henry george school of social science smart talk with ...interview with dr. yanis varoufakis...

SMART TALK with Andrew Mazzone

Interview with Dr. Yanis Varoufakis

Transcript 10/16/2014

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Henry George School of Social Science

Interviewer: Well, Yanis, thanks for coming back and joining us on SmartTalk. I

invited you back because I just recently read your critique on Piketty, and

it’s going against the mainstream critiques, although there have been a

number of critiques. But I felt it was solid, sound, made sense, and it’s a

little counterintuitive to the current critiques that are being given. I mean

it’s true that his book is a sensation, it caught the zeitgeist of the times.

0:21:20.5 He's confirmed, uh, something we all know, and we're shocked to find

out that they're inequality in this world, and he's done a tremendous, uh,

uh, job of document it, and so we give him that. There's no, no, no, no

complaints here. But you bring up a number of points that I think are,

are crucial and serious. You're concerned about the long-term

implications of his book, and the presentation of it.

0:21:47.6 And I think if I could saw, sum up, number one, he's essentially using a,

a broken neoclassical model to try to explain his results, number one,

and number two, he's, he's, he's saying essentially that capitalism has

some ineh, exceh, inexorable, uh, outcomes, but he doesn’t explain why.

And in effect, he says the only good times are some, somehow

accidental and exogenous. And essentially, if that's, that's true, what can

we do to control our own fate?

0:22:18.3 Now, his, his solution is taxing wealth. And at the beginning this is a

problem, especially for a Georgist, because his conflation of, uh, wealth

and capital for us is very serious and obviously is very serious for you.

Your comments?

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0:22:36.0

Varafoukis: Yes, that's quite right. Uh, Piketty tells a story which is important, it

needs to be told, and which as you put it, uh, everybody knows. That

doesn’t mean that it shouldn’t be told again and again. Uh, the, that...

hideous inequality has been on the rise. Uh, especially after 2008, has,

uh, become, uh, uh, you know, a shared fact by all of us. It was, uh, the

Occupy movement, after all, in the center of New York, that, uh, made it

clear to everyone that this kind of inequality was intolerable.

0:23:23.1 And what was interesting was that, you know, the rest of American

society, and, and, and, and in the West more generally, saw the Occupy

movement with a great degree of sympathy. So Piketty's taking the

Occupy movement's message and making it mainstream. What is, more

particularly what Piketty is doing is that he's not just making it

mainstream, but he's bringing it into, uh, the established mainstream of

the economics profession.

0:23:54.3 If you think about the, the, the, the time of the Occupy movement, there

was this complete disconnect between what most Americans thought

and what the economists practiced. So if you were a student of

economics at Harvard, uh, or, you know, some community college,

doesn’t matter where you were, and you had your finger on the pulse of,

uh, daily events, you would get this feeling that there is something

profoundly wrong with our economy and society, that inequality is

becoming an unbearable.







0:24:28.7 That even the powers that be — you know, Obama won on a ticket that

was promoting a diminution, restraining this, uh, abysmal inequality. And

yet you would go into your lecture theater, you'd go into [unintelligible]

room with a professor, you'd read a textbook of economics, and it would

be [none of it there]. Inequality was a non-issue. It just didn’t feature at

all. It was —

Interviewer: Well, it can't happen in a neoclassical model, it can't happen.

0:24:53.9

Varafoukis: It’s impossible to have inequality in a neoclassical model, 'cause in a

neoclassical model we're all utilitarians, we all have utilities, and my

utility cannot be compared to yours. So it’s impossible to say that you

have more utility than me, because the first assumption that economics

students have learned to make is that your utility cannot be compared to

mine.

0:25:09.8 So inequality has been banned as a concept from economics. So what

Piketty's doing, which is very interesting and, and potentially useful, one

might have thought, is he brings, uh, given his Harvard background, and

the fact that, you know, his best mates are in MIT, are in Harvard,

[unintelligible] economists. He brings the concept of inequality in. He

makes a case that inequality should not be acceptable, that its dynamic

is toxic and it’s poisoning capitalism and democracy.







0:25:44.0 So that, that, you know, that is all well and good. And also, he frames it

in such a way that the economics profession, at last, at least the liberally

minded professors of economics with kudos in the profession — people

like Joe Stiglitz, Paul Krugman — uh, can embrace it, and can say,

"See? Our profession can have something useful to say about

inequality."

0:26:08.5 So inequality has become admitted, was admitted to the academy, to the

economics academy for the very first time through Piketty's book, and

therefore one might be excused to believe, to trust that this will now

mean that inequality is going to be tackled by the professional

economist, by —

Interviewer: Well, but I would argue — let me just interchange there. First of all, his

book was essentially descriptive, and his theoretical explanation for it, I

mean especially if you go back to the capital controversies, just can't

hold water. So how can, how can you make —

0:26:43.5

Varafoukis: Of course. And that's part of my critique too, as you know. But, but

nevertheless he does have a theoretical part. So he's got the

[unintelligible] and he's got the theoretical part, which is completely

consistent with the neoclassical textbook. This is what he, what makes

him the darling of the economics profession. You see, he gives the

economics profession, the neoclassical economics profession, the

mainstream, he give, he gives them, uh, an opportunity, uh, to, to







become humanized, to show that, you know, that what they do in the end

bears upon the great problem of inequality.

0:27:18.8 My great fear is that the, as reflecting in an important sense what you

just said, that the particular theoretical construct that he uses to do it, in

the end, is one of the greatest enemies —

Interviewer: I get that.

0:27:36.3

Varafoukis: [anyone who] is interested, pragmatically, in egalitarianism.

Interviewer: I agree with that, and, uh, and therefore, eventually...

0:27:46.7 Eventually, they're gonna pull a surpri... this is a model that, that is not

ex, uh, explanatory. And like you said yourself, he didn’t need to do that.

He could've gone just to observe the propensity of saving of wealthy

people, and basically created essentially, uh, a logical explanation.

0:28:06.8

Varafoukis: He, look, logical explanations are [all] important because let's say that,

that, that you and I observe a, a particular empirical [unintelligible]. Well,

someone can turn around and say, "Yes, but this is, you know, there is

nothing endemic about this pattern in capitalism. That, you know, it, it, it

was a confluence of, uh, factors that led to that. Things could've been

different. Capitalism could well work, could function differently."







0:28:34.1 So it’s important to have a logical explanation, a theoretical, analytical

explanation as to why the inequality we're observing is not the result of

just bad people making decisions. It’s not just a question of, you know,

the bankers having been allowed to get away with murder, which they

have. Uh, but that there is something endemic in our capitalism which

gives rise to that.

0:28:55.3 There's nothing wrong with doing that. The problem I have is that his

theoretical construct comprises three so-called economic laws, as he

pre, presents them, of which the first one, as I say, the first law of

Piketty's is a tautology, so it’s not a law. It’s like saying five equals five.

Interviewer: Yeah, yeah.

Varafoukis: That's not a theory.

0:29:14.7 The second law is based on an assumption which can never hold in

reality. And the third is [trivial]. So the logical contras, construct that he's

presenting us is not a way to, to convince, uh, high-minded people that

inequality is, uh, an essential component of the capitalist machinery. No.

It is a way of bathing himself in analytical glory, and ingratiating himself

with the economics mainstream, but doing it in a way, as you put it, that

leaves him complete, leaves him and anyone who adopts his, uh,

mantra, wide open to devastating critique.

0:30:00.9







Interviewer: Yeah, it’s poor neoclassical economics at best. I mean how, how he can

make his edifice stand on that, or even, uh, it’s, it’s not even a fig leaf, if

you think about it. I mean, it’s really... he might as well have dispensed

with that. Why didn’t he?

0:30:18.1

Varafoukis: Well, because he wanted to write a book that would very simply, without

having any serious theory [audio cuts out] depicts capitalism as a

machine generating inequality, then to have empirical evidence that this

is what has been happening. And then to have, to, effectively to have

the monopoly of the truth about inequality, and to say, "Okay, I've given

you a theoretical explanation as to why this is happening. I've proven

that it has, it has been happening. So I'm the Isaac Newton of inequality,

and all you now have to do is, uh, follow me to the, to, you know, down

the path that leads us to a simple conclusion as to what needs to be

happening, to be happening."

0:31:07.2 Remember, social theorists are power-crazed people, right?

Interviewer: Well, look what he's, he's rec, recommending at the end of this whole

thing, yes, he recommends a wealth tax. Does he mean a, a, on wealth,

does he mean it on capital, does he mean it on both? Does he mean to

split it? Does he...? I mean how does he implement it? Where does he

implement it? I mean the, the conclusion is, is, is so anticlimactic, and

the theory is so weak that he'd a been better off just pointing out the

statistics and leaving at that.







0:31:39.3 And you're, and basically what you're saying is —

Varafoukis: But it wouldn't have sold the book, then. The book, you and I would not

be discussing the book, then. So it’s also a marketing strategy, right?

Interviewer: Well, I think, I think he could've... I don't think... First of all, according to

Amazon, the average reader's only reading up to page 12 of the book,

okay?

0:32:00.9

Varafoukis: Doesn’t matter, they buy it.

Interviewer: They buy it, okay. Number two, no one's reading his theory. They're all

getting the fact that there's inequality for 200 years, and this fella dug the

records out of the monasteries, the tax, the tax, uh, agencies of various

countries, and he's, he's obviously intellectually honest in that sense.

And so the figures stand for thems, themselves. But what generative

mechanism has he demonstrated?

0:32:29.4 A neoclassical model, which is flawed at the get-go, and proven that

capital, and, uh, it can't be determined unless you know the interest rate,

and the interest rate can't be determined unless you know the capital,

you go nowhere with that. So he in effect has no explanation for this.

0:32:44.9







Varafoukis: But, but, but hang on a sec. You have to see things from a slightly

theological perspective here. Now, remember, uh, most believers —

Christians, Muslims, Jews, whatever — uh, they don't understand the

minutiae of, uh, the theologist of their religion, right?

Interviewer: Mm-hm.

Varafoukis: This is, only the, the theological scholars spend a whole lifetime

concerning themselves with that. You know, even, even, even the, the,

the least accomplished believer, then they kneel down and pray, they like

to know that there are these theologians who have the theory. They

don't understand the theory themselves, the believers, but they, they,

they, they, it’s important to them that they, they assume that some

theologian has worked out the theology.

0:33:36.6 They don't want to read it, it’s too complicated, it’s too byzantine. [laughs]

Right? Similarly, believers in Piketty's, uh, you know, followers of Piketty,

the people who actually buy the book have heard that, you know, several

chapters in there have the theoretical component, which is equivalent to

deep theology. They don't want to read it, because first they don't

understand, and then secondly they're not bothered with it.

0:34:02.3 But it, it is important to them that that theoretical component is there. So

to understand and discuss the power of Piketty, you've got to appreciate

the role that this theoretical part plays in giving discursive authority and

value to the whole enterprise. Now, you and I can delve into this

theoretical component and find holes everywhere.







0:34:26.2

Interviewer: Well, Krugman said, he said this was a great book that was written. I

mean, Krugman, of all theorists, should know better about theory.

Varafoukis: I'm not so sure about that. I appreciate Paul Krugman enormously. You

know, he's going to go down in history as a great, uh, contributor to

public debates, especially under George W. Bush, and the way that he

almost singlehandedly, using his New York Times column, countered the

tock, toxic, uh, rubbish that was coming out of the Bush Administration

regarding —

Interviewer: Okay.

Varafoukis: — so on.

0:35:00.6 So I take my hat off to Paul Krugman.

0:36:03.8

Interviewer: You were saying that Krugman is absolved from, uh, for his comment,

uh, here on, on, on Piketty.

0:36:20.8

Varafoukis: Now, Paul Krugman is, uh, a colleague and, uh, an academic economist

of, uh, substance and of a, and someone who has made a huge

contribution, especially during the years of the Bush Administration,







when he used his New York Times column singlehandedly to confront a

great deal of, uh, falsities and toxic economic views and policies.

0:36:46.5 So this is my preface, saying effectively that I have a great deal of

admiration for, for Paul Krugman, his contribution to public debate so far.

Except I do not value tremendously his theoretical, his own theoretical

perspective. If you look at the way he understands the world, Paul

Krugman that is, and he, he, he, he makes a point of repeating that, so

this is not an allegation, this is simply repeating what Paul Krugman

himself says very often.

0:37:17.9 He has a ver, a, a, a perspective from which he sees the world that I

think it is a single sector economy model.

Interviewer: Mm-hm.

Varafoukis: Think about it. Everything he talks about is couched in terms of the

ISLM model that —

Interviewer: Right.

Varafoukis: — undergraduates learn in macroeconomics 101.

0:37:36.8 Now, I'm not going to go into this in any particular way, except say,

except to say that it is a single commodity universe. It is as if the

macroeconomy produces only one good, and that one good is produced

by one capital [good]. So, uh, in fact, it’s, it’s actually, it’s the same







commodity and capital good. So it’s like a corn model, like, you know,

Ricar —

0:37:59.7

Interviewer: Ricardo's model, sure.

0:38:02.0

Varafoukis: Uh, theory in which you are asked to imagine of a very simple world in

which there's only one commodity — it’s corn — and corn can be eaten,

so it’s, it’s a consumption good, or it can be invested. You save it to use

the seeds in order to plow the land next year.

Interviewer: Absolutely.

0:38:19.8

Varafoukis: That's a capital good. And in that kind of world, which finds its way into

Paul Krugman's analysis, since he's stuck with this ISLM model, which is

a one-commodity world model, in that world, uh, returns to capital are a

little bit difficult, you know, difficult to envisage.

Interviewer: Right.

Varafoukis: So, you know, if you have only corn, you know what the returns to corn

are.

0:38:45.7







Interviewer: Right, of course.

Varafoukis: If you save, if you save a, a fistful of, of corn seeds, you know how much

corn you'll get out of it.

Interviewer: Yes.

Varafoukis: You plow, when you, you know, you cultivate the land with it. So —

0:38:57.4

Interviewer: Don't need money.

Varafoukis: There's no money in this. There's no money, money in any of these

economic models. Economic models are not capable of handling

money. Money is too complicated a concept. Uh, uh, to, to put it simply,

if you introduce money into any of these models, those models explode.

0:39:15.2 So they become indeterminate. In other words, anything goes. Any, any

price, any quantity is possible in these models. So it’s like, you know,

having a meteorological model that can predict that tomorrow you may

have, uh, hail, shine, rain, or, uh, you know, uh, drizzle. It’s, it’s a

useless model. [unintelligible] predict that anything is possible, it’s not

predicting anything.

Interviewer: Right, right.

0:39:36.7







Varafoukis: So money cannot be handled by this model. So the fact that Paul

Krugman liked Piketty's analysis is not a great surprise to me. Because

in the end, their neoclassical background, uh, is, is, is a common one, is

a shared one. Now, the difference between Krugman and, and Piketty is

that Krugman is a sincere man, and a thoroughly progressive political

economist.

0:40:05.4 So he uses his ISL, ISLM, simplistic model in order to, to say and do

good things.

Interviewer: Yeah, makes policy —

0:40:13.7

Varafoukis: The Bush... yeah. So when he talked about the Euro Zone, when he

talks about, you know, Wall Street, when he talks about the trickledown

effect, in spite of his simplistic modeling, he says some excellent things,

and very useful interventions that he makes in the political arena. My

concern about Professor Piketty is that he's much shiftier, and far less

interested in changing the world in important ways than Paul Krugman is.

0:40:43.9 What they do have shared in common is an oversimplified view of

capitalism. In effect, a view which is inconsistent with [unintelligible]

existing capitalism.







Interviewer: Yes. And of course, what policy prescriptions can you really take from

Piketty's analysis? In real life. What policy...? You can't take any. If you

think about it.

0:41:05.3

Varafoukis: Well, this is an excellent question, and let me answer it this way: His

theoretical model is constructed so as to assume away the most [audio

cuts out] that he's bargaining with. So, you know, when, when you

accept a job or you are being interviewed for a job or you're doing a job,

uh, you have certain bargaining power which will determine the terms

and conditions of your employment [unintelligible].

0:41:35.2 Once you start working with an employer and you're producing value for

the employer, then it’s a question, it’s like a, a, a tug of war between you

and the employer —

Interviewer: Not in, not in Piketty's formulation. There is no bargaining power.

Varafoukis: There's no bargaining, there's no bargaining. None, none whatsoever.

It’s, uh, like, like, I call it the Matrix economy.

Interviewer: Hm.

Varafoukis: If you remember the —

Interviewer: Yes.







Varafoukis: — the movie "The Matrix", where the machines produced everything.

Interviewer: Hm.

0:41:59.1

Varafoukis: Okay, there's no bargaining between the machines. They're all cogs in a

bigger machine. So the, that, and that is not capitalism. Capitalism's a

realm of continual bargaining and power games. Power games between

buyers and sellers.

Interviewer: Yes.

Varafoukis: Between suppliers and companies. Between governments. Between

departments of governments. Between men and women at, at a house,

who's, who's going to take the garbage out. You know, our society's

based on bargaining. Now, markets play a role in mediating this

bargaining, and sometimes doing away with it when you accept the

prices given.

0:42:34.5 But you can't understand capitalism if you assume that all prices are

God-given and everybody simply sits back and takes them.

Interviewer: Hm.

0:42:42.3







Varafoukis: Uh, and this is what Piketty's, uh, model does. It assumes that prices

are given, that there, there, there is some kind of divine mechanism that

determines them, and everybody else accepts them. And these price,

they simply follow his mathematical schema, all right? So it is like saying

I'm going to create a model of the world where capitalism doesn’t exist,

and I'm going to use this in order to given prescriptions as to what

people should do within capitalism, which is absurd, okay?

0:43:09.1 So the point I'm making is it is impossible for Piketty, once he gets

engulfed and trapped in this theoretical model in which there's no

bargaining, to come up with useful suggestions as to what we should do

to change inequality. Because inequality is an outcome, and it is an

outcome of a process, and that process is completely determined by

bargaining power.

0:43:33.3

Interviewer: Okay. But now, what he says here — let me, let me just interject right

there. So if we go to a policy prescription, which he does, he

immediately jumps to, "I'll tax wealth," basically not disaggregating it, and

assuming that wealth is, is part of a production f, function that's

determinate, which it can't be. And so it hangs out there, and it’s even

unexplainable why wealth, if he looked at it, is so much bigger than

capital these days, especially after 2008. All of a sudden there's no,

capital is not being built, but wealth is being built at least on paper to a

tremendous degree.







0:44:09.8 So his prescription is, "We're going to tax this wealth," which essentially

is becoming monetary, and, uh, almost not anchored to reality. And we

essentially are in a situation where everything is indeterminate now. And

so everyone's congratulating themselves about having to, made this big

discovery. This discovery leads us to absolutely nowhere.

0:44:36.0

Varafoukis: This is entirely so. But look, you just put your finger on, uh, the reason as

to why Piketty has enjoyed such great discursive success. Because

everything you've said makes no sense in the context of his own

analysis. Don't wait this [audio cuts out].

0:45:24.9

Interviewer: This Piketty. I just saw Piketty the other night, and he's just so full of

himself. He is just, just lovin' the attention.

Varafoukis: Oh yeah, but I can forgive that.

Interviewer: Oh, I mean this is a real, this is a real peacock here, okay? So when I

read your critique, I said, "Oh, okay, we gotta, we gotta get serious with

this, you know?" He is... We're at the New School, and it was a, it was a

big audience, and I mean he's, he doesn’t answer any questions directly.

It’s all bullshit. But he's basking in the adoration.

0:45:58.6 It’s just unbelievable. You know?







Varafoukis: Yeah.

Interviewer: So then I read your critique, I said, "Okay, this is the beginning of the end

of this, this fella's little happy joyride." So...

Varafoukis: Not true, because I'm, I'm going to be completely ignored, and he's going

to continue basking in, uh, in his glory.

0:46:15.4

Interviewer: I don't think so. I, uh, I mean because his, we'll, we'll get, we'll get into it,

you know, for real in a little bit.

Varafoukis: Yeah.

Interviewer: But, uh, I mean he has no solution, and he, all he's done is outline —

which we all knew, and which he was part of knowing — and he piled it

up into a, a mountain of statistics that basically said what we already

knew, and it was the right timing, uh, to show that, okay? Now, of course

he's left us in a dead end as to what to do about it, and I think this is

where your critique...

0:46:48.0 I've read all the critiques from Galbraithe and Hudson and everybody

else's. And, uh, yours is wonderful. I have to tell you, Yanis. It’s, uh —

Varafoukis: Thank you.







Interviewer: It is, uh, it is brilliant. Now, it may be going over everybody's heads, but I

don't know... about that. But anyway, we'll, we'll...

0:48:40.5 He makes economics fun. You know?

0:01:38.2

Varafoukis: What we have is an amazing piece of discursive power — propaganda,

in a sense — because to begin with, the theoretical part of the work

conflates wealth with capital. There's no difference between capital and

wealth. Why? Because he wants to be able to measure it. Now, as we

all know, we can't measure capital.

0:01:55.8

Interviewer: Can't measure it.

Varafoukis: It’s like love. It’s very important, it exists. Like beauty, right? I mean

anyone who denies the concept of beauty, uh, is a very sad person.

Nevertheless, anyone who tries to measure it is, uh, is, is going to

destroy beauty and love, uh, and certainly never know it. So this is the

problem with capital.







0:02:17.9 Uh, we can't measure capital. I mean we could if we lived in a single

commodity world where we only had corn. Then we could measure it.

It’s whatever corn we don't consume today, in order to plow into the

fields tomorrow. But when we have anything from computers to steam

engines or to, uh, you know, oil, uh, as, uh, capital goods, uh, then it is

impossible to, to, to bring them together into one measure, one metric of

capital.

0:02:46.0 So what he says is, "Okay, we have a problem measuring capital. We

won't measure capital. We will measure wealth. We will measure

everything in terms of their total monetary value, and then conflate [audio

cuts out]."

0:03:00.7 If you conflate wealth capital, I mean is it not utterly natural that at the

end of the day, if you've simply noticed that there is a lot of [unintelligible]

in the quality and it arising, you have a problem with that, and what he

would say is, "Well, let's, let's tax wealth."

0:03:39.8

Interviewer: Let's pick it up from that we can't measure the capital, and there's really

no policy prescriptions that we can really advocate that would make any

sense. His model precludes policy decisions of let's say governmental

interference. So again, like you said, we have a concept that feels good,

sounds good, but we have no operative way of dealing with it.







0:04:10.2 So everyone's going to look at this, we're all feeling good about it. And

we, Janet Yellin, the Fed governor, she’s discovered there's a lot of

inequality going on. It’s, everyone's making this official. And there we

have it. But nobody is doing anything about it.

0:04:32.4

Varafoukis: Well, in a sense, in a sense, that's quite right, in a sense. The moment

you conflate capital and wealth in order to make your model work, to

make the mathematics work, you become irrelevant from a policy point

of view. And you become irrelevant because you cannot distinguish

anymore between a robotic assembly line, uh, a portfolio of bonds or

shares, or indeed your grandmother's silverware in the cupboard, okay?

So whether there's productive cap, a productive asset or not makes no

difference.

0:05:06.0 So if, if you don't like the distribution of wealth, if you've already used in

your classical model, which has banned bargaining from the picture, it

has taken it out, so there's no bargaining between capital and labor,

between different, uh, uh, departments of state, between buyers and

sellers, then what is left? You're only left with the distribution of wealth.

0:05:27.9 And if you don't like this distribution of wealth, because it’s too unequal,

which it is, then because you've lost all other —

Interviewer: Policy levers, really.







Varafoukis: — oh, no other levers, the only, the only conclusion you can come up

with is the redistributed wealth, which is, you know, and how do you

redistribute wealth? Through tax, taxing wealth. Now, I don't have a

problem with taxing wealth, but it depends on what wealth. Do we really

want to tax our grandmother's silverware? What if your grandmother has

absolutely no income?

Interviewer: No income, exactly.

0:06:00.1

Varafoukis: You force her to sell the silverware to give you 20% of it? Uh, what, what

do you do with an investor who has actually invested in productive

capacity that is call, creating jobs? Do you, do you, do you actually tax

the machinery? And that's a, a tax on investment. [laughs] Uh, I'm all in

favor of taxing, uh, you know, the mansions of the bankers, uh, wherever

they, they have —

Interviewer: Or their portfolio of derivatives, which, uh —

0:06:29.8

Varafoukis: Indeed. But if you have no, if you've banned from yourself, yourself,

from making a distinction between a portfolio of assets and a robotic

plant, or your grandmother's silverware, you're, you're left in no man's

land policy-wise. But that doesn’t concern Mr. Piketty because Mr.







Piketty is not interested in changing the world and making it a better play,

place.

0:06:53.5 He's interested in becoming the guru of inequality, and for creating a link

between the mainstream of economics profession with the social

sentiment that there's something wrong with inequality, as long as that

link does not result in policies that actually do something about

inequality. This is why I was saying that he's a great enemy in the end of

pragmatic egalitarianism.

0:07:18.5

Interviewer: Well, he has, he has formed a group of 30 likeminded economists who

are going to get together and wring, handwring about this problem, and

hopefully, uh, impact institutions in some way to induce change. But his

model doesn’t prescribe that, but that's apparently his stated objective —

to, uh, form these committees. I mean, 'cause essentially, his, other than

taxing, his prescription doesn’t allow for intervention in government

policies, or at least he hasn’t specified what they would be, uh, what he'd

be attacking based of his policy or, or his own model.

0:08:02.9 So what do we got here?

0:08:04.5

Varafoukis: Look, I, I wish them well, and I hope they change the world in, in a

positive way. I don't know anything about this group, but I do know about







enough of Piketty group — you may have noticed that in France, where

Professor Piketty lives and works and lives, he has formed a group of

some like 14, 15 economists. It’s called the Piketty Group.

0:08:28.9 And the Piketty Group is not the French Piketty group. Uh, is, is not

geared towards doing something about inequality. Their remit is to do

something about the collapsing European Union, and in particular the

Euro Zone and the euro currency. So they have published a manifesto,

which is called "The Piketty Group Manifesto" on what to do with Europe.

I'm mentioning this because, let's face it. You know, you, you, one gains

insights from looking at these parallel [political] projects.

0:09:01.5 If you look at this manifesto, actually it’s just like he spoke, beautifully,

and you think, you know, it’s full of good sentiments about Europeans at

least, uh, doing something about Europe, and uniting as opposed to

allowing the Euro crisis to fragment the European Union and

[unintelligible] leads to its collapse

.

0:10:07.1

Interviewer: But it doesn’t devolve from his book, that kind of approach is not even

signaled. Uh, so he's really shifted tenses here. There's nothing from

his, his book that would enable him or force him to become an

institutional intervener, uh, regardless of whether it’s, uh, austere or not.

I mean, where does he come from?







0:10:28.2

Varafoukis: Look, I suppose there is, there is something that you could, his, his

answer to this would be that his books leads to the safe conclusion that

unless there is a de, redistribution of wealth, then democracy is in peril.

Interviewer: Exactly.

Varafoukis: You're, you're toast, politically you're toast. There's no way, way it can

be implemented.

0:11:21.2 Uh, you know what he reminds me of? This is, this is not a new story.

He reminds me of a very interesting debate in the early '70s, which of

course everybody remembers very well, and I'm sure you do, between,

at the level of political philosophy, between, uh, John Rawls —

Interviewer: Yes, and Nozick.

Varafoukis: — bertarian Robert Nozick.

Interviewer: Yes.

Varafoukis: I think that I would, I would say this: Thomas, Thomas Piketty is a

second-rate version of John Rawls.

Interviewer: I see.

0:11:49.9







Varafoukis: John Rawls was a philosopher, so he was a bit smarter and more

cultivated. Uh, but in the end, what, if you recall, "The Theory of

Justice", which was —

Interviewer: Right, yes, yes.

Varafoukis: — a great book John Rawls published in 1971, uh, made a very simple

point: That if we all had the opportunity of passing judgment on, on our

society behind a veil of ignorance, without knowing what role we would

play in that society, without knowing whether we'd be black, white, man,

men, woman, rich, poor, uh, disabled or able-bodied, what kind of society

would we choose? Would it be the society we live in?

0:12:21.8 And he answers, his answer is of course not, because, you know, if you

are rich, and you think, "Okay, my chances of remaining rich in this

society are very tiny because the rich people are very few compared to

the poor people," so if the, some machine were to randomize and put me

in some social role or body, uh, at random, then, uh, I, I would want to go

back to the society that, in which I am [can, cannery rich].

0:12:50.1 So it was a mechanism that John Rawls, uh, recommended to us for

passing judgment on the justice of our society. And, and, and there was

a poli, policy implication there in the end, because he, his theoretical

model led to the conclusion that we should want to maximize the, the

welfare of the, of, of, of, of the least well off person.

Interviewer: Yes.







Varafoukis: That's the mini-max rule of John Rawls. So he, he came up with a pretty

radical agenda for using the tax system in order to keep redistributing

from the haves to the have-nots, until the have-nots reach a certain level,

such that if you redistribute further, then their own level is going to suffer

because the efficiency of the capitalist system is going —

Interviewer: Right.

Varafoukis: — to be diminished.

0:13:32.7 And then, remember that what Robert Nozick did — he destroyed John

Rawls in his 1974 book "Anarchist State and Utopia" by asking a simple

question, a simple question. He said, "Okay, Mr. Rawls, let's agree with

you. We should do what you're saying, and that, you know, we are now

in a situation where we have optimal justice, and the best possible

distribution of income according to your own scheme, right? Now, what

happens of one, one of us develops wonderful skills at basketball, let's

say?"

0:14:05.4 That's the example he used, right? "And suddenly everybody wants to

pay him money to watch him play basketball. We have a, a, a, a, a

choice between two courses of action here. One is to ban people from

paying the basketballer, because allowing them to do it would skew the

distribution, suddenly it wouldn't be optimal anymore. Or secondly, to

allow them to do it, in which case we, we agree that that distribution was

not optimal."







Interviewer: Right.

Varafoukis: He destroyed — the simple [unintelligible] point he made... By the way,

it’s a point that Marx had made, essentially, before, right? Was that what

matters is not so much the outcome, it’s the process. If the process is

just, then we're okay. Then if you have inequality at the end, who cares?

But if the process is unjust, okay, so where I disagree with Nozick and

the libertarians is that they assume that the market process, if, if it’s,

there's no interference from government, is by necessity good and

proper. I disagree with that.

0:15:08.4 Okay? But he was right that what matters is process. Now, Rawls had a

static view, which could be destroyed by the libertarians. And what has

happened since the 1970s — and I hope you agree with this — is that

this kind of social democratic, in America, liberal, small L liberal view of

the world, of John Rawls, has been destroyed by the libertarians, who

are saying, "Who are you to impose upon us a particular distribution

which you think, of income or wealth, which you think is optimal or just?

Let, you know, the process determine that."

0:15:41.7 And, and my great fear is that Piketty is setting himself up as a new John

Rawls, less sophisticated, who is going to be completely destroyed by a

libertarian who comes and says, "This is all rubbish. Your distribution of

wealth, firstly, doesn’t reflect the real distribution of wealth because

you're conflating wealth and capital and all that. And secondly," exactly







like Nozick asked the question, "Talk about the processes. What have

you got to say about the process?" Piketty has nothing to say about —

Interviewer: Nothing to say about it, and in effect he'll destroy, by getting hammered

that way, he'll destroy any progressive action from being taken.

0:16:22.5

Varafoukis: So anybody who, who subscribes to Piketty, for the purposes of

egalitarianism is, in the end, creating an opening for a libertarian to come

in and destroy egalitarianism.

0:16:57.7 Well, I think, Yanis, that's a good point to end this interview. That was,

uh, very very interesting, great. And we're gonna have you on next

probably two months from now, when something moves on the European

situation

Varafoukis: Thank you so much.

0:18:07.0

0:20:48.2

Interviewer: Well, Yanis, thanks for coming back and joining us on SmartTalk. I

invited you back because I just recently read your critique on Piketty, and

it’s going against the mainstream critiques, although there have been a







number of critiques. But I felt it was solid, sound, made sense, and it’s a

little counterintuitive to the current critiques that are being given. I mean

it’s true that his book is a sensation, it caught the zeitgeist of the times.

0:21:20.5 He's confirmed, uh, something we all know, and we're shocked to find

out that they're inequality in this world, and he's done a tremendous, uh,

uh, job of document it, and so we give him that. There's no, no, no, no

complaints here. But you bring up a number of points that I think are,

are crucial and serious. You're concerned about the long-term

implications of his book, and the presentation of it.

0:21:47.6 And I think if I could saw, sum up, number one, he's essentially using a,

a broken neoclassical model to try to explain his results, number one,

and number two, he's, he's, he's saying essentially that capitalism has

some ineh, exceh, inexorable, uh, outcomes, but he doesn’t explain why.

And in effect, he says the only good times are some, somehow

accidental and exogenous. And essentially, if that's, that's true, what can

we do to control our own fate?

0:22:18.3 Now, his, his solution is taxing wealth. And at the beginning this is a

problem, especially for a Georgist, because his conflation of, uh, wealth

and capital for us is very serious and obviously is very serious for you.

Your comments?

0:22:36.0







Varafoukis: Yes, that's quite right. Uh, Piketty tells a story which is important, it

needs to be told, and which as you put it, uh, everybody knows. That

doesn’t mean that it shouldn’t be told again and again. Uh, the, that...

hideous inequality has been on the rise. Uh, especially after 2008, has,

uh, become, uh, uh, you know, a shared fact by all of us. It was, uh, the

Occupy movement, after all, in the center of New York, that, uh, made it

clear to everyone that this kind of inequality was intolerable.

0:23:23.1 And what was interesting was that, you know, the rest of American

society, and, and, and, and in the West more generally, saw the Occupy

movement with a great degree of sympathy. So Piketty's taking the

Occupy movement's message and making it mainstream. What is, more

particularly what Piketty is doing is that he's not just making it

mainstream, but he's bringing it into, uh, the established mainstream of

the economics profession.

0:23:54.3 If you think about the, the, the, the time of the Occupy movement, there

was this complete disconnect between what most Americans thought

and what the economists practiced. So if you were a student of

economics at Harvard, uh, or, you know, some community college,

doesn’t matter where you were, and you had your finger on the pulse of,

uh, daily events, you would get this feeling that there is something

profoundly wrong with our economy and society, that inequality is

becoming an unbearable.
