Brexit - What Happens Now?

Any defeat of the central strategy of a British government would normally lead to a vote of confidence which, if lost, would mean a General Election. And the massive 149 vote defeat last night of the government’s latest Brexit wheeze was the second such defeat after its 230 vote massacre in January. These, clearly, are not normal times – with governments now having the protection of the Fixed Term Act of 2011 which allows a general election only when two thirds of MPs vote for it.
The principle of "Parliamentary sovereignty" may be a hallowed one in the UK constitutional law textbooks but has not actually been evident for more than a century......the power first of party discipline; then (since mid 20th century) of the Prime Minister; and finally of European Law...has seen to that. 
But the UK's Supreme Court ruled 2 years ago that the Executive required parliamentary agreement to start the withdrawal process from the European Union. And Theresa May's subsequent failure (in the June 2017 General Election) to achieve a parliamentary majority led to the return of parliamentary sovereignty.

So Parliament will vote today to get rid of one of the three options which are open to it – to crash out of the EU in 16 days without a deal. It will then be asked to vote on Thursday on the option of requesting the EU for an extension.

The EU will only agree to that if there seems good reason for it – one strong reason being the possibility of a second referendum being held.

The People’s Vote has long argued for a second referendum – facing initial anger that this seemed to deny the legitimacy of the original vote but it has now dawned on many people that the inability of the parliamentarians to develop a clear consensus means that there is no other option than returning to the citizen. 

As Chris Grey points out in his forensic Brexit blog, Brits now have a much clearer sense of what they would be voting for – or rather “against”. It was in July 2018 the government published its Chequers’ Strategy – resulting from an away-day held by the Cabinet at the Prime Minister’s country residence. And it is this strategy to which the government refers when it talks about “the deal”.

Most European leaders were (and remain) aghast at David Cameron’s recklessness in allowing the British public a vote in the 2016 Referendum on membership of the European Union. And few of them expected the British government to honour the result. But we all know how eccentric the Brits are!

The 2016 referendum turnout may have seemed healthy at 74% - compared to the 64% of the first referendum in 1975 (and to a 59% turnout in the 2001 General Election and low 60% in 2005 ) - but not compared to the 82% of the 1950 and 1951 General elections and to the high 70% which prevailed until the 90s.

Nor was the experience without its critics – for example for its exclusion from the vote of 16 year-olds; EU citizens; and expats who had been out of the country for more than 15 years;

The 1975 Referendum had broken new constitutional ground – it had never been used before….and was, in most people’s minds, associated with dodgy regimes…..Vernon Bogdanor is Emeritus Professor of Government and author, amongst much else, of The New British Constitution. The grounds he gives for the support of such constitutional referenda do, therefore, deserve our attention. He gave two arguments – namely

- all parties supported membership in the 1970s - but public opinion was divided. A significant section of society had therefore no voice…

- the issue was so fundamental that the legitimacy of government was being threatened

But he then proceeds to show that’s not actually why or how the first ever British referendum came about……

In the 1970 Election, the Labour Party was defeated. Heath was returned to office. At the end of 1970, Tony Benn raised the possibility of the Labour Party committing itself to a referendum on joining Europe at Labour’s National Executive, but he could not find a seconder for the motion.

From 1971 onwards, the very complicated European Communities Bill made its way through Parliament, and in March 1972, a Conservative backbencher who was opposed to Europe, called Neil Martin, proposed an amendment calling for a referendum, and this meant the Shadow Cabinet had to decide what to do about it, and they decided to oppose this motion.  

But the very day after this happened, President Pompidou in France said he was going to have a referendum in France on whether the French people approved of British entry into Europe…and he was doing this for internal party political reasons, to weaken his opponents on the left, who were split on the issue. …. But there were going to be four new members of the European Community: Britain, Denmark, Ireland and Norway. In the end, Norway did not join.

The other three countries were all having referendums. France was having a referendum on whether Britain should enter, but Britain was not. One cynic wrote to the newspapers that when Heath has spoken of full-hearted consent of Parliament and people, he meant full-hearted consent of the French Parliament and people… 

After this, Labour’s National Executive voted narrowly in favour of the Benn proposal. Then, a couple of days later, pure coincidence, the Heath Government announced there was going to be a plebiscite, in Northern Ireland, on the border, on whether people wished to remain in the United Kingdom or join the Irish Republic. At this point, the Labour Shadow Cabinet agreed to the referendum.

So, the referendum came about through a series of really unforeseen contingencies and vicissitudes, completely unplanned, this very fundamental change in the British system.

Some readers may wonder why a referendum was held a mere 2 years after the UK entry into the EU. The answer is quite simply that the 1974 Labour Party manifestos had made very its reservations about several aspects of the agreement which it pledged to revisit and revise. The General Election of February did not give it a working majority and another had to be held (in June) to give it that – after which very detailed negotiations with Europe took place to allow it to campaign successfully in the 1975 referendum  

Although the odds on a second referendum have just shortened, I haven;t actually seen any real discussion about the mechanics - ie the options and question which would be on the ballot paper; or the organisation and timing of the campaign. I hope to explore these questions in my next post

What does Brexit tell us about "ourselves"?

It is perhaps a bit too soon to expect good analyses about what Brexit means – whether “about” the UK (in the sense of the socio-historical significance of the referendum for our understanding of the country) - let alone “for”  in the sense of future consequences for) it and the wider Europe. But a few publications have started to appear which, at the very least, offer interesting relief from the grunting and death throes of the political monster which Brexit has become – and this post will direct you to these.

My blog tells me that Brexit forms the 4^th most frequent subject of my posts (which suggests that it is perhaps about time I brought them together in one of my little E-books - with some retrospective comments).

What was said 3 years ago

I well remember making a few posts almost 3 years ago - in the weeks before the referendum when it seemed fairly obvious we were leaving. One in particular tried to give a sense of the debate – and identified one article which seemed to give the best sense of the factors at work 

More than 50 years after the observation by the US secretary of state Dean Acheson, there is still too much lingering truth about Britain losing an empire and not finding a role. The more reluctant our embrace of our Europeanness, the more exceptionalist colonial-era British habits of thought and culture linger on, still subtly influencing the way parts of this country think about defence, hierarchy, schooling, foreigners – and Britishness.

We are paying the price of our media. British journalism thinks of itself as uniquely excellent. It is more illuminating to think of it as uniquely awful. Few European countries have newspapers that are as partisan, misleading and confrontational as some of the overmighty titles in this country. The possibility of Brexit could only have happened because of the British press. But Brexit may also happen because of the infantilised and destructively coarse level of debate on social media too.

We are not a democratic republic, with shared values, rights and institutions, a common culture and an appropriate modesty about our place in our region and the world. Ours remains a post-feudal state on to which various democratic constraints have been bolted through history. We therefore lack a shared culture, a settled civic sense, a proper second chamber, symmetrical devolution, effective local democracy and, until the human rights act, a clear and enforceable code of citizens’ rights – which of course the anti-Europeans wish to abolish. 

And we are paying the price of the failure of each of our political parties. The Tories remain trapped by an English-cum-British exceptionalism and a historically aberrant disdain for Europe.
Labour, trapped in its own industrial-era past, has never fully embraced the reformist potential of its place in British politics and government, and it shies away from any difficult question about the modern world, especially under the backward-looking Corbyn.
The eclipse of the Liberal Democrats and the marginality of the Greens deprive the debate of positive, modern pro-European voices

Why is Britain Eurosceptic?

That excerpt rightly refers to role of the English media in developing a Euroscepticism which was in 1975 limited essentially to the Labour party’s left (although strongly expressed with figures such as Tony Benn and Peter Shore) and to the more traditional right of the Conservatives. All British newspapers save one supported in 1975 the country remaining in a European Union which the country had joined just 2 years earlier (the one exception was the tiny Communist newspaper “Morning Star”). It was a very different story in 2016 – by which time the UK had been hectored by an anti-European press for some 30 years!

Vernon Bogdanor is a highly respected UK constitution academic who gives us the detail of that first referendum here – and offers a useful analysis of the growth of British Euroscepticism (both video and transcript). Margaret Thatcher won her famous Rebate (worth an annual 4 billion pounds) at the Fontainbleau summit of 1984. But it was this parliamentary speech of Thatcher’s of 1990 which, according to Bogdanor and others, was probably the catalyst for the Euroscepticism. It was certainly the signal for the patience of Conservative MPs to snap with at least the autocratic style of Maggie’s leadership and she was, a few days later, unceremoniously dumped by the party – to make way for John Major. 
And it was at this point that I left the UK - able to follow the growth of euroscepticism only from afar......

One of the questions I’ve never seen explored is why the British media has since the 1990s been so consistently anti-european. This article makes the important point that the exploration of such a question requires us to distinguish newspaper owners and editors according to the extent of freedom they allow. Rupert Murdoch, for example, stands at one extreme for the extent of the editorial power he exerts on his editors…..

What does it tell us about “ourselves”?

With a narrow 52-48% split in the final vote, the Brexiteers are, of course, in a minority of voting citizens – which makes you wonder why no one seemed to have thought in 2015 of taking a leaf out of Labour backbencher George Cunningham’s book and insisting on a “threshold” of 40% of voters.

The country – as we have always known – is divided by such things as age, income, class and geography. And advertisers have become increasingly sophisticated in the way they cut and splice us into “market segments” – using terms such as strivers, copers, survivors, believers, achievers etc. Even charities now adopt this approach – as you can see from three reports issued a decade ago which were superb examples of just how clever manipulative tools are getting….– Common Cause (2010);  Finding Frames (2010); and Keith Grint’s Wicked Problems and Clumsy Solutions (2008)

So, 17 days before the UK is due to slide into the Atlantic Ocean, let me offer half a dozen or so good reads which offer some relief from the unrelenting dirge of Brexit….

1.      In January the London Review of Books gave us a fascinating sense of What European say when they talk about Brexit which allowed 15 correspondents to sketch some national histories and contemporary concerns in some of the main countries. Pity there weren’t more such treatments during the referendum campaign!

2.     Modern historians can generally be relied on these days to contribute a fresh perspective on stale topics and “Contemporary European History” produced this month a promising edition on Brexit, with short (4 page) contributions from various European historians - which I expected to throw some new light on the issue. But, despite a nice intro here, I was ultimately disappointed.

3.     One of our best geographers (who writes brilliantly on justice issues) – Danny Dorling – has also just produced “Rule Britannia – Brexit and the end of empire” which certainly challenges some of the current conventional wisdom about voting patterns (he argues that it was the middle-class southern counites “wot done it” – rather than the excluded working class). The book is an easy read and strong on graphics and contempt for the younger generation of privileged and moneyed people who continue to form the English ruling class. Despite its title, a couple of opening chapters and extensive endnotes, it does not pretend to give a real historical perspective – whether of a social history sort or “what’s wrong with Britain” type. You can see him present the book here – although his northern accent is not easy for a foreigner

4.     Finn O’Toole is an Irish outsider who has just published Heroic Failure; Brexit and the politics of pain and it’s interesting to see how he expresses the factors in the referendum outcome

     “the deep uncertainties about the union after the Good Friday agreement of 1998 and the establishment of the Scottish parliament the following year; the consequent rise of English nationalism; the profound regional inequalities within England itself; the generational divergence of values and aspirations; the undermining of the welfare state and its promise of shared citizenship; the contempt for the poor and vulnerable expressed through austerity; the rise of a sensationally self-indulgent and clownish ruling class”.

5.     James Meek is a Scottish novelist who has taken in recent years to writing long and fascinating journalistic articles on privatized utilities (collected in “Private Island – why Britain now belongs to someone else”) and his latest book Dreams of Leaving and Remembering seems a bit too self-indulgent with the language – going on at great length about metaphors and story-telling..

6. The issue of the narratives countries use in the search for identity had raised its head in Nov 2016 in a colloquium organized by the British Academy on European Union and Disunion

updates; https://www.theguardian.com/commentisfree/2019/mar/18/bitain-brexit-crisis-public-schools

http://www.scottishreview.net/JohnLloyd472a.html

The Uncivil War

Books and paintings have been of constant interest for this blog – even music and poems have made an appearance. But I can’t remember a film ever figuring in these columns. It’s not surprising that the first film to make it into the blog is one ……..about Brexit.

Brexit;the uncivil war stars Benedict Cumberbatch (of The Imitation Game fame) and focuses not on the politicians (who figured in such documentaries as Inside Europe: 10 Years of Turmoil – whose three episodes can be seen here) – but on the machinations of the two organisations which ran the respective “in-out” campaigns. Romanian TV showed the film last night - and I was able to download it during the night thanks to zamunda 

And what we see is a vivid example of “outsiders” versus “insiders” – with Cumberbatch playing a not dissimilar role from that in his portrayal in The Imitation Game of the brilliant (if autistic) mathematician Alan Turing who cracked the Enigma code in the second world war. A lot of people were involved in the Enigma process but Turing is the hero of the film – if subsequently one who is disgraced and commits suicide. 
A lot of people were also involved in the UK referendum but the film similarly focuses on the individual brought in in 2015 to head up the Vote Leave campaign - Dominic Cummings (who had been a controversial political adviser to Michael Gove from 2007-2014). As the film makes clear, it was he who made the decision to focus the message on a few points - mainly "cost" and "taking back control" to the exclusion even of immigration as an issue - although this did not stop Farage from concentrating on that......

But the heart of the film deals with the sort of targeting of voters which has only recently become possible in ways few of us understand – although we know it’s something to do with these algorithms

Just a few months before the referendum , Cummings gave a typically truculent performance before the Treasury Select Committee to defend the figures his campaign had publicised as the cost of British membership of the European union.

This appearance coincided with the Cambridge Analytica scandal and, later in 2018, Cummings was invited but refused to appear before the Culture Select Committee to discuss, as the investigation’s ToR put it,

the spread of false, misleading, and persuasive content, and the ways in which malign players, whether automated or human, or both together, distort what is true in order to create influence, to intimidate, to make money, or to influence political elections

Disinformation and Fake News – interim report was the result of the Select Committee’s interesting deliberations….….raising the sort of questions we are beginning to ask about how the commercial world is using social media and algorithms - and trying to give preliminary answers in terms citizens can understand. They are the same issues which Shoshana Zuboff’s brilliant new book Surveillance Capitalism deals with.

The Select Committee’s Final Report was issued just three weeks ago – although the only reason I know is because I bothered to check the Select Committee’s website. OK it’s 100 pages but – like all such reports – it’s written in exceptionally clear language. 

If we have any concern for democracy, this is a subject we need to understand

Cummings may have graduated originally in History (a First from Oxford University) but, to judge from his blog, it appears to be mathematics and grand systems theory which seems to have gripped him more recently. Indeed, in 2013, the Guardian newspaper actually went so far as to give us access to a 237-page “essay” he had made available on his website and to summarise it here.

Shades of Alan Turing indeed!

The Brexit film is actually based on 2 books one of which – “Unleashing Demons” – was written (initially as a diary) by the character played by Rory Bremner but who was, in real life, David Cameron’s Communications Director Craig Oliver. I found a copy this week (for 1 euro) in the great second-hand bookshop in University Square and would have to say that it falls into the category of “quickly forgettable books you pick up at airports” – basically who said and did what when to whom….

The second book - All-out War – the full story of Brexit - which I read last year is a veritable “War and Peace” – at least in its size (700 pages). One of the consequences of its size, however, is that I cannot remember a single thing about the content!

Other resources

Two reviews of the Brexit film are here – and here,

The most thoughtful is this one from a fascinating blog about anthropology and empire written by a Canadian and called Zero Anthropolgy.

One of the key players in the Brexit drama (one of the 2 businessmen who like the politicians are caricatured in the film) has written a good article trying to redress his role here

Brexit – the movie (2016) a propaganda documentary which was viewed by almost 2 million people in the 6 week period before the referendum

Brexit – a very British coup (2016) was a balanced BBC documentary taking us to Referendum Day  

Brexitannia (2017) is a far more thoughtful film of an almost sociological depth based on about 200 in-depth interviews the length and breadth of the country and including commentaries. It’s reviewed here by Zero Anthropology

"Inside Europe - 10 years of turmoil" (2019) the BBC documentary referred to in the opening

A selection from the Cummings blog -

https://dominiccummings.com/2017/01/13/unrecognised-simplicities-of-effective-action-1-expertise-and-a-quadrillion-dollar-business/

https://dominiccummings.com/2014/06/30/my-report-for-business-for-britain-on-the-dynamics-of-the-debate-over-the-eu-and-a-small-but-telling-process-point-on-the-eu/

https://dominiccummings.files.wordpress.com/2013/11/20130825-some-thoughts-on-education-and-political-priorities-version-2-final.pdf

A better economics

No sooner was my post about The Global Minotaur up than I found another of Yanis Varoufakis’ books freely available on the internet – this time a very original Foundation of Economics – a beginner’s companion (1997). It links nicely to a post last month about populism which had a little section dealing with the state of economics readers may have missed -

2008, of course, should have been the death knell for economics since it had succumbed some decades earlier to a highly-simplified and unrealistic model of the economy which was then starkly revealed in all its nakedness…..Steve Keen was one of the first economists to break ranks very publicly way back in 2001 and to set out an alternative - Debunking Economics – the naked emperor dethroned. This coincided with economics students in Paris objecting to the homogeneity of syllabi and reaching out to others – creating in the next 15 years a movement which has become global

This is a good presentation on the issues (from 2012) - and I am now reading an excellent little Penguin book The Econocracy – the perils of leaving economics to the experts by Joe Earle, Cahal Moran and Zach Ward-Perkins (2017) from their experience of stirring things up on the Manchester University economics programme. The book’s sub-title says it all!
Dani Rodrik is one of the few economists with a global reputation who has bothered to give them support (Ha-Yoon Chang is another) and indeed Rodrik published an important book recently reviewing the state of economics - Economics Rules – the rights and the wrongs of the dismal science; (2016) which was nicely reviewed here. Clicking the title gives you the full text – and it seems a very good read

The Financial Times recently reviewed several other such books - so the situation is not beyond repair but we have to be realistic. Academic economists have invested a lifetime’s reputation and energy in offering the courses they do - and neither can nor will easily offer programmes to satisfy future student demands for relevance and pluralism….. chances are that the next cohort will be more pliable... 

The excerpt suggested that Steve Keen was one of the “first economists to break ranks in 2001” – in the sense of presenting a wholesale critique of the economics discipline. But Varoufakis’ Foundation of Economics – a beginner’s companion was published even earlier - in 1997. And his “Further Reading” section – a veritable model of a bibliography – includes critical books from the 1970s and one from the 1950s.

I know how boring economic writing is – but it is time we understood that commentators, business people and governments make the subject boring for a very good reason….It makes us apathetic. - and less inclined to challenge the system...

I was once, if briefly and somewhat under false pretences, an economics lecturer – but my financial illiteracy is almost criminal but not, sadly, at all unusual. Most of us seem to lack the patience to buckle down and take the time and discipline needed to understand the operation of the system of financial capitalism which now has us all in its thrall. We leave it to the "experts" and have thereby surrendered what is left to us of citizenship and political power.

What makes Varoufakis' various books such excellent reading is the sheer originality of his prose –showing a mind at work which is constantly active…...rejecting dead phrases, clichés and jargon… helping us see thlngs in a different light..... using narrative and stories to keep the readers’ interest alive…He's in total command of the english language - rather than, as so usual, it in control of him.....

You don’t expect to find good prose in the “Further Reading” section of a book, but just see what Varoufakis does with the task…… 

The main reason for writing this book was a lack of sources to which I could refer my students for a more wholesome diet than that offered by conventional textbooks. The problem with books and articles which treat their reader to the fascinating debates is that they are too hard for beginners; especially for today’s university environment which is more demanding on first year undergraduates’ time than once was the case. Thus in order to achieve maximum emphasis I will confine myself to a small number of suggestions for further reading. 

The one book you must read First, I must recommend Robert Heilbroner’s bewitching introduction to the evolution of economic ideas entitled The Wordly Philosophers (1953). If you are to read one book beyond the standard economics textbook (and perhaps the one you are holding), attempt this one; you will not regret it.

Textbooks The first economics textbook which set the scene for today’s multi-colour glossy door-stops was written by Paul Samuelson (first published in 1948). It is entitled “Economics” - and is the most famous text since the Second World War and, still, the most interesting (notwithstanding my overall displeasure with economics textbooks). All the textbooks have since attempted to emulate Samuelson and, as is always the case with imitators, they succeeded only partially. Those of you with a sense of textbook history will benefit from reading Samuelson’s mega-hit.

An economist’s ambition I don’t care who writes a nation’s laws—or crafts its advanced treatises — as long as I can write its textbooks.Paul Samuelson 

If you want something more contemporary, helpful on a day-to-day basis (especially for first year economics students) and with an appreciation of the limitations of economics and the importance of history and political debate, try the large (though not expensive) volume which was put together by the economists at the Open University. Being part of a distance-learning institution, the Open University team edited a book that students can read independently as opposed to a reference manual to be consulted after a lecture. Its title is Economics and Changing Economies (published by the Open University in association with Thomson Business Press in 1996). It contains chapters on everything that you are likely to encounter in your first (perhaps even your second) year as an undergraduate and each topic is treated sensitively and with a humility that is uncommon (unfortunately) amongst economics texts. If you want to improve your essay skills and dazzle your tutor with your command of particular topics, don’t miss this book.

If you wish for something smaller and somewhat simpler (e.g. if you are an interested general reader rather than a student worried about particular assignments), I suggest Robert Heilbroner and Lester Thurrow’s Economics Explained (Simon and Schuster, 1994). On the other hand, if you want a ‘cutting-edge’ neoclassical textbook, I find Robert Frank’s Microeconomics and Behavior (McGraw-Hill, 1993) to be the most (although still insufficiently) open-minded of the introductions to neoclassical thinking.

Unconventional textbooks. I will mention only two. For a holistic, open-minded and rather comprehensive approach to economics, I suggest Vicky Allsopp’s Understanding Economics (Routledge, 1995). Allsopp manages to remain well within the mainstream while reorganising the various topics in such a way as to make it easier for the beginner to see economic thinking as more than technical gymnastics. For instance, she offers her readers a chapter on ‘Law, custom and money’ which is a far better introduction to the concept of money (not an easy one!) than the standard chapters on money demand, money supply, assets, etc. which pollute most textbooks. Additionally Allsopp offers a comprehensive chapter on ‘Investment’, a much neglected yet crucial topic.T

The second suggestion here is one for those of you whose appetite was whetted by the glimpses of non-neoclassical economic theory in this book. If you wish to explore those ideas further, a good place to start is Malcolm Sawyer’s Introduction to Radical Economics (Macmillan, 1989). There you will find simple introductions to the Ricardian, Marxist, Neo-Keynesian and Neo-Austrian ideas mentioned in this book’s more critical chapters (primarily Chapters 6 and 7).

The road to paradise Let’s face it: economics is boring most of the time. Economists’ best efforts (of course I include myself in this sad category) are unlikely to offer excitement and reading pleasure for more than a few moments. To punctuate the boredom, I suggest that you move to the borderline between economics and the other social sciences. That is the way, if not to heaven, to less arid fields of thought.Looking at books I enjoyed as a student, one book whose effects I have tried to emulate here is Economics: An anti-text, edited by Francis Green and Peter Nore (Macmillan, 1977), a book devoted to countering the brainwashing of economics textbooks.

I also recall fondly another book  whose influence stays with me today: Ed Nell and Martin Hollis’s Rational Economic Man (Cambridge University Press, 1976). I remember it was hard-going in parts but lucid and simple, as well as very exciting, in other parts. Much of my Chapters 4 and 11 have been inspired by that book.
 Unfortunately time has left its mark on it and it will perhaps seem somewhat dated to a fresh pair of eyes. None the less it may still be a good idea to borrow a well-thumbed copy from a library for perusal. Since then Nell and Hollis have published other books which are more up to date. Nell’s Making Sense of a Changing Economy: Technology, markets and morals is an interesting read (Routledge, 1996). However, again with a view to narrowing down your ‘shopping list’, I want to urge you to read some of Hollis’ work. (If you could see and hear me I would be gesticulating very energetically in support of this recommendation!)
Although not an economist (Hollis is a philosopher), his writings pack great insight and inspiration for students of the economy. Have a look at his enticing (and easy-going) The Philosophy of Social Science: An introduction (Cambridge University Press, 1994).

And if you feel more adventurous and altruistic to your future self, tackle two more of his books: Reason in Action (1996) is a collection of articles on many philosophical issues central to economics (e.g. the free-rider problem) whereas The Cunning of Reason (1987) is a wonderful investigation on what it means for a social animal to be rational.
Be warned: these two books (both published by Cambridge University Press) are hard work for first year students and you are unlikely to plough through their entirely. Nevertheless even reading bits of them, and making a point of returning to them in the years to come, will fill you with joy and pride.

The Global Minotaur

A blog with a good search facility is a fantastic resource - able to summon up a vaguely-remembered reference. A few days ago, I realized that I had forgotten the full significance of Nixon’s decision in 1971 to break the connection with gold which had been agreed in 1944 at the Bretton Woods Conference. I remembered that Yanis Varoufakis had written a powerful book about it in 2011 - The Global Minotaur -America, the true origins of the financial crisis and the future of the western economy – but it was inaccessible up in my mountain house. I googled….to discover that the entire book is now available to be downloaded (just click the title).

Varoufakis is a Greek economist – which offers two reasons for expecting a badly-written book….economists seem almost genetically incapable of expressing themselves clearly; and English is not his natural language. But the book is a joy to read – not least when he makes use of Greek mythology to illustrate a point. He clearly had good proof-readers….

I generally try to keep notes on key books – which are better written in hand than cut and pasted (our memory more easily retains what we take the trouble to write out in long-hand). But all too often I succumb to the temptation of cut and paste – as now from a very useful summary of the book 

The theme of the book is very well laid out in the introductory chapter. The author looks at six explanations which have been offered for the crisis but finds them useful but insufficient: (i) a failure to understand risk; (ii) regulatory capture; (iii) irrepressible greed; (iv) cultural origins (Anglo-Celtic  beliefs in flexible labour markets, etc.); (v) toxic theory (efficient markets hypothesis, rational expectations, etc.); (vi) systemic failure of capitalism, the role of the USA in financing its debts and deficits from the surpluses of Germany and Japan. 

Chapter 2, ‘Laboratories of the Future’, provides a brief historical account of the development of capitalism á la Marx, the role of crises, Goodwin’s predator prey model, and the role of finance in modern capitalism with the ability to create bubbles, and the end of the Gold Standard after the 1929 Great Crash.

 Chapter 3, ‘The Global Plan’, provides a historical account of the Marshall plan to save global capitalism, the breakdown of the Bretton Woods agreement, the ending of the US dollar’s convertibility to gold in 1971, and the ‘surplus recycling mechanism’: the absorption of surpluses created in Japan and Germany by the USA. Varoufakis argues that the European Union was a clever US plan to bring Europe into the US axis of economic influence. He ignores the view that the EU was meant as a third force: to stand against the USA (a view strongly held by Charles de Gaulle) and as a bulwark against communism. 

Chapter 4, ‘The Global Minotaur’, discusses the role of the USA in the global economy. The author argues that the major flaw in the Bretton Woods agreement (similar to a major flaw in the European Union) was that there was no automatic global surplus recycling mechanism. In the early post war years, the USA recycled its surplus dollars to Japan and Germany (especially) under the Marshall Plan. However, after the end of convertibility of the dollar to gold, the USA had increasing deficits financing wars in Vietnam and South East Asia. Varoufakis argues that the USA persuaded OPEC to raise oil prices (as they are denominated in US dollars) which would increase the demand for US dollars.

The rest of the world continued to finance the US deficits as the US dollar was still regarded as a reserve currency (although later the Europeans would have liked to make the Euro the reserve currency). The US economy was expanding, with stagnating real wages and increasing profitability that led to an inflow offoreign capital. The cheap loans that the USA made to Soviet satellites in the 1960s became a burden when interest rates soared under Volcker’s regime of high interest rates. This, Varoufakis suggests, led to discontent in the Soviet satellite states that eventually led to the demise of the Soviet Union. This is an interesting twist on the usual interpretation of history. In

Chapter 5, ‘The Beast’s Handmaidens’, Varoufakis argues that the Europeans, Irish, British, and Japanese were in awe of the American ‘great moderation’and happily followed US supply-side economic policies. Wall Street, is for Varoufakis, a ringleader of the handmaidens engaged in a roller coaster ride of mergers and take-overs. The development of various ‘clever’ derivatives (CDOs and CDSs), that were supposed to remove (reduce?) risk from financial markets, expanded at an almost exponential rate. This expansion helped the asset price bubble supported by ‘toxic theory’ that suggested that markets were efficient and bubbles did not exist. Free markets reigned supreme with the growth of Thatcherite and Reaganite governments.

Huge capital flows from Germany, Japan, and China fed the financial booms in Wall Street and supported the twin deficits. In 2005 Paul Volcker had foreseen the impossibility of a never ending increase in debts being funded by foreign capital flows: ‘The difficulty is that this seemingly comfortable pattern can’t go on forever’ (p. 145). Curiously, the author does not discuss the Asian Crisis of 1997 which was a fore-runner to the GFC. 

Chapter 6, ‘The Crash’, provides a blow by blow account of the early stages of the crisis in 2007, the collapse of Bear Stearns, problems faced by BNP Paribas, and the Swiss UBS. In December 2007, President Bush (a free marketeer par excellence) intervenes to save house owners from foreclosure and the Federal Reserve (the Fed) steps in providing (almost) unlimited credit to the financial system. By September 2008, Lehman Brothers collapses as the US government refuses to save it. This is often taken to be the start of the GFC. Several European banks and finance houses that held ‘toxic assets’ are in trouble and the whole western world is in a tailspin, with central banks suddenly doing an about-turn on monetary policy (usually by interest rate management) and no longer targeting inflation.

During the crisis, several banks (and car manufacturers) were nationalised but as things got better the banks were denationalised and back in the driving seats! ‘In short, socialism died during the Global Minotaur’s Golden Age, and capitalism was quietly bumped off the moment the beast ceased to rule over the world economy. In its place we have a new social system: bankruptocracy — rule by bankrupted banks … ’ (p. 167).
 The financial crisis spread all over the western world with declining GDP and increasing unemployment, and even the developing world found its growth rates slowing down. Tiny little Iceland went through a dramatic crash! European Union countries, especially Portugal, Ireland, Italy, Greece, and Spain (PIIGS), have been experiencing a continuing recession with their banks and financial houses facing bankruptcy, and the existence of the Euro is under continuing threat. The UK disposed of its Labour Government and replaced it with a coalition of the Conservatives and Social Democrats, which imposed austerity measures that have led to a double dip recession. These economic crises have led to political crises, and that is still continuing.

Chapter 7, ‘The Handmaidens Strike Back’, turns to the methods employed by the USA and European Central Bank to attempt to rescue countries in crisis and the banking system. Varoufakis argues that the Geithner-Summers plan of 2009 of creating a simulated market for CDOs was essentially a method of helping the banks to convert toxic assets into ‘clean’ assets helped by the Fed and the Treasury. 

Chapter 8, ‘The Minotaur’s Global Legacy’, discusses the symbiotic relationship between Japan and the USA. The post-war growth of the Japanese economy was sponsored by the USA, Japanese exports were purchased by the USA, and in return the Japanese recycled their surpluses by investing in the USA. The Japanese boom came to an end with a collapse in the housing and asset price bubbles in the early nineteen-nineties, and it faced a liquidity trap situation. (It is interesting that the Japanese experience of loosening monetary policy for several years did not help the economy to come out of the recession. It apparently did not warn the IMF and other central bankers that simply loosening monetary policy would not cure the underlying problems of the global crisis.) The European Union provided Germany with an expanding market for its exports, leading to current account deficits in the other European countries. This was continued with the introduction  of a fixed exchange rate within the European Union by the introduction of the Euro (except for the few countries that refused to join, especially the UK).

The US financial crisis spread throughout Europe, but the policies introduced by the European Central Bank failed to stave off disaster for Greece, and now other countries. This, he argues, is because there was no ‘surplus recycling mechanism’ in the European Union with fixed exchange rates within the Euro countries: the large surpluses of Germany were not being recycled to the remaining members of the EU.

His solution to the EU crisis is based on three elements: first, the ECB would assist banks to write off the debts of deficit countries; secondly, the ECB would take on significant amounts of debt financed by Euro Bonds (not individual country bonds); thirdly, the European Investment Bank would invest in the deficit countries. The author does not discuss the necessity of a unified fiscal authority that acts as an equalising agent to help out the poorer states in the Union. The chapter ends with a brief discussion about whether China would be able to save the world by providing an expanding market. 

Chapter 9, ‘A Future without the Minotaur?’ argues that the crucial problem of the world economy is the absence of a ‘global surplus recycling mechanism’ (GRSM). For some time, the USA managed to have a surplus which it recycled to Japan and Germany (post-World War 2), then when it created large deficits with the wars in South East Asia, it left the gold standard and was being supported by the surpluses of Japan and Germany. But as a result of the crisis the US economy contracted and that affected the German, Japanese and Chinese economies. Can the Chinese economy take over the role of the Global Minotaur (the USA)? His argument is a loud, NO! He favours Keynes’s policy prescription in the 1940s of an International Clearing House with its own currency, the Bancor.

Other reviews

https://nomadron.blogspot.com/2017/08/an-economic-thriller.html

https://www.salon.com/2018/06/09/how-the-greek-debt-crisis-exposed-the-global-economy-as-a-giant-con-and-led-to-donald-trump/

https://www.yanisvaroufakis.eu/2014/05/22/a-review-of-the-global-minotaur-2nd-edition-from-an-australian-perspective-by-paul-tyson/#top