Known for sporting a leather jacket when meeting foreign dignitaries during his brief stint as Greece’s finance minister in 2015, Yanis Varoufakis has become something of a rebel in economic circles.
A member of the Greek Hellenic Parliament and founder of the left-leaning European Realist Disobedience Front, or MeRA25 party, Varoufakis has historically thrown no punches when it comes to his scathing criticism of fellow economists and politicians, and his most recent is no exception.
The author of Adults in the Room: My Battle with the European and American Deep Establishment and currently a professor of economics at the University of Athens, Varoufakis continued his longstanding critique of austerity in a Project Syndicate op-ed published over the weekend, and added a new argument about inflation that has shocked the world in 2022.
Central banks have given corporations a kind of ‘lavish socialism’ since the 2008 financial crisis, Varoufakis wrote, while workers grapple with ‘severe austerity’, and the highest inflation in 40 years n is only the latest twist.
A half-century power game
The economist’s argument is based on the idea that corporations have waged a ‘half-century power game’ to drive up their stock prices, creating unsustainable business models and supply chains fragile worlds. But it all went wrong in recent years, and workers had to clean up the mess.
Before the Great Depression of 2008, he said, American corporations used “pyramids of private money” from cheap, plentiful imports and steady foreign investment to create a “maze” of chains of just-in-time global procurement instead of focusing on increasing productivity.
Then when the 2008 financial crisis hit, the pyramid collapsed and central banks were forced to step in and save the day. Interest rates have been cut to near zero and many central banks have launched a somewhat controversial policy known as quantitative easing – which involves central banks buying government bonds and securities backed by mortgages in hopes of increasing the money supply and stimulating lending and investment.
But while businesses were bailed out by central bank policies and federal government bailouts, workers were left to fend for themselves.
“Governments were cutting public spending, jobs and services. It was nothing less than lavish socialism for capital and harsh austerity for labour,” says Varoufakis. “Wages fell, and prices and profits stagnated, but the price of assets bought by the rich (and therefore their wealth) soared. So…capitalists have become both richer and more dependent than ever on central bank money.
Wealth has “triumphed” in housing and stock markets in this era of government and central bank support, but Varoufakis says asset prices have rapidly separated from the real economy. Then the pandemic hit and the cash flow that had allowed businesses to thrive for the past decade was suddenly redirected to consumers.
“Western governments have been forced to channel some of the new rivers of central bank money to the masses locked into economies that over the decades had exhausted their capacity to produce things and were now facing broken supply chains,” he said. said.
When consumers spent some of the money given to them by the federal government through stimulus checks, suppliers could not keep pace with new demand, leading to a spike in inflation – and businesses, the war in Ukraine and the COVID-19 lockdowns have only added to the problem.
“Very paper-rich companies have responded by exploiting their immense market power (generated by their reduced production capacity) to drive up prices,” he said.
Yet Varoufakis argued that we are not seeing a wage-price spiral in the United States, where workers who demand wage increases to preserve their incomes in the face of inflation end up increasing costs for companies. , which in turn raise their prices to compensate. The absence of a wage-price spiral means that central banks should not ask workers to “take one for the team” and forgo wage increases.
“Today, demanding that workers give up wage gains is absurd. All the evidence suggests that, unlike the 1970s, wages are rising much more slowly than prices, and yet price increases are not just continuing but accelerating,” Varoufakis said.
Yet the inflation problem means that Western governments and central banks face a tough decision, Varoufakis argues: “Drive conglomerates and even states into cascading bankruptcies, or let inflation run wild.”
The economist did not outline what he thinks central bank officials will choose, but argued that the end results are unlikely to be appealing to the masses.
“What do we do now? Probably nothing good,” he said. “To stabilize the economy, the authorities must first end the exorbitant power given to a very few through a political process of paper wealth and the creation of cheap debt.But a few will not relinquish power without a struggle, even if it means collapsing with society in tow.
This story was originally featured on Fortune.com