Upstream - The Crisis in Greece with James Galbraith

Episode Date: September 30, 2016

James K. Galbraith is an advisor to former Greek Finance Minister Yanis Varoufakis. He is also a founding member of DiEM25, an economist who writes often for the popular press, and a professor at the University of Texas at Austin. We spoke about the Greek debt crisis, inequality, and U.S. politics. This episode of Upstream was made possible with support from listeners like you. Upstream is a labor of love — we couldn't keep this project going without the generosity of our listeners and fans. Please consider chipping in a one-time or recurring donation at www.upstreampodcast.org/support If your organization wants to sponsor one of our upcoming documentaries, we have a number of sponsorship packages available. Find out more at upstreampodcast.org/sponsorship For more from Upstream, visit www.upstreampodcast.org and follow us on Twitter, Instagram, Facebook, and Bluesky. You can also subscribe to us on Apple Podcasts, Spotify, or wherever you listen to your favorite podcasts.

That's interesting to hear. I have not been back to Greece since the day after Yanis Varoufakis resigned as finance minister. During the time that I was there, it was clear that the support for the government's negotiating position and for a generally tough response to the creditors was extraordinarily strong, and remained so, surprisingly, to many people in the government for a long time, all the way through the negotiating period, and was still strong, obviously, at the end when the 61.5% had voted no in the referendum. So I'm not surprised to learn that there are ongoing measures of resistance, and I imagine both active and passive on the part of the actual administrators who must

be reluctant to see economic entities under their jurisdictions being destroyed and dismantled. Also, one hears about the farmers who've been obviously caught in a squeeze between the reduction of subsidies and the increase of taxes and their mortgage payments, taking their equipment out onto the roads and blocking the highways and that kind of thing. One is all perfectly, in my view, understandable. So the question of whether this will bear in any decisive way on the political situation of the relationship with the creditors is an open question at this point. The problematic, because unlike the situation before January 2015,

there isn't really a distinct political alternative for the Greeks. The party that they thought embodied that alternative has turned into the colonial administration. It leaves them with very few options from a political standpoint. Well, in that case, it's not surprising that what you saw is what you saw, that people are taking such steps as they can take with the means at their disposal. And some people that we spoke with as well said it is possible that Cyprus is kind of now become this colonial government and is just doing what the European Union wants.

But then there's also this idea that we heard from a few people that he may have something up his sleeve or that potentially Yanis Varoufakis government level and potentially brewing that could potentially change the situation? Well, a couple of thoughts on that. generous and guarded. And that, I think, reflects the period in which they were working together very closely and effectively, which engenders a certain amount of loyalty. I'm not aware, as a second point, of any ongoing communication between Cyprus and Varoufakis. That doesn't mean that there isn't any, but I can tell you that I'm not aware of it. And I am in communication with Giannis, not on the same basis that we were when he was in the finance ministry, but not infrequently either. Apart from all of that, is it possible that Alexis Tsipras has something else up his sleeve? I suppose anything is possible. And, you know, at this point, he is still the prime minister. And the situation is certainly far from being satisfactorily resolved.

There is no current sense of a prospect for a sustained improvement in the conditions of life in Greece. And so, yes, it's entirely possible that further developments may happen at some point. And Greece seems to occupy a lot less space in the 24-hour news cycle these days. And maybe it's because Syriza seems to be participating and behaving well. So I'm wondering, what do you see as kind of the situation right now and kind of maybe what's next? Is there a way out of the debt spiral? Or is this relationship where they're just doing what they're told, is that, you know, where might that get them? Well, the current policy is basically a land

grab. It's a policy of liquidation, dispossession, forcing people out of their homes, out of the businesses, and dumping the assets of the Greek state, including, by the way, the beaches, which is a, I think, a crime against Europe, onto the public marketplace. That's a policy that is not going to generate any significant benefits for the Greek people. Instead, it really is basically a policy of forcing many of them out of the country and certainly out of the position of having an active role in their own economy. So that's the existing situation. Is there a way out? Well, the first thing that has to happen is a change in the policies that are being imposed on Greece. And just to take one key example, the Greek government is nominally committed to an impossible target of a 3.5%

so-called primary surplus. And the IMF itself is fully aware that this is implausible and is arguing for a much more realistic target of 1.5%, which was essentially the position that was on offer by the Greek government a year ago. There's not a lot of doubt that the program itself is utterly unrealistic and that changing it would have at least modest positive effects. Beyond that, then the debt does have to be dealt with, not necessarily immediately because there's significant haircuts in the deferrals and so forth. And so my understanding is that payments on a cash flow basis in the current situation are manageable up

until 2022. But ultimately, that debt acts as a block to investment, a block to economic activity. You always have risk that you're going to have taxes raised even more in order to cover it when the time comes, which means that someone thinking about building a business is going to say, well, build a business, then it will all be taxed away to pay the old debt. Pretty well blocks up the investment channels. So those things do have to be dealt with. And a change of ideas and a change of policy would have, I think at this stage, potentially dramatic effects. Getting that requires some massive change in the mindset of the European creditor classes,

institutions and governments, which is difficult because they are caught up in the game of enforcing the same general policies on everybody else, the Spaniards, the Portuguese, the French, and the East Europeans are doing it enthusiastically to their own peoples. So Greece is being used here as a kind of exemplar for policies that are intended for everybody. And that makes it extremely difficult to persuade the creditors to accept a change simply because everybody agrees that the change would be a good idea for Greece. A unpleasant reality of coordinated imposition of austerity policy. Yeah, and I remember when the Greece crisis was in the media a lot, there was definitely other attention on, you know, Greece is the exemplar, as you said,

and then after this will also affect the countries that are next, as you mentioned, Portugal, Ireland, Spain, but that they're kind of next in this. And what's happening there? Has austerity measures and the European Union already started to do things in those countries in terms of policies? Or is it just kind of a limbo period?

What's going on? Well, it's even worse than what you're describing because what is in fact happened is very cynical relaxation of the austerity mandate, for example, on Spain, simply because the Spanish government's a right-wing government. And it became clear that if they continued to drive the Spanish economy deep into the ground, that government would fall and you'd get a left-wing government. But the object of the last year or so has been to give the Spaniards considerably more budget leeway without imposing on them the kind of sanctions that were imposed on the Greeks and without removing the support, the quantitative easing support for Spanish bonds, which the Greeks don't enjoy. So you're getting a kind of cynical manipulation of

political climate country by country, depending upon who the European creditors would like to see remain in power. That gives you a sense of where things stand in the political culture of the continent at the moment. So since you were there in Greece during Yanis Varoufakis' resignation, and you're still in contact with him, I'm wondering if you could speak a little bit about what it was like for him to leave, and also what is it that he's working on now? Well, Yanis felt he had to resign. It was clear from roughly midnight of the night of the referendum when he went to see the prime minister that the government was not going to take up the mandate that it had just received from the Greek people. Yanis felt that they should take it up, and that meant that he basically couldn't

continue in office. So he resigned the next morning. That meant that he was not going to be in the position of having to sign on the unacceptable terms that were going to be nevertheless accepted. What he's been doing since then has been building on his experience as finance minister, which was heavily oriented toward these discussions with the creditor institutions and with the fellow finance ministers, is that he has launched a campaign, the Democracy in Europe in 25 campaign, to bring about a degree of democratization, which is transparency and accountability

for the major European financial institutions. As something for which I'm highly sympathetic, the finance ministers' meetings are so-called informal. They don't have regular minutes. They're not open to the public. These discussions, such as they are, are carried out with no public accountability, and so the characterizations of them, which come afterwards through leaks or comments to the Brussels press, can be highly, and were in our case, highly misleading. There's that sort of problem. There's the problem that European institutions, the European Central Bank, governing council is not subject to

formal approval by the European Parliament. There's a consultation mechanism, but the Parliament does not have a confirmation power, which, for example, the United States Senate has. The European Central Bank cannot be called in any serious way to account before the European Parliament in the way the Federal Reserve, a perfectly well-functioning institution by the standards of central banks, is called to account regularly before the U.S. Congress, something that I was involved in in my early phase. And so these kinds of things would make a concrete difference if these reforms were put in place, and that would be part of an effort to create at the European level a degree of democratic accountability that would help legitimize Europe and help save it from the kind of crisis of both legitimacy and dysfunction that it's currently suffering. So that's democratizing Europe. Is there a similar movement happening in the United States in terms of the banking industry? Well, there was. I mean, that was a major theme of the Sanders campaign was the banking sector needed to be restructured. And part of

the reason for that was when you have a concentrated banking sector, you have too much opaque power in very, very large institutions. And a deconcentrated one, which we had not very long ago, it's not intrinsically necessarily more stable, although it may be, but it is easier to supervise and it has less direct and concentrated political power. So you don't have a situation in which the banks are taking financial policy as their private profits. Hold on a second. Okay. So let's turn now to your work on inequality. So you work with the Inequality Project of the University of Texas, and you recently wrote a book titled Inequality, What Everyone Needs to Know. So what is it that you feel that everyone needs to know about inequality? Well, for that, I highly recommend that people buy and read the book.

The Inequality Project of the University of Texas is a very informal research project which has been carried out essentially by my students over a 20-year period, rolling cohorts of PhD and a few master's students. And it is largely oriented toward measurement questions. One of the things I found when I started looking into this was that the academic literature was relying on theory and technique to answer questions for which the underlying

sort of factual foundation was just not adequate, that you simply couldn't get reliable answers to important questions from the kinds of information that was at hand. So the issue then was, are there ways of deepening the knowledge base about inequality, both within countries, including the United States, but across the entire world? And what we realized was that not only is it possible, but it's really not very difficult, and that it can be done with very modest resources, very simple mathematical techniques, using very widely available data resources for many, many countries.

So we set about doing it, and that's been keeping, as I say, groups of my students busy for quite a long time. And then you build up a data set, and then you look for common patterns, and you compare our measures to other people's measures, and you basically are providing a resource to the world research community. So that's been the primary object of that. What does it tell? I think it does tell us some things that are important that we didn't know before. And that is it provides very persuasive evidence that there are common global patterns to the movement of inequality and that those patterns are pretty closely coordinated to and dependent upon changes

in the world financial regime and climate and the breakdown of the Bretton Woods system in 1981, the debt crisis that began in 1980, the breakdown of the communist regimes in 1989, 1992, and on operates at the global and financial level, which is very different from the prevailing view before we started working on it. that we're seeing now is a lot of people like top officials in the IMF and even people who were advisors to Thatcher saying, you know, we were wrong about neoliberalism. It didn't bring, you know, as much mobility as we thought it would and didn't bring as much wealth and prosperity to everyone as we thought it would. So kind of this admission that the system is not working, as shown in your research with the inequality Project. So why then is there this gap between doing something about it and making changes? Well, first of all, I'm not inclined to let people off so easily. It was obvious to me as a young political economist back in the late 70s, let alone the early 1980s, that the entire purpose of the neoliberal experiment was to shift income to the rich

from the working class and the poor, and that this was achieved with great success. And to say that this is a sign of the system not working is to obscure the fact that it was actually the intent of the system to achieve this deplorable result from the very beginning. So I would argue that a thoroughgoing review of the ideas here is in order, and one which is skeptical about the well-meaningness of some of the policies that begin with. I don't think they were well-meaning at all. So, you know, the show is called Upstream, and it's about going upstream about economic issues. So if we look at neoliberalism and its cause of inequality, what is kind of the upstream perspective? What kind of caused that? You mentioned wealthy people and, you know, power and this kind of thing. What do you see as the big upstream

reason for these issues? Well, one thing that emerges, I think, quite clearly from the data is that the concentration of power and economic decision-making authority in the banking sector increases the income share being controlled by finance. And this is a major driver of the movement of inequality so far as we can measure it practically around the world. So while we do obviously need a financial system, one which is kept under restraint and regulation is going to be functioning better and taking a smaller share than the one we presently have.

And that certainly is a major upstream issue, it seems to me. And so you are living in Texas, and I'm from California, Robert and I are from California. And so we're in the eighth and seventh most unequal states, respectively. And a new report just released by the Economic Policy Institute revealed that in California, the 1% take home almost 30% of the income, and in Texas, it's 21%. And so I'm wondering, how would we get greater system equality? So I see things about we need taxes and redistribution or less of an income gap, but what do you think are kind of the measures that are kind of the obvious ones to bring about greater systemic equality?

Well, if you look at California specifically, you will see that the rise of inequality in California is very closely tied to the growth of California's most successful industrial and scientific sector information technology that is heavily concentrated in incomes in actually three counties in California, Clara, San Mateo, and San Francisco. No secret what this largely consists of. So it's a question which will not be resolved at the level of the state of California and probably shouldn't be. I don't think you'd want to give up the industrial and competitive success that has been achieved in this particular area. So what do you do? The first thing is that you need to have a federal system that effectively and progressively taxes extremely high incomes.

And that is one step. But at the same time, even that isn't going to prevent the accumulation of vast forms of capital wealth in the form of the ownership of advanced technology companies. The whole point of advanced technology companies is to capitalize the market value of the technologies that they create and sell. So my argument there is that the appropriate thing is to be sure that the country has an effective estate and gifts tax system of the kind that was basically designed in the early 20th century. It was in place for most of it and is still in place, although not as effective as it should be or as it could be.

Because once you get to the point of passing on an estate, you lose the justification for keeping those vast fortunes intact. And what you want to encourage is that when people do accumulate, that they should be at a relatively early stage. They should be handing the accumulated assets off to an entity that can administer them, a foundation or to universities and hospitals and religious institutions and the whole decentralized spectrum of the nonprofit sector. And this is the proper way to make sure that vast fortunes don't become calcified and don't become, don't lead to political dynasties. Now that's what you want

basically to avoid is a situation in which the children of people who manage to strike it rich also end up being the controlling forces in your society, because there's obviously no reason to expect that there's any particular justification for that. And that's, of course, what we see repeatedly as the creation of dynastic oligarchies. So I'm a great fan of mechanisms that strongly encouraged the moving of these accumulations out from the immediate control of the people who created them. And it's certainly within a generation it should be done. And so we're in England right now. We're in a small town called Froome in Somerset. And what has happened is there was a lot of industry here in the town, weaving, printing, And what has happened is there was a lot of industry here in the town, weaving, printing,

cattle, until the 80s when jobs started to move overseas, industry started to shut down, and now there's relatively large inequality. And so what about in a place like here, where it's not necessarily because of the tech industry? What would you say can be done about inequality in small towns, small communities that are facing the erosion of unions and welfare since the 80s and all that comes with it? This is a topic I take up in another book called The End of Normal. And my argument is that, first of all, you can't really undo the pattern of global industrial development that is underway. China exists and it's going to continue to exist. And this needs to be taken by the rest of the world as essentially a datum, as a fact of life.

But what that means is that wealthy countries of the post-industrial West have to use their imaginations to create institutions that provide useful employment and not necessarily in the for-profit sector. Lots of things that can be done on a non-profit basis, including education and healthcare and elder care and cultural activities, environmental protection. These things need to be organized on a scale that provides meaningful lives and decent living for essentially the entire population. That's the task that's in front of us. It has to be done with a view to the world situation as it is. So I'm not in favor of thinking that one can recreate the industrial economy of the 1950s in the United States or in Great Britain.

industrial economy of the 1950s in the United States or in Great Britain. But given that things are as they are, it's certainly a major dereliction to leave people unemployed or with no sense of being able to pursue happy and productive lives. There's obviously no shortage of useful things that can be done. And you mentioned just now happy and productive lives. So one thing that I think about a lot is the connection between inequality and happiness or well-being. And it is true that there are studies and research that show that greater equality creates greater trust, greater community cohesion, and greater happiness. But I'm wondering, is it just enough to have

greater equality of income if that kind of stays in the same paradigm of material wealth being equal to happiness and that everyone has kind of economic prosperity? Do you think that it's not just about equality of income, but that we kind of need to change, I don't know, the paradigm or the system in total? I'm fully with you on this. One of the limitations of what I do is that I look at economic data and statistics, and those statistics are about pay and income. But at the same time, one has to be very conscious that these are very limited windows onto conditions of life. Most of us live in a world in which we're concerned about the movement of things through time. We're concerned about how the future looks to us at any given moment. It's not about our current income, but about the security of our jobs, whether we can keep hold on to our houses, whether we'll have a decent

retirement, whether we can afford the cost if we get sick, whether our children will be educated in a way which is successful and doesn't stress us financially too much. All of these questions are questions that are extremely difficult to measure from the point of view of any particular moment in time, but they are the important social questions. And another set of areas is, I mean, all of us are very concerned about the quality of the public services that we live with, the quality of the environment that we live in. And these two are questions which are, generally speaking, unmeasured in terms of what their contribution to individual welfare is on an ongoing basis.

So yeah, changing the way we think about these problems will cause us to do things differently, to emphasize things that are not properly emphasized, to have more successful policies, which, ironically, the successes may not be easily measurable, but they'll nevertheless be there. There's a movement about going beyond gross domestic product to something like well-being or happiness, something like gross national happiness, like Bhutan has, which is on the national scale. And then there's also some city and community-wide initiatives that do try to measure, as you were saying, these more subjective things like happiness and well-being.

And I'm wondering, do you think that something like that could go far enough to help transform our economic system? And also, what do you think about that and how it could relate to inequality? Well, I'm not unsympathetic, but I'm skeptical. The ability to develop a consistent new set of measures is what depend upon making a great many subjective judgments. And that always means that someone else would have made them differently. And then you have to sustain the collection of information over a long period of time before you have something useful against which you can benchmark your progress. So my view is that there are intrinsic difficulties with measuring these phenomena, and one should forge ahead on the basis of common sense judgment about what is important, and perhaps democratic decision-making and feedback in real time about what you should do.

And that's more the kind of technocratic solution that maybe there is a brilliant economist who will come up with a way of judging how these things should be done strikes me as almost intrinsically to a degree illusory. And as part of the question around measurement and how quantitative measurement seems to have more power or more sway with people, it would be harder to convince people of something that was more qualitative. Do you think, and especially as you as an economist working with data, do you think that's part of it too? Well, I think a scientific sensibility has to be aware of the limitations of scientific method. We're moving into an area where it seems to me those limitations are fairly limiting, that these limitations are significant. So I don't think it's a scientific method to insist that there's one way of doing things. There's a bit of a fetish in policy sciences these days for evidence-based policymaking in the development sphere, for example. And people with deep experience in the process of economic development, I think, have at best very

mixed, in many cases, very skeptical views about it, and I certainly share that. So I'd just be careful about empowering your neighborhood academic to do the job that community council or elected body should be doing, which is making judgments and forming a vision about how the future should be structured and then going about and doing it. forming of a vision about how the future should be structured and then going about and doing it. And so on Wikipedia, it says that you're post-Kensian. And I also know from the bio of the book about inequality, one of the questions you ask is inequality inherent to capitalism. So I know they're just kind of names and things, but I'm just wondering, like, what kind of system, is there a name for the system that you're advocating for?

There's so many names for, you know, eco-socialism and new economics and all these kind of things. Is there a particular flavor or brand or kind of idea that you kind of ascribe to? I try to avoid it. And while I have my friends, I have many friends in the self-described post-Keynesian community, also the institutionalist community, also a number of other self-described post-Keynesian community, also the institutionalist community, also the number of other self-described groups. I was raised in a particular tradition, which was a blend of institutionalism and Keynesianism and classical political economy.

Educated here, I'm speaking to you from the University of Cambridge at the moment and a little later at Yale. speaking to you from the University of Cambridge at the moment and a little later at Yale. And I just describe my work as being that of an economist. If anybody wants to call me something else, that's fine with me. But I don't tend to engage in self-classification games. You know, my last name conveys to people who knew my father's work a certain set of distinct ideas, and I'm also very happy to be associated with those. I would describe my research as being largely based on elementary collection and interpretation of data, and my policy approach to be largely oriented toward pragmatic problem solving.

And on a day-to-day or anyway year-to-year basis, the proper approach is to decide what the major issues are that you face at a given time and then what the best way is to deal with them. And do you feel like, I mean, I can definitely see how that could be really helpful in having conversations with lots of different people. If you're not labeling yourself, then you're able to speak across many different ideologies when you're looking at the data and you're focusing more. That is true. That is an advantage. A disadvantage is that you don't build a movement by the approach I'm taking, but then movement building is something some people like to do, and I'm happy to leave them to it. Great. We just have two more questions. One of them is about the idea of basic income that has been growing in Europe and Canada and

the United States, potentially as a way of addressing issues of inequality. What are your thoughts on universal basic income? You can call me a skeptic on the basic income issue. I'm inclined to think that the better approach is to build upon the institutions that we already have that are tested, that are known to be politically acceptable. And these include social security, they include health insurance, they include public education, they include contingent support for people who need nutrition assistance or who need unemployment insurance, include, of course, the deposit insurance of your banking system. These things are the right way to structure the fabric of an effectively functioning community. I worry that for a great many people, the idea that

everybody should have a basic income provided by the state is likely to generate a lot of political resentment. And I worry that a question of who is eligible for the basic income grant becomes one that is very contentious and hard to resolve. Is it based upon citizenship? Is it based upon legal permanent residence? Is it based upon actual residence? So these questions, it seems to me, are questions that once you start getting into it, you have to answer. case, for example, of the social security system in the United States, we already have an answer that everybody accepts, which is that it's based upon whether you worked in the United States for a given number of quarters. And it doesn't matter whether you're a citizen or not, you can arrive

on a work visa. They'll issue a social security number, which makes you eligible to contribute to the system and to draw from it later on. And since we already have institutions which function quite well and on widely accepted principles, my general preference is to build on those, expand them, and defend them when they come under attack. So what are the projects that you're working on these days? And also, what are kind of the questions that you're really thinking about or that are kind of on your mind right now? Well, first of all, I've just published these two books, one of them on Greece, Welcome to the Poison Chalice, and the other one on inequality. And both of them have

continuing implications. I'm still working on issues relating to the European monetary system, talking to people who continue to be concerned about that. I'm not working on issues relating to the European monetary system, talking to people who continue to be concerned about that. I'm not working directly on Greece at the moment, but I am maintaining contacts in a lot of other Eurozone countries. On inequality, we are doing some very interesting new work on specifically one of my students did a paper last spring on the relationship between exchange rates and inequality, which turns out to be something which is quite dramatic. It shows a very close relationship and, again, illustrates the primacy of financial forces in driving these inequality measures. So those things are of interest. And I've been attempting to provide some support to my friend Bernie Sanders, who, as you know, is conducting a very interesting race for the presidency of the United States. So I was at least on call and occasionally a little bit helpful to his staff on some issues as that unfolded. No real risk of running out of things to do. chair of something called Economists for Peace and Security, which is a global professional

network of economists who are concerned with conflict resolution, trying to reduce tensions, particularly great power tensions in the world, trying to keep military budgets under control. Wow. And just because you brought up Bernie, I'm wondering what are your thoughts now as we turn towards the convention, and particularly if it comes down to Hillary Clinton, Trump and Jill Stein. I'm wondering what your thoughts are. Well, the Democratic Convention remains a very important event and it will be very important this year because there are distinct but not irresolvable differences between the Sanders and the Clinton campaign. And the Sanders campaign brought to the table very specific, very clearly defined proposals, particularly on education, health care, the minimum wage, which proved to be enormously popular and attractive to a large body of the Democratic electorate, particularly young people. So bringing these major elements of the Sanders economic program into the Democratic platform, I think crucial to assuring the political future of the Democratic Party at this point.

That's what I'd like to see happen at the convention. And then we'll, of course, go into the final campaign. I think there's a very strong bias in the United States system for the choice between the two major parties and that whatever the merits of people who run on third party tickets may be individually, that just because of the way the system set up, almost always counterproductive. The people who attempted to vote at third parties are almost always giving implicitly an advantage to the candidate who's the exact opposite of the one they would actually like to see elected. And that was very clear from the 2000 election that that's the case and many, many other examples.

And so by conviction and long background institutionally a Democrat, and thus I shall remain. Well, thank you so much for taking the time to talk with us, and I hope that you enjoy your travels. It really has been a wonderful conversation. I've learned a lot, and I'm sure our listeners will too. Thanks very much. I enjoyed it. Nice to talk to you.