June 30, 2015

The double crisis and the real question

Comment on Yanis Varoufakis on ‘As it happened — Yanis Varoufakis’ intervention during the 27th June 2015 Eurogroup Meeting’


Economics has invariably two aspects: political and scientific. With regard to the breakdown of negotiations, an outside observer cannot say who has failed or who was successful because one does not really know the true motives of the two sides. As always in politics, this is open to anybody’s guess/paranoia.

The underlying problem is that what is essentially an economic issue has with some inner necessity shifted into a different frame of reference, that of Hollywood, drama, tragedy, entertainment, soap opera, Circus Maximus. The economic issue has been reformulated in terms of good guys vs. bad guys. Thereby it has become insoluble.

The format shift characteristically results in descriptions of the situation like this: “So the stakes are high, the conditions brutal. The Old Man and the Sea, the great fish has been caught, is being towed, and the sharks are closing in. Human endurance in the face of the horrific, the face of European neoliberalism.” (see graccibros above; I am still waiting for the more appropriate crash scene of Alexis Sorbas)

With this, of course, we are entirely out of economics — at least as far as it claims to be a science — and in the communicative kindergarten. The laws of showbiz rule.

The political issue is this: if you want your money back it is, first of all, not such a good idea to economically cripple the debtor.

The economic issue is this: The Greek crisis can be seen as the inevitable result of false economic theory.

Orthodoxy says the price mechanism sees to it that the economy tends always to efficiency and full employment. Keynesianism says the price mechanism obviously does not work as promised and because of this deficit spending is needed in case of emergency. However, when deficit spending has run up the hill of debt for some time the advice becomes less and less convincing. It seems that all that Keynesianism can achieve is a postponement of the breakdown of an economic system that has a fundamental defect.

The real question then is: can the market system work without a steadily growing debt? And it is only secondary whether private or public households are the deficit spenders.

If the answer is No then it is only a question of time that a debt crisis must occur and Greece had the misfortune to be the weakest part of the global debt engine. Under this broader perspective, we have no Greek crisis but a systemic crisis (2015).

Therefore, the crucial question is: can the world economy as a whole work without ever-growing debt? Both, Walrasian and Keynesian economics cannot answer this question.

Because of this, the Greek crisis is not only a political crisis of the EU but indisputable proof of the failure of economics as a science. To solve this crisis economics has to get out of showbiz first. It is high time for both orthodox and heterodox economists to figure out how the monetary economy works.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL