Wednesday, 22 January 2014

Yanis Varoufakis, 10 economic myths (must read)

Note: the original article is in greek, and it's been translated via google.

1. The largest trade surplus of a country, the better

If an economy maintains trade surpluses systematically, by definition, will "introduce" continuous profits from abroad. How these funds available? If placed on consumption, then you will increase imports and would overturn the trade surplus. If invested, then probably increase the competitiveness of exportable goods in the country even further, resulting in a further flow of capital from abroad. As domestic interest rates will tend to decrease (since the money supply due to the introduction of foreign capital increases), these funds will begin to migrate abroad, seeking higher yields (eg interest rates, growth rates value of land and buildings in deficit countries). Thus, the surplus country (a) limits the internal consumption (in order to maintain trade surpluses), (b) lends to foreign debts of the latter thereto, and © invest ever larger sums in foreign assets, anxious not burst the "bubble" in foreign countries (which she maintains, exporting capital to them). Consequently, a large and permanent surplus compresses the domestic standard of living below the level that justifies the labor productivity of its citizens, while the accumulating profits of country risk being lost abroad.

Two. The public debt must be repaid

Never no country repays debt. (In Britain, for example, debts of Elizabeth I disappeared from the process of debt management in 1979.) Unlike individuals who need to repay their debts, the government simply pass on the debt. Eg when a bond expires and must be repaid, the public debt management agency issues a new bond, sells, and repays the money last. Bankruptcy, therefore, for a state does not mean that it is unable to repay the bonds. It means that the growth rate of debt (ie interest rate) has surpassed both the growth rate of government revenue, that the passing on of debt at some point become impossible.

Three. Banks lend the capital stocks

Suppose a bank is obliged to keep "stock" 8% savings. This does not mean that the bank will lend to Costas to 92% savings of Claus. The bank lends Kostas independent of these calculations, taking into account two things: first, how trusts Bob. Secondly, how much capital is available for borrowing, without fear that a (serious and honest) review by the Regulatory Authorities will not conclude that the capital base is low. Moreover, do not forget that the reserves of banks loaned to other banks and thus never "leave" the banking system.

4. Member of printing money

The vast majority of dollar, euro, yen, etc. produced by private banks through lending to individuals (who suddenly see money is created from nothing, in their accounts). Only banknotes and coins produced by the state - which account for less than 8% of the money we have in our banks, in a hands on our cards.

5. The "quantitative easing» (quantitative easing) engaged in by central banks as the U.S., Britain and Japan means inflationary money printing

First, these banks do not print any money under the policy of 'quantitative easing'. What they do is that they buy from private banks made all kinds of paper securities (derivatives, bonds, mortgages) and, in return, credited the accounts of these banks amounts to which banks can not directly use (eg lending us). What we can do is lend to other banks, which will use the money to lend to businesses, households, etc. None of this does not amount to printing money. Simply increasing the value of paper titles and giving liquidity to the market, central banks hope to slow the crisis.

6. Hyperinflation due to the uncritical adoption more and more money

A careful study of historical cases of hyperinflation shows the following causes: the collapse of production, brazen corruption, political instability, war or defeat, finally collapsing fixed exchange rate with a strong currency. The over-production of money is always the result and never the cause of the crisis hyperinflation.

7. Hitler came to power because of hyperinflation

The hyperinflation of the early 1920s hit brutally German society. Not yet brought Hitler into government. As Germany thalassodernotan of hyperinflation, the percentage of Nazis ranged below 4% (see the 1928 elections). In 1930 hyperinflation was tamed now. When the new Finance Minister Kurt von Brouningk imposed harsh austerity in the early 1930s, increasing unemployment vertically, gave the Nazis their first success (18.3% in September 1930). Two years later, under the ever harsher austerity Brouningk, unemployment and poverty drove Hitler to 37.2% in the 1932 elections.

8. The reduction in costs will reduce the deficit and debt

The only case where this is true if: (a) the financial neighboring countries and reduce those costs, and (b) the international economic environment is developed (eg the case of Canada or Germany in the 1990s ). When not apply (a) and (b) the cost reduction increases the debt - which explains why the tough austerity in the European Region has increased particularly the debt of all of us.

9. The European Economic Community (and later the European Union) came from European Democrats after the Second World War

In April 1942 took place at the Berlin conference under the auspices of the Minister of Finance of Hitler, Walter Funk. The official theme of: "The creation of a European Economic Community ', with themes and ideas reminiscent particular and creepy, the EEC that followed the war. This does not mean that the EEC and the current EU have Nazi roots. It simply means that the idea of ​​the current economic unification of Europe is not the first Europeans skarfistikan democrats.

10. Economics is science

I wish it was. It is not. At best, any economic school of thought express an ideology following equations and statistical correlations (which are more reminiscent of the empirical "studies" rather than astrologers astronomers). In the worst case, the cost is nothing but a form of religious belief expressed in the language of abstract math (so nobody understands what almost everyone knows).