also believe these differences give us our strength – its the ruling elite that plays the blame game and takes the plunder regardless – time to get rid of the elite, and this can be done via democratic means, or ultimately violence – as is becoming clear, it seems violence is the only way the elite listens, particularly when their kith and kin are hanging from lamp posts – and you know what, they really do have themselves to blame.

        The USA can also keep its nose out, time for a free and independent Europe, not the supine US-lapdog exhibited via the Snowden Affair – God I’m ashamed of our political elite, the worse of whom are found in Germany, France and the UK.

        1. alapaka

          It is always the 1% that push the wars. this is a nothing point.

          “…rampant nationalism in the Balkans – a powerful powder keg – none of these conditions exist today…”

          hello? Please go to the balkans. Serbia and Croatia – brotherly love, eh? While they won’t spark a conflict between rival alliances, to just wave away the danger of nationalism in Europe is wishful thinking at best. The world wars are far from forgotten, there are many who would love a chance to redraw once again the borders. Not just in the balkans,mind you – they are simply a useful example.

          I wish you were right that class affinity was stronger than nationalism. Sadly I believe you are quite wrong.

          1. Procopius

            Here in America I seriously doubt that working class solidarity, too. After all, the Regular Army (101st Airborne) did “turn their guns” (strictly speaking, their fixed bayonets) on the American People in 1957. Maybe not as upsetting as killing Bonus Marchers in 1932, because the segregationists weren’t sympathetic figures in the rest of the country then, but still. And then the National Guard turning their guns on American students in 1970. Currently the police all across the country are being increasingly militarized, with SWAT teams being used for gambling raids and searches for dope under the guise of license inspections, or just plain without any warrant or other excuse. The way they disposed of Occupy is not reassuring.

        2. They didn't leave me a choice

          I’d cheer to that… Except what I see here up north in Finland is a bit different. There is plenty of value hardening going on and blaming the “lazy” south europeans for everything. I blame our idiotic, braindead propaganda outlets that we euphemistically call “media” on that. After having followed NC and other foreign outlets for a while, it’s a true and honest culture shock to face the imbecilic naivete and foolishness of my supposed peers.

    2. Synopticist

      Yep, I couldn’t agree more.

      It wasn’t supposed to be like this. We bought into the idea of a social democratic Europe, and we’ve ended up with a Freidmanite, neo-liberal, pro-oligarch continent wide nightmare.

    3. jake chase

      It should have been obvious from the beginning that the Euro was a slight of hand project the purpose of which was to engorge local politicians with cheap loans, while swelling the markets of Germany for industrial goods, and creating limitless opportunity for shyster bankers to leverage every imbalance and loot while the looting was good. The idea was a massive credit bubble, and when it popped the poor country populations are left holding the bag. Anybody who thinks Schnabel (whoever he is) cares about garbage collection in Greece also thinks Bernanke worries about the unemployment rate in Akron.

      1. Mickey Marzick in Akron, OH

        The “official” unemployment rate in Akron, OH is 6.8%… But so many have stopped looking for work, get by in the underground economy where cash is king, coupled with the fact that youth unemployment has to be several multiples higher, it’s really hard to believe this figure.


        But I doubt if Bernanke knows which Akron you refer to as there are several cities by this name in this country – not that it matters. And the way things are going, unemployment isn’t the problem. The unemployed are!

        In true austeritarian fashion the abolition/reduction of unemployment insurance is beginning to be heard in statehouses throughout this neoliberal paradise.

    4. killben

      Well said. The whole farce called the Euro Project is now travelling down to Dictatorship from Brussels!

  2. carol

    “It’s a fundamental renunciation of what society is supposed to be about, which is a sharing of effort and burdens for the collective good.”

    Indeed! However, this does not apply to the current problems on the european continent, as there exists no single society.
    The european continent harbors many, many different societies each with its own collective goods. These societies are separated by language barriers, cultural differences, tax system differences, etc. etc. etc.
    People can cooperate, but these societies can not operate as one.

  3. Charis

    So what is so surprising;That he main goal of all this was indeed to bring us all into the bankers dictatorship?Well..I could have told you in 2010 when it was clear that all this will end in a worlds economy double dip and that there will be no “recovery” anywhere.

    As long as the people in the USA,germany,UK don´t take it to the streets in masses (millions!!) the banksters and their whores in politics and mass media will continue.For the americans,the british and germans the time has come to realize that.Peacefull protests in masses are not things only lazy,hairy south europeans should do.

    There is no “ducking away” with the hope that “by time things will get better”.
    Enough talking.It is time to act.Or the pitty rest of our democracies will not end in nations which just have a “stronger authoritarianism”..it will end with dictatorship.

    1. John Hemington

      This from page 324 of Carroll Quigley’s masterful history Tragedy and Hope; their master plan failed as stated in 1919, but appears to have succeeded beyond their wildest dreams in the current era:

      “. . . Instead of seeking to set up a new financial organization adapted to the modified economic organization, bankers and politicians insisted that the old prewar system should be restored. These efforts were concentrated in a determination to restore the gold standard as it had existed in 1914.

      In addition to these pragmatic goals, the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank of International Settlements (BIS) in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.

      In each country the power of the central bank rested largely on its control of credit and money supply. In the world as a whole the power of the central bankers rested very largely on their control of loans and of gold flows. In the final days of the system, these central bankers were able to mobilize resources to assist each other through the BIS, where payments between central banks could be made by bookkeeping adjustments between the accounts which the central banks of the world kept there. The BIS as a private institution was owned by the seven chief central banks and was operated by the heads of these, who together formed its governing board. Each of these kept a substantial deposit at the BIS and periodically settled payments among themselves (and thus between major countries of the world) by bookkeeping in order to avoid shipments of gold. They made agreements on all the major financial problems, especially in reference to loans, payments, and the economic future of the chief areas of the globe.

        1. jake chase

          Wait, I remember now. Adolph somebody, right?

          Didn’t he create full employment in Germany while defaulting on the war debt?

  4. Anonymous

    “by persecuting the weak so that the less weak fall into line”

    This insight is significant on the micro-level as well. The foreclosure crisis in the US seems to have targeted minorities, single adult households, the ill and the disabled. I wonder if there was an algorithm for targeting the “weak” in the often-patented computer programs by which created forced-place insurance, suspense accounts and accompanying late fees, “lost” payments identified people by exotic names, names ending in vowels or if there was even a cross-reference to medical status based on disability income reported in loan applications. Of course, making so many weak by reducing the amount of currency in circulation for public use and then proposing loan modification eligibility only if the applicant was in default was enough to create a class of the “weak” to target for foreclosure, knowning the judicial bias against end-users of bank debt who may be held to be in “default.” Welcome to the jungle, where the strong control the fictitious, private, debt-based currency and the weak are everyone else. It still seems to escape the notice of the courts that the real “debtors” in the debt-based, private currency scheme are the issuers of the debt, not the productive sector which is currently required to liquidate the debt by surrender of their assets if they are not allowed to make periodic payments. The surrender of assets to the creators of the debt fiction is the greatest fraud of this or any other age. How can the creators of a quarter of a quadrillion or more of fictious derivative obligations keep a straight face in demanding bail-outs or bail-ins for payment of debt they themselves created out of thin air?

    1. spooz

      Many of those people should never have bought into the “ownership society” BS anyways. They were pawns in the debt fueled real estate bubble and would have been better off renting. Many had no real equity in their homes, having benefitted from low or no down payments and were probably shocked to find that home ownership comes with a lot of expenses they hadn’t planned for, like property tax and maintenance. And when the crisis came and they lost jobs, they were unable to relocate as easily to find new employment. I’m not saying abuses didn’t occur, but I think its more likely the people that got burned were those that invested in mortgage backed securities.

      1. Carla

        Although you yourself call them “pawns” it seems to me you are blaming the victims here.

        1. spooz

          How so? Only some got sucked into the ponzi finance, nothing-to-lose loan schemes. They may lose their homes, but many put nothing into it and have no equity. Why should they gain while others who struggled to keep up with their obligations get nothing? If they want to keep their underwater homes and were abused by misallocated fees or payments, fine, force servicers to make the correct accounting adjustments. But why should they get a big gift of loan balance adjustments while renters and homeowners who kept up with their obligations get nothing? Explain to me just why that is fair? How about a citizen’s dividend, where everybody gets a payout, some to use for paying off their debts and the rest to replace the lost equity in their homes and lost interest on their savings?

          1. F. Beard

            How about a citizen’s dividend, where everybody gets a payout, some to use for paying off their debts and the rest to replace the lost equity in their homes and lost interest on their savings? spooz

            Ding! We have a winner!

            Of course we need fundamental reform too such as eliminating the government privileges that allow the banks to drive people into debt.

          2. jake chase

            In September 2008 I spoke to a woman with no understanding of finance whatsoever. ‘What’s the big deal?’ she said. ‘Just give everybody $100,000 and leave everything else to sort itself out.’

            I don’t think a better solution has been advance in five years.

    2. F. Beard

      “It still seems to escape the notice of the courts that the real “debtors” in the debt-based, private currency scheme are the issuers of the debt, not the productive sector which is currently required to liquidate the debt by surrender of their assets if they are not allowed to make periodic payments. The surrender of assets to the creators of the debt fiction is the greatest fraud of this or any other age. “

      Hear here!

      And the “private currency scheme”, to add insult to injury, requires heavy government privilege such as government deposit insurance.

  5. Aussie F

    Technocrats universally adopt a view of society that reduces complex phenomena into a series of narrow, technical ‘issues.’ The democratic failures and human cost of the ‘crisis’ are ignored. Instead we have a ‘law and order’ and public security ‘problem’ that can be ‘solved’ with water cannon, better PR and bigger jails.
    If this approach doesn’t work it must be because the water cannon needs a change to it’s spray dispersion radius, or the jails need a management restructure across regional sectors.
    Society, as a shared project, doesn’t even enter the narrow equation.

  6. Tim Mason

    This article is rather odd. The so-called fourth crisis, or the Crisis of European Democracy, predates the other three. Indeed, it was almost built into the European project from the start. Even the most sanguine of Europeans had come to notice this by 2004 at the latest.

  7. Dino Reno

    How to reconcile the fact the most articulate spokesperson against the EU is also the leader of UKIP, a party branded as rightwing extremists? I find myself agreeing more than disagreeing with his arguments. I guess more government is not better government after all. What’s a lefty to do?


  8. FiveGreenLeafs

    … and were authoritarianism are allowed to roam free, totalitarianism marches just below the horizon…

    I really wonder what Hannah Arendt would have had to say about what is now happening? Surprised, or, resigned to the frailty of our human minds, our collective memories and institutions?

  9. F. Beard

    “It’s a fundamental renunciation of what society is supposed to be about, which is a sharing of effort and burdens for the collective good. Yves Smith [bold added]

    But where is the sharing of profits as would be the case if private money was largely common stock?

    Instead, our money is debt and a government-backed credit cartel is allowed to drive the population into debt with it. Otherwise, we would have a great deal more sharing since business would not have the option of stealing purchasing power via loans from what is essentially a government-backed counterfeiting cartel.

    Ironically, our government is more and more like a corporation – those with the most money (“shares”) effectively have the most votes.

    1. Jimi

      F. Beard said –

      Ironically, our government is more and more like a corporation.


      Check for yourself! That’s why they don’t listen to us.
      Go look at your birth certificate. Your name is IN ALL CAPS signifying you as a “share”of said corp.

  10. F. Beard

    Anything that levels the playing field against Germany, including things like EU-wide deposit insurance, has always been knocked back. Delusional Economics

    If the Euro was only a private currency then the ECB could ethically create as many new Euros as it desired since people would have other money options. But the Euro is not a truly private currency so deposit insurance would essentially be government-provided deposit insurance which is NOT ethical.

  11. sublimejah

    Sadists r us. The bad guys are in charge, they are going to ride us like borrowed horses. Forget everything from the past 50 years, this is WWIII.

  12. killben

    We are way way into the Herbert Stein land of “that which is unsustainable won’t continue” but the Eurocrats have managed to defy what ought to be inevitable for an impressively long period of time.

    If you want to learn jawboning, you have to sign up with the ECB! The way they have managed by just jawboning.

    Can you throw some light on why someone HAS NOT done a “Soros” on the Euro?

  13. killben

    “And the longer Europe remains in denial about the systemic nature of its crisis the larger the democratic deficit and the more Europeans will look at Europe as the problem”

    How come there is no full blown revolt to the authoritarianism that is on full display? What is the point at which this revolt is likely to happen? Why the hell are people so submissive… take Cyprus, they have been robbed blind but not a whimper — Don’t you think this submissiveness is what the Politicians are exploiting?

    1. F. Beard

      How can we have sharing without Shares?

      And how can we have equity when the money supply is issued as debt, not Equity?

    2. Banger

      I think it an essential question you ask and to answer it will provide us with a worthy adventure because it lies at the heart of the matter. So I’ll give you my quick version of what is happening.

      First, we live in a world of constant change that is on a scale, rapidity and level that is not only utterly foreign to the entire history of human existence but lies beyond the level of even the most far out human visionairies whether it is Goethe, H.G. Wells, William Blake, Philip K. Dick, William Burroughs, Timothy Leary or Terrence McKenna. We live in an utterly unbelievable world with ideas, technologies and social mores that would have been inconceivable just a few decades ago.

      Second, this world cannot, by definition, be comprehended by anyone person or group of people–it is incomprehensible, in short by normal states of consciousness. Most people who live in this world whether in the U.S. or Europe are already partly insane and cannot count on any certainty (more in the case of the U.S.) for their futures or for what is “the right thing to do.” Everything, unless you become a fundie in one of several ways, is just crazy. Basically, the oligarchs have figured out how to control the minds of the vast majority of the population who are, in a sense, in a permanent trance. This explains why people where I live are far more upset by people who collect a little unemployment than they are of the military taking their tax money and the big banks rigging markets to steal their money. Stage magic, slight of hand, misdirection is easy with subject populations who are so suggestible.

      Third, the rise of the culture of narcissism due to the breakdown of common morality and social cohesion produces and culture focused on “amusing ourselves to death” as Neil Postman famously pointed out. Entertainment, diversions, pleasure seeking always trump concern for the society as a whole.

      Fourth and last, while the people have been asleep a sophisticated system of control exists to keep movements from developing (witness the dramatic rise and utter obliteration of the Occupy movement) and leaders emerging out of the electoral process that could pose a danger. A typical leader like Tony Blair or Barrak Obama are nurtured and recruited at an early age to due the bidding of the power-elite and are kept in line by a system of rewards and punishments that the public is ignorant of. In my view, of course, power comes out of a barrel of a gun and those that hold the gun have the power–any leader who crosses them will die as JFK and RFK found out.

      The “people” are thus fairly passive even when crisis hits because they have no sense of solidity being in a partial trance and easily distracted by celebrity nonsense and fake tempests in teapots and propaganda. How do they know what is right and wrong? They can get angry for a week at most and then what? Where is their moral framework? Where is their bottom line values other than money to amuse themselves with?

      I think there is a way out of this mess–but that’s another story.

      1. jake chase

        The genius of the system is that creates a large number of opportunities for soft collaboration. Why sweat it? Become a weatherman or a sports bimbo, or a book juggling accountant?

        But I disagree that things are really all that complicated. Institutions have been coopted into looting opportunities and everything is papered over with public relations.

        If something else is happening, I haven’t noticed it.

    3. Eric377

      Okay, who robbed Cyprus? Certain banks were failing due to investments that did not pan out, very notably large chunks of Greek national debt. Now this debt was sold by democratically elected ang legitimate Greek governments and used as was intended…there was no systemic private looting of public Greek funds. So, who did rob those Cypriots then? Tragic, yes, but looking for those funds in Germany or Russia misses the mark badly.

  14. Hugh

    I have to wonder if Varoufakis is ever going to come to the realization of kleptocracy. None of this is the result of mistakes or bad policies. None of it can be fixed by tweaks to the system. The system is operating exactly as it is supposed to: for the benefit of the rich and the elites. The euro crisis began what? back in 2010, three and a half years ago. The meltdown was in 2008, five years ago. The housing bubble burst in 2007, six years ago. I mean how long does it take, how long should we give our supposed opinion leaders to see that it is all about the looting, it has always been about the looting?

    1. Banger

      I guess I don’t see it as a kleptocracy–which is a fundamentally unstable system. It is a traditional oligarchy and is very robust from a systems perspective. The bit of stage-magic that makes it all possible is that, even before the financial crisis, the system was at long last completely gamed by an alliance of the financial sector, the military and intel sectors, organized crime, and various other corporate constituencies particularly the energy companies. Each of those actors know that each of their partners are essential to maintaining the status quo and the issue here is the status quo. The global system has, largely closed off all chance of fundamental change and reform.

      The difference between a kleptocracy and an oligarchy is that it is aimed at stability and sustainability. Whether the author of the article understands this or not, I don’t know.

      1. Joe Miller

        The ruling class’ indifference to systemic unsustainability is overwhelmingly obvious in the light of their negligence of climate change and their support of tarsands fracking.

      2. Hugh

        What part of the housing bubble, the meltdown which crashed the world financial system, and the ongoing euro crisis which is destroying Europe do you see as geared toward stability?

  15. allcoppedout

    I was long on the EU as a political and trading union. One hoped the new jurisdiction would be more scientific and find a route to practical democracy and sensible ecological being. I exclude the term ‘technocrat’ from scientific – the correct term for them is ‘Shadow Establishment apologist’. How wrong I was.

    Fred Soddy said a great deal of what we need as an approach to economics. I’ve just discovered myself calling him ‘Frank’ over a dozen times in a conference paper (curse dotage). Thermodynamics has changed quite a bit since his day and the Sun may not be all our future energy. I’m pretty convinced now that we need a major political rethink that views most of what we’ve done as failure, against an opportunity cost analysis of where the world could be now if we had established global democracy in, say, 1920.

    The EU has proportional representation that could lead to a big green-scientific movement – though in the UK it means we have BNP and UKIP MEPs.

    We have little honest statement on the state of our banks, whether US, Japanese, Chinese, UK or EU. UK QE has reached £6K per man, woman, jack. It is unlikely this has done much on an international basis for business as usual to return and our banks have little equity and very odd balance sheets generally. We have no politician so far prepared to say anything about this and the need to change to a radical plan. Most of our privatisations are probably disasters too. One suspects any hidden standing plans they have involve killing foreigners and a hopefully victorious post worker cull situation.

    1. ChrisPacific

      Regarding your post and the Herbert Stein comment from the OP, I’d say that by far the most pressing need is to come up with a model for a steady-state (i.e., no-growth) economy. As Yves pointed out recently, Game of Thrones is one such model (arguably the default model if history is any guide) but not one that we should seek to emulate if there is any alternative.

      For evidence that economic growth can’t continue forever, I offer the following link, which has appeared on NC before:


      I’m not familiar with Soddy, but a quick Google of his name along with some key terms from your post suggests that he thought along similar lines.

  16. Ignacio

    By chance, before reading this entry I had just read a magazine column writen by Javier Marías (a well-known writer in Europe) about a different issue but he was also writing about how governments are getting increasingly authoritarian, more precisely, totalitarian.

    A clear shift in politics has occured recently. The government does not bother any more to look democratic and tries to occupy all spheres without dissimulation. Who cares about all those corruption scandals affecting the governmennt when they have total control of the judiciary system?

  17. Dan Kervick

    I’m enthusiastic about Mariana Mazzucato’s new book The Entrepreneurial State. Her research-based diagnosis and prescriptions run 180 degrees contrary to the reigning neoliberalism.


    The problem with European social democracy is that, as much as it emphasizes the role of the state, it limits the state role to social programs and safety nets. Mazzucato argues the state is needed to drive innovation.

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