187. Yanis Varoufakis: How The 2008 Crisis Revived Far-Right Populism

23:50Rory Stewart:I suppose the final question is, given all that you've said, how is it that policymakers should make decisions if it's not on the basis of studying some beautiful formula from Kenneth Arrow? In the real world, how do you make decisions if your game theory or your amazing mathematical economic models can't really tell you what to do? Well, the answer must be judgment, which is foundational different from calculation. The whole point about judgment is that there is no formula to tell you what you should do. You should take all sorts of different types of information under consideration. You should talk to many different people.

24:25And then, you know, it's actually Keynes had a very good answer to that. He said that the economist has a duty to combine a philosophical predisposition, the analytical powers of a mathematician, the diplomatic skills of a foreign minister or an ambassador, and so on and so on and so forth, and then come to the conclusion. You see, I believe that all students of economics have to learn all these models, reject them, train their mind through understanding all the models, and not just the neoclassical neoliberal models. I can say this as a left-wing about Marxist economics, too, because that also hits a wall of analytical power that it can't get.

25:08And then, you know, you set all this aside, and at some point, you use your judgment to make the call. And there is no way in which this call can be reduced to a scientific process. This is the beauty of democracy. And of humanity. And of humanity, because, you know, if we could have an AI machine that could find all the right answers to all the right questions, why do we need democracy? We'd be redundant. Yeah, just let the matrix do it. That's what they're trying to do. Well, that's what they're trying to do. But thankfully, human nature is inimical to that. So far. And you will always find a way of resisting.

25:41Well, I hope you're right. I'm going to say something that's going to really endear you to our more left-leaning listeners and viewers, of which we have a fair few. Is it right that basically you left Britain in the end because Margaret Thatcher won a third term and you couldn't face the idea of her still being here? So you went to Australia and then you left Australia because they then started to turn to the right. So are you sort of driven around the world by politics? I am a permanent refugee, yes. But let me be a bit more nuanced about this. Look, I'm not that fanatical. It's not that somebody I didn't like, Margaret Thatcher, won a third time and I left.

26:20No. It was the steady deterioration of the academic environment in Britain under Thatcherism, which was the result of the cuts. because, you know, I cut my teeth in, I started my undergraduate degree in 1978, then she comes in 1979. By the time I was a lecturer, I was a despised figure in the department in which I was, not because of my nastiness, but because I was a very young lecturer. I was very cheap because of being very low down in the rankings. The older professors and lecturers, people whom I looked up to saw me as a threat because it was a time when, remember back then, we had 10 % cuts every year, which meant that vice chancellors and deans had to get rid of people.

27:09And because they had tenure back then, they had to lean on them and actually make their life a misery until forced to quit psychological terrorism. So when we crossed each other in the corridor, they looked at me as a cheap young laborer that was about to replace them. And, you know, even if independently of the actual personal relations, that's a very dark environment in which it should be. And, you know, so I was teaching at the University of Stanglia. And then I shifted to Cambridge. And I thought that was the pinnacle of my life until then, until I realized that the circumstances there were actually quite dire as well.

27:48And then Thatcher wins the third term. And the bleakness all around me. I mean, I was part of the 1984 miners' strike, the 1986-7 warping dispute and so on. And, you know, I had this – I'm not your conventional lefty. I mean, I knew we were fighting the wrong war. I mean, I was an ecologist back then. And, you know, we were fighting to preserve the coal communities by preserving a polluting industry. So what was the right war back then? You know what I mean. I thought that I was solidaristic to the communities that were being wrecked by Thatcher. I was solidaristic to the workers who worked for the print unions without actually liking the print unions.

28:31I considered them to be male, chauvinist, rightist, pseudo-left unions. So I was constantly fighting a war which I was losing without actually believing in the leadership of my own side. So when Thatcher won the third time, I thought, oh, goodness gracious me, what's going to happen now? And I made a semi-subconscious decision that if I find a way of getting out of here, I shall, because I just can't face up to this anymore. I couldn't face up even to the Labour Party at the time, right? I mean, it wasn't just Tory versus Labour. My own side of politics, I've always been very suspicious of, even my hard left, as you would call it.

29:11you know my father taught me to beware of the communist party and he taught me this as a member of the communist party so you know for me being nuanced was always anyway look at some point i got out of the blue an offer to go to sydney and i said no and then they rolled back to me saying don't be stupid this is we have the summer here we'll give you three times the salary come for six months if you don't like it you go back to cambridge and so i said okay all right fine It was a summer. It was 1988 when they had the bicentennial celebrations. And I thought, OK, I'll escape British winter for six months.

29:45I went there and it was actually quite lovely because it was very backward. No, no, but backward can be very good.

29:52Rory Stewart:Can I interrupt, Janice, for a second? We have a lot of Australian listeners and Alistair and I have a lot of affection for Australia. Tell us a little bit about your sense of Australia as a political culture, as an environment. You spent nearly 12 years there. What was your sense of Australia? And I am a proud carrier of an Australian passport. And I have an Australian daughter, by the way. The one who's angry with you for writing a book to her. Indeed. Without getting permission. Without the permission, yeah. Look, when I arrived, this was the butthead, and the almost conclusion of the Hawke era.

30:25Bob Hawke's government with Paul Keating being the treasurer at the time. And even though they were too right-wing for me, it was a breath of fresh air to be… They were bang on for me, Yanis. I can imagine that. Absolutely in my politics. Well, where we can agree, I mean, we can have this discussion, but I can tell you from my heart that arriving in Australia at that time after Thatcher was, as I said, I could breathe again because there was multiculturalism that was being celebrated. There was a, you know, SBS television and radio, which is a mini United Nations. If you go to the SBS building in North London, you have 130 language departments within it.

31:07Even Yiddish is being practiced. And this is all public service. The university was the way universities used to be before Thatcher. In other words, you know, we didn't have that culture of writing everything down and accounting and, you know, research assessment exercises where everybody is just crazily writing down little brownie points that everybody else has won or not won. And, you know, the culture, the film industry, the film industry was having a renaissance in Australia at the time because of public money that was going into developing local culture. The pubs were replete with wonderful bands, you know, ramshackle bands.

31:49You would go on the same night to three pubs, have three pints of beer and listen to three different bands um the weather also helps between you that's a great guy so the first five years of my being in australia was just a joy yeah and then you left because was it because of the political turn again yes and then even before john howard a third rate version of thatcher was elected i could sense that you know It's just like here. You can sense the change of the environment through the rise of xenophobia. I mean, when I arrived, there was no inkling of xenophobia. By 1993, because of the recession in 1991, this is what recessions do.

32:33They create discontent. Discontent can easily morph into xenophobia, into misogyny, into this kind of malignancy. And I could sense, you know, I could hear the first voices against the Aborigines, that they were scroungers, that they were exploiting the white population as if it was possible. There was always a subcurrent to that. Fascism is always there in the background. And occasionally, a good recession gives us a way in. So I could sense that. And then John Howard wins, and the university starts going down the drain of this managerialism. I realized that the first time, Rory, I realized that the university was turning into a place I didn't want to be in was when the good parking spots next to my office were reserved for managers who were employed to manage us, even though they had no academic credentials whatsoever.

33:27I thought, well, okay, now, this is the beginning of the end.

33:30Rory Stewart:I think I'm going to fast forward you to the extraordinary moment where you shift from this amazing academic life into political life. And you eventually end up as the Minister of Finance of Greece at the height of the European financial crisis, particularly the Greek financial crisis. But my route into this is to try to connect the two, because you create what, for me, who is more on the right, sometimes maybe seems a little bit of an overly romantic picture of the old world of the 1970s. And I guess if I was to be provocative, a lot of what you said in Greece I agreed with on debt. But I would be interested in whether there's another thing you don't talk about so much, which is whether it's possible that bureaucracies can become a bit bloated, that universities can become a bit useless, that producer interest takes over, that there were many things about the Greek state which were not that terrific.

34:32Rory Stewart:Maybe that's a bad transition for you. Maybe it's just going to make you defensive. Oh, it won't at all. Rory, when I arrived in Greece in 2000, the year 2000, you have to remember I left Greece in 1978 and arrived, almost 40-year-old in the year 2000. And I first encountered the Greek bureaucracy. You know how dogs, you know, sort of do this when they simply do not comprehend what's happening? To listeners, some people listen rather than watch. Yanis was there moving his head in a rightward fashion and sort of looking perplexed. I can not only agree with you, but I can, you know, raise it to the end.

35:07the Greek bureaucracy was astonishingly, mind-bogglingly, disgustingly, not only inefficient, but also corrupt. I had no doubt about that for a moment. But the problem is the Greek state did not fall flat on its face because of our bureaucracy. I wanted to see the Greek bureaucracy cut down in size, be rendered efficient, being forced to actually move from a situation where out of 10 public servants, two worked, and the other eight scrounged on the work of the two. So look, I can agree entirely on that. But the reason why we're talking about Greece now, and the reason why I became finance minister is because of that crisis.

35:51Now, why did that crisis happen? Suppose, Rory, that in the year 1999, the year 2000, when our social democrats ushered us into the euro, they had decided that, no, it's not a good idea. Let's not do that. If they had kept us out of the euro, the Greek crisis would never have taken place. The euro is responsible for it. Why? Because up until the year 2000, Greece was a meddling, quasi-corrupt, quasi-inefficient state, country, political economy. The Greek trachma was constantly falling, but gradually, vis-a-vis the Deutsche Mark, the British pound, reflecting the lack of competitiveness of the Greek economy.

36:34But these gradual devaluations restored the competitiveness of Greek tourism, of Greek olive oil, and so on and so forth. So it was manageable. It was a kind of steady state equilibrium of relative backwardness. So who wanted Greece inside the euro? Oh, this is a big story, because there are many different kinds of interests that were in favor of that it wasn't just one force but let me complete what what happened was the moment we entered uh the euro uh it was game over and i'll tell you when i realized that i realized it's 1998 i was an airplane flying from frankfurt to the new to new york and i was sat next to uh a gentleman from deutsche bank who was he found out i'm greek and he said oh you're obviously flying business then?

37:21I was because I was flown over by the Soros Foundation to give a talk. Don't be defensive. No, not defensive. I'm explaining. I couldn't have afforded to fly business class back then. I was just a mere lecturer at the University of Sydney. Okay. So he was enthusiastic about Greece going into the Euro and I wasn't. So I said to him, why are you enthusiastic? He said, because you Greeks are our wet dream. I said, go on. He said, well, look, We are awash with money, German banks, reflecting the trade surpluses of the German economy. When you have a trade surplus, a lot of money is coming into your banks.

37:59The Germans didn't want to borrow that. So what is the nightmare of a banker? Deutsche Bank. Having money and nobody to borrow it from you. But he said, you guys, you know, you have two things that we really love. Firstly, you own your own homes. No Greeks had mortgages back then. 80 % were fully owned by Greeks. I mean, they were not very expensive houses, but they were fully owned. And the second thing you have is a thirst for cash, for credit, because credit was very severely circumscribed in Greece. And up until now, we couldn't give you the loans because you had a drachma which was falling.

38:37So your incomes could be falling vis-a-vis the Deutsche Mark. But now you are going to have a Deutsche Mark. So you are our favorite client. So we're going to give you lots of money. And I said, yeah, but what happens when this creates huge bubbles? And then they burst. and indebtedness ensures that the Greeks won't be able to repay you back. And he said, well, then we'll take your houses, which is exactly what is happening today. One and a half million homes in a country of 10 million people are being repossessed by foreign vouchers. So hold on, let me get this right. You've got the bankers there, but were the big governments, the French, the Germans, did they want Greece inside the euro?

39:11And if so, what were their reasons? Or were they brought into the euro on conditions that they never met and probably never could meet? and then when you became the finance minister and the bailout is happening, is the bailout happening to help Greece or is the bailout happening to help the same banks that got you into the euro in the first place?

39:31Rory Stewart:Let's just remind people something that for Alistair and I is absolutely central is now quite a long time ago. Basically, the Greek government borrowed an enormous amount of money that it couldn't repay. And Yanis was then right in the heart of the question, which we all face when we borrow a lot of money that we can't repay, where the responsibility lies. Do you put all the pain on the person who's borrowed the money, or do you put some of the pain on the people who quite recklessly lent them the money? And this is not just a moral question. This is a very, very political question that as Greece went into bankruptcy, tore Europe apart.

40:09Let's take it from the beginning. Well, to begin with, Greece was not on their radar. It was pipsqueak country in the side didn't care but they cared about italy because if you were volkswagen you were really peeved every time your car gained competitiveness vis-a-vis a fiat an italian car and the central bank of italy would devalue the italian currency the lira and suddenly you would lose that competitive advantage so they really german industry really wanted italy in the Deutsche Mark zone, in the Eurozone. So they wanted to get them in. The Italians had a debt to GTP ratio, which was much, much above what the Buddhist bank, the central bank of Germany, considered to be the maximum that should be allowed.

40:53But Volkswagen industry against the Buddhist bank wanted Italy in for the reasons I explained. So they found a way of manipulating the debt to GTP ratio of Italy using Goldman Sachs. So effectively Goldman Sachs, who know how to do these things, disguised part of the debt. How did they do it? One example is you securitize the various receipts of the state for the next 30 years. So, you know, tolls, motorway tolls. You say, okay, the next 30 years, we're going to receive all this money, so let's securitize this now, sell it to the markets for a much smaller amount, and subtract that from the debt.

41:33So this is, the Goldman Sachs helped the industry of Germany and the state of Italy, you know, bring Italy in. And then what the Greeks did in government, and I know that because they were telling me that some of these people were friends of mine in the Greek government at the time. They simply copied what the Italians did. And they reduced in the same way, in the same inventive way. Is that because they wanted to be in? They wanted to be in. The Greek bourgeoisie wanted to be in. Why? Because if you own a mansion in the leafy suburbs of North Athens, you don't want it to be denominated in a currency that is devaluing.

42:08You prefer it to be in the hard currency, right? So if you are rich, you want to go into the hard currency zone. At the same time, the people who had a lot to win, to gain by entering the common currency, managed to persuade organized labor to go along with them. Why? because trade unions would go on strike when we had the drachma to catch up with inflation, as happened here in the 1970s during your inflationary years under labor. And, you know, they would win a pay rise of 10 percent. Then the next day, inflation would eat it up. So the lie that was sold to the labor unions was if we get into the euro, whatever you gain through industrial disputes and so on is also key because there will be no inflation or very low inflation so the labor unions agreed the establishment labor unions so there was there were many different forces at this and now to your question once those bubbles built up which i explained in answering in relation to the deutsche bank guy and everything blew up you have to remember that the main issue at the time was that the french and german banks had gone completely and utterly bankrupt.

43:22Deutsche Bank had a black hole in the spring of 2009, Rory and Alistair, which was 12 times the GDP of Germany because of the bets on bets on bets on bets. Remember, margin call and all that. And Merkel, Chancellor Merkel, in April of 2009, was effectively told that within 24 hours, she would have to give them 600 billion euros. You know, she was the iron chancellor who was not giving a million to her health service because she was trying to keep her budget in the black. And suddenly she was told, she didn't understand why, five, 600 billion had to be given overnight to the bankers. And she did that.

44:09And she thought that she had drunk the conium and that was, and then she could move on. And a few months later, she was told she needs another 500 billion for the same bankers because Greece is going under, the Greek state. And if the Greek state had gone under, the Irish state would have gone under, the Portuguese state, and then they would need 2 trillion for their bankers. So they had to bail out the Greek state with the largest loan in the history of the world in absolute terms, not relative terms. And out of that huge loan of 120 billion, 91 % went through the Greek treasury straight back to the German and the French banks.

44:45So it was for the bank. It was 91%. I can give you, you know, the numbers. Okay, Yanis, Rory, quick break, and then back for more.

44:57Rory Stewart:Let's just fast forward. So you come in as the finance minister. Tell us about two things. I mean, one is you're dealing with this question, I guess, which in baby terms is how much of the pain of this massive debt problem is going to be taken by Greeks and how much the pain is going to be taken by the people who lent the Greeks the money. That's one question. And the second question is the whole emergence of Syriza, the populist left, which goes a long way beyond quite a simple or quite an old-fashioned conversation about how you balance the pain between the person who lent the money and the person who borrowed it.

45:34Rory, you've got to remember that Greece went under in May of 2010. We took this huge loan that went to the French and German banks. It's like, you know, getting a credit card from which to draw money to repay a mortgage that you can't repay. That's complete madness, right? The banks were made whole by this first bailout. But the first credit card of the Greek state ran out very quickly. And now what happened was, and this was a crime against Europe. If you think about it, it's the French and German banks, right? And you have the French and German governments that don't want to bail out their own banks.

46:07Greece could not repay this money. If you're bankrupt, you're bankrupt. There's nothing you can do about that. You can pretend that you're not bankrupt by borrowing from the same people. Except that it's not exactly the same people. Now, the Slovenes, the Portuguese, the Irish, the Spaniards, who had nothing to do with that. I have no problem admitting that it's a Greek state, and therefore the Greek people who voted for our governments, and it is the French and German bankers who are responsible for it. the Slovenes, the Slovakians, the Dutch, the Spaniards, the Portuguese, they were totally innocent and they were made to fork out the majority of the money so that Greece would take it in order to make hold the French and the German banks.

46:48This is what you do if you want to destroy European Solidarity. So one of the reasons why Europe is going down the drain is because of those shenanigans. My decision to accept the position in the finance ministry was of course a very difficult one, as you can imagine, Rory. I'm a lefty. I didn't see this as a mandate to bring in socialism. I saw it as a mandate to do one really simple thing that any neoliberal should want to do, which is to stop kicking the can down the road, to stop taking one credit card to pretend that you're even paying the other credit card. This is why I even had support from, in this country, Norman Lamont, the Adam Smith Institute, you know, I had...

47:27Were you not ashamed of this? I'm not at all ashamed of it because it was the right thing to do. The right thing to do was to say, look, we are sinful. You know, not all of the Greeks, right? But the Greeks already together. We've already suffered because you have to remember, Rory, that by the time I entered government in 2015, Greek wages had gone down by 44%, pensions by 42%. My university budget had gone down from, I'm not going to give you the full number, from 52 to 3. So effectively, we couldn't even afford toilet paper. Hospitals were shutting down. So it's not a question of who should take the pain.

48:04The Greek people had taken the pain already. What I was mandated to do is to stop causing more damage, not just to the Greeks, but to the Europeans as well, because these credit cards were being paid by the working classes in Germany, in Slovakia, in Slovenia. And these people were getting really very angry because they didn't know what they were paying for. And one final thing, Rory, you mentioned the populist Syriza government. Look, I was never a member of that party. Why? Because I didn't believe in them. Because in September of 2014, that is four months before I became their finance minister, they came out with their economic manifesto.

48:44And I wrote an op-ed the next day in which I invoked your own Churchill saying that the only thing we have the right to offer the Greek people is blood, sweat, and tears, not populist promises that we're going to painlessly solve all their problems. And I thought that my relationship with that party was finished because I was invoked, that article was invoked by the center-right government at the time. They said to Tsipras, the opposition leader at the time, Oh, even your own Varoufakis is, you know, piling up on your economic manifesto. But it was only two, three months later that I was summoned and I was told that I was right.

49:32And, you know, we will write the economic policy from scratch. And the only promise I went into that election with was that we will end this constant folly of taking more credit cards to repay unpayable debts. But then you also had this big moment with the referendum, essentially, where the Greek people said, no, no more austerity. We can't take any more. It wasn't exactly that. What the Greek people said is we're rejecting the new credit card. So they were rejecting what the Europeans were insisting that you did. That's right. But then you resigned. Of course I resigned because the Greek people agreed with me and my prime minister overthrew the Greek people.

50:09Rory Stewart:Let's now fast forward. So you said something very interesting about your disagreement with Syriza in that op-ed. And I suppose that is a possible criticism, which is sometimes leveled against a lot of economists and thinkers and public intellectuals on the populist left, which is that they identify a problem, which is that there are people who are really suffering. People's economic conditions are bad. They can't afford housing. The job market is not working for them. But the solution they offer sometimes sounds like they have a magic solution which doesn't require any pain, any compromise, any trade-offs, that there's some easy way to fix things.

50:48Rory Stewart:How do you articulate a more leftist position which doesn't sound like populist promises which are not realistic? To begin with, I agree entirely with your depiction. This is what we do. But this is what also the right does. I mean, the right and the left and the other right, they are all populist in the end. I mean, Farage says, elect me, I will get rid of the foreigners and all your problems will be fixed, which is a tragic statement. The radical center used to say that as long as we deregulate and privatize, everything is going to be great. And the left comes up with simplistic solutions like Syriza did in 2014.

51:28I'm terribly popular with any of these political groupings, including on the left, because I keep saying things like, for instance, I'm all for wealth taxes for symbolic reasons. They're not going to solve the problem. I'm all for rent controls, but they're not going to solve the problem. If you look at our societies since the end of Bretton Woods, the neoliberal era, I mean, look at your country, okay? For better or for worse, it doesn't matter whether it should be done or should not be done. Manufacturing was decimated in this country. It was replaced by shopping malls. that meant you have a gigantic trade deficit, which is financed through money that comes in, not to be invested, but for speculative purposes.

52:11And therefore, you have a whole middle class that has put so much money into housing. So housing has become a casino, and it absorbs all the economic energies. So when you talk about a growth plan and so on, there are no taxes or tax reductions, tax increases, and so on, that can sort out this mess on their own. You need something equivalent to what Roosevelt did in 1933 with a new deal.

52:38Rory Stewart:This is a really important point. Maybe people don't fully understand. Why is it, in simple terms, that taxes on their own wouldn't sort this out and link this to your point about housing and speculation and deficits? Let's start with wealth taxes. Why am I not enthusiastic about wealth taxes. I believe that they're symbolically important. It's social justice. If you have gigantic assets that are the result of rent extraction, then you should pay. But I don't think that any government in the present set of circumstances with the institutions that we have can seize enough of the wealth of the wealthy, however ill gotten it was, in order to fund the NHS and in order to bring back some kind of income distribution, which is palatable.

53:23On the question of housing, I have all these people that have borrowed through the nose. And what I need to tell them, what I would have to tell them to be true to my own understanding of the problem is that, you know what? House prices have to come down. Some of you will have to have negative equity. That would be extremely painful. But the alternative to that is to keep inflating house prices in a way which is unsustainable which is eating into the capacity of Britain to invest in industry. Unfortunately, politics is structured in such a way that if you tell the truth to the people, you can't get elected.

53:55And I have a lot of problem getting elected these days because I tell the Greeks that there are no simple solutions and things along those lines. But I do believe that progressives have to be honest to the public. And we have to, on the one hand, say things that bring out a sense of social justice, like wealth taxes, but at the same time to say, look, there's going to be pain. We are going to have to invest into unpopular things in order to be able to produce the technologies that will make the difference between sustainability, both social sustainability and environmental sustainability and unsustainability.

54:36Can I just pick up on something you said earlier? You said the reason why Europe is going down the drain. Is Europe going down the drain? Oh, yeah, it's finished. Why? Well, because in our infinite wisdom, should I say, we created federal money. We have federated our money. We've created a common currency. So we have a huge central bank, a very significant central bank, and we have no treasury to have its back. And then we have 20 treasuries without the central bank to have their back. And each one of those treasuries has to look after banking systems and bail them out, if needs be, without having a central bank.

55:14You know, you do this if you want to destroy a continent. This is what we did. And they know that. They know that, Alistair. They being? Being, you know, the smart people. Christian Lagarde, right? I mean, people, journalists, in 2015 and beyond, whenever they interviewed me, they said, Mr. Varoufakis, now, how could it be that everybody's wrong? And you're right. And the answer I gave them is, look, folks, if I went into these rooms with Christine Lagarde, Mario Draghi, Favreng-Schäuble, Merkel, and so on, and they said to me that I was wrong, you know, I would look at myself in the mirror and start worrying, you know, why am I wrong?

55:53Where am I wrong? I would be utterly, utterly unconfident, the opposite of confident about my position. But Alistair, none of them told me I'm wrong. You know, Christine Lagarde said I was completely right. Mario Draghi believes also that it was a mistake to have a common currency without a common treasury. He's come up with a Draghi report, which is now saying things I was saying 10 years ago, almost to the last number. They're still not being done. Well, because now everyone who leaves office can then become a social democrat and a new dealer, right? But not while they're in office. So the result is that, you know, with this socialism for bankers and Australia for everyone, without having a surplus recycling mechanism within Europe to do that, which Roosevelt did.

56:40Imagine if in Britain, imagine if in Britain, every county or let's say, you know, Scotland, Wales, North England, South England and London were separate states. And you had no fiscal union. You had no common fiscal policy, but you had the pound. and each one of these jurisdictions looked after its own banks and had to borrow in the international markets to save those banks, what would have happened after 2008 in this country? And if they had to get together as heads of these, you know, sub parts of Britain to negotiate amongst each other, how to bail each other out, it would be a complete disaster.

57:15But the crisis that you dealt with and the global financial crisis alongside it, Am I right that you're basically saying that that is what has in part led to the kind of global mess that we're in now? That is partly what gave us Trump. It's partly what gave us Brexit. It's partly what's giving us the rise of the far right in Europe. I've written extensively along those lines. For me, 2008 was our generation's 1929. In the same way, you cannot understand the world after 1929 if you don't start with the collapse of Wall Street, the way that is percolated. And it's because of what you call socialism for the banks and austerity for the people.

57:51Absolutely. Absolutely. It's also because, you know, you have a situation where the left failed to come up with a comprehensive plan that could inspire confidence in people. It's our failure and the liberal establishment's failure that led to the fascists rising up through the woodwork.

58:08Rory Stewart:Janice, bring me back to politics and your experience being a politician. You're very, very unusual amongst your academic colleagues at actually having been the finance minister of a country at a time of incredible crisis. What did you learn about the reality of being a politician that you didn't expect before you became a politician? And what do you find difficult to explain to people after the event about what it's like being a politician? What do you think people don't really understand about the interior experience of this kind of job? I think people have a pretty good understanding of how soul-destroying it is to be simultaneously sincere and a politician.

58:47You know, as an academic, I was used to being around the table and, you know, attacking ideas and trying to learn from other people's attack of my ideas. But the moment you are on a television panel as a politician, you know, I realized that, you know, this guy was sitting opposite me. if I convince him about something then he loses his job or if he convinces me and I say this on air then you know my part is going to be up in arms against me and that is so so crushing but I think everybody understands that but I'll tell you what the one insight I got how easy it is and I'm going to talk about the left now because I'm a leftist I don't know what it means to be a rightist beyond my comprehension but I can tell you as a leftist that the worst aspect of that experience was the speed with which good comrades, you know, people that I thought the world of, who have done a lot, sacrificed a lot, how quickly they can become lured by power.

59:50And, you know, just to completely trash their own principles. That is the greatest source of sorrow and I'll carry it with me to my grave. Rory mentioned a couple of your books and your book Technofeudalism speaks to something that we talk about a lot on the podcast which essentially is the way that our politics and economies are changing without most people even understanding the pace of change and the scale of change and what you've written in Technofeudalism is essentially, I don't know how to put this, but you're essentially saying our politics is broken, our economy is broken, and a very, very small number of people are benefiting massively from it, and the rest of us are just slaves.

1:00:36Well, I think that is what I'm saying, but this is a symptom of the main point I'm making, not the cause. The point I'm making is in the book, is that we are experiencing a major transformation, which can only be compared to what was happening in this country in the 1770s and 1780s, the transition from feudalism to capitalism. At that time, power shifted from those who owned land and that ownership equipped them with the power to extract ground rent to capitalism, as Adam Smith explained, as David Ricardo explained, as Karl Marx explained, where it's ownership of the machinery that gives you an opportunity to orchestrate production and to extract surplus value from labor.

1:01:20that ushered in the world as we know it. Similarly today, we have, and you see, I don't want to get immersed in discussions about AI, about algorithms, surveillance, capitalism. That's all important. But what I think is important, that's why I wrote this book, is to say something more than that. We have a new form of capital, brand new form of capital. All forms of capital since the inception of humanity as humanity were produced means of production, whether it's a fishing rod or a plow or an industrial robot. It's a machine, a tool that you produce, not because you want it, but to produce something else with it, produce the means of production.

1:01:58But what lives in our tablets and our phones and so on, you know, Amazon.com and Uber and so on, they're not means of production. They are produced means of behavioral modification. So, you know, what Google does and what Uber does and so on, it doesn't produce anything. When you go into Amazon and you buy an electric bicycle, Amazon didn't produce it. It operates like supposedly a marketplace, but it's not a market. Because the moment you enter Amazon, you exit the marketplace. You enter something resembling a Soviet planning system where an algorithm matches you with some seller. You have no capacity to talk to anyone.

1:02:36It's the Gosplan system of the Soviet Union, except it's owned by Jeff Bezos. And what does he get? 40 % of everything you pay. So he's getting not ground rent, but cloud rent. So if I'm right that this is a new form of capital, which is destroying markets and replacing them with these cloud fiefs like Amazon, Alibaba, and so on, and then profit shrinks, because if you're the producer of the electric bicycle, your profit goes away, and it becomes a form of rent. You're going, so to conclude, welcome to technofitalism. And my final question then relates to stuff that's happening today. I mean, Trump, I'm glad to say we haven't talked that much about Trump, but I think we have to a little bit.

1:03:18Yes, thank goodness. Well, I think we have to a little bit. He has been the author of two enormous shocks, tariffs and now Iran. And I'd just be interested in your take about what you think the consequence of each is going to be for the long term. Well, last year, after Liberation Day and the tariffs going through the roof and the market panic and so on, And I was writing my op-ed saying that, look, let's not make a big deal out of it. It's going to be far less significant than other things that have happened. So the Nixon shock was far more important than the Trump shock. And you still think that?

1:03:51I still think that in the sense that you also saw that a lot of these tariffs were absorbed, at least when it comes to basic goods, because demand for those basic goods is quite elastic. So it simply shrunk the profit margins of the vendors. And yes, there was a recessionary wave that these tariffs caused. But then you had a splurge in AI investment that cancelled it out and even overtook it. That's why the markets recovered very quickly. You had central banks reducing interest rates. That was also ameliorating for the Liberation Day shock and so on. But now, with the war in Iran, by the way, I think that this is to my detriment, my psychological detriment, but I thought that up until the war in Iran, Trump was winning everything.

1:04:35He won the tariff war with the European Union. He was decimating the Democrats in the United States. He created a Praetorian Guard, turning federal government to a fascistic instrument. He was winning, unfortunately. Now, with this Iran war, I think he's going to lose everything because he has unleashed a stagflationary wave that is going to substantially damage the West, if not the whole of the world, which will continue even if the war ends tomorrow morning. Why? Because on the one hand, cost-based inflation, as we know from the 1970s, is much more toxic than the tariffs. Secondly, because the AI splurge is now reversing.

1:05:19Why? Because AI is very energy intensive. So the increase in the price of electricity is seriously affecting investment in AI, especially in Europe, in Britain, and elsewhere. Thirdly, because central banks are already on the way, if not of stop of increasing interest rates. some of them are thinking about this, they will stop reducing interest rates. And because unemployment was on the way up, unlike last year, already before the Iranian war, and I really do hope the Bank of England, the European Central Bank, do not increase interest rates, because when you have cost-possed inflation, interest rate rises are not going to contain that, except by destroying the economy and creating a massive depression.

1:06:01Well, there we are. Thank you for your time. It's been really interesting talking to you. I hope we were as engaging as Zach Palanski and Jeremy Corbyn on stage last night. I'm glad you did. Incredibly engaging. Thank you so much. And you know what? I prefer talking to people that I disagree with than people that I agree with. Okay. I mean, I think we agreed more than we expected to. Yes, yes. It's not great. Yeah. Anyway, thank you. Thank you. Thank you very much.

1:06:24Rory Stewart:Janice, that's very kind of you, Charles.

1:06:29I thought, Rory, you might be kicking off with him a la Zach Palanski, a la Gary Stevenson. but I got the feeling you were quite impressed.

1:06:37Rory Stewart:Yes, I mean, he's a much, I mean, look, I don't want to cut this whole thing, running again by insulting other people. But of the figures on the left talking about economics, he has a very, very deep academic credibility. He's a serious mathematician. He's done serious stuff on game theory. He knows the stuff very well. And it's also really striking that he's not actually selling an idea that there's some magic wealth tax that's going to sort everything out, or there's some brand new form of monetary theory which can make the world operate in a different way. I like the fact that he's very honest about the downsides of all these models.

1:07:20Rory Stewart:I mean, of course, he's brutal about the neoliberal model and all the problems that have been caused by that. But he's definitely not somebody who seems to be trying to sell an idea that some new tax or some new tinkering or some new form of borrowing is suddenly going to sort out all the problems of the economy. Any route is pain. The only worry that leaves you with is given that, you know, as you and I keep saying, our political systems need refreshing and reviving, our economies are struggling, this Iran war that we talked about towards the end there is going to make the economic challenges even greater, and inequality is growing the whole time, it's sort of hard to know where the next great-ism is going to come from.

1:08:02Rory Stewart:We might get him back at some point, but I think there are things that our leaders in Europe could do which they're not doing. So one big example he gave is they could choose. It's got a big downsides, but definitely one option would be to create a much more centralised European economic system. Now, massively controversial. It would create a much more federal Europe, but that's definitely a solution. and it's a logical solution to the problem that he's talking about in terms of the way in which people don't have full responsibility for their debt. A second thing in Brisbane, you could go for a policy where you were going to drive much, much more towards us manufacturing our own stuff, having more control of our energy, having more control of our cloud computing and AI, more sovereignty, more independence from the US and others.

1:08:52Rory Stewart:But that would cost a lot of money and there would be a period of real pain and there would be things that you couldn't spend money on. You wouldn't be able to spend the money we currently spend on welfare. You wouldn't be able to spend the money we currently spend on the NHS. So I think he's talking about a world in which there are radically different models you could pursue, radically different models, but what you'd have to do is give up on the idea that in the short term you'd be able to do it without a lot of people experiencing a lot of economic pain. Yeah, and he was honest about that. The other thing we didn't really...

1:09:21It was a very long interview and I enjoyed it. There were a few things we didn't get into. I didn't get into any, we didn't really get into what it must be like. I mean, I was involved in some pretty big kind of sometimes scary positions and situations and things going wrong. But to be plucked out of a kind of academic economist and you were suddenly sitting in the middle of what must have felt like kind of existential threat to your whole country. It was, it must have been an incredible roller coaster. I mean, and the thing about him having the referendum and winning and then getting out because Cyprus was so pressured into doing something that they'd fought against.

1:10:06I mean, God, what a journey that must have been.

1:10:08Rory Stewart:Yeah, and other things. I mean, he's sort of surprisingly not very – he doesn't sort of push for sympathy. I mean, there's another bit of his life, which I think you've mentioned, but he suddenly found himself under huge pressure from liberal governments in Germany and Greece. Yeah. So in Germany, he was part of a pro-Palestinian rally, which the German government basically decided was an anti-Semitic, violent thing. And he, a former finance minister of Greece, found himself, I think, banned from entering Germany, banned from speaking. He then took them on, though. He then took them on through the courts and I think won.

1:10:45I don't know what sort of compensation he got. He won. But the other thing that's happening to him now, before you came on, Rory, we were chatting about the fact. Again, we didn't have time to go into this, but we're chatting about the fact that he did an interview with some young ravers, as he called them, and they asked him, and he said it's the first time he'd ever been asked it whether he'd ever taken drugs. And he said, well, he smoked pot when he was a student. And then when he was in Australia, he was once out at some, it was a Kylie Minogue concert, and somebody gave him an ecstasy pill, and he took it, and it meant he could dance for 16 hours.

1:11:17he's now been charged so decades later and he said this was announced i mean this makes you worry we had the interview with mitsutakis i think we both found mitsutakis very impressive modern european leader but this was like ministers were going out on television saying that he had to be charged for promoting drug use and he has now been indicted yeah i mean so to put that in

1:11:40Rory Stewart:context i said during the uh when i was running for the tory leadership that i had smoked opium in Iran. And you could imagine exactly the same thing, which is that I would find myself suddenly being prosecuted by a government that disagreed with me on the grounds that I was promoting drugs. I mean, it's really, really weird. And it is a bit worrying because generally we're quite supportive of centrist governments in places like Greece and Germany. And it is a bit of a reminder that what the right complain about, the far right complain that their freedom of speech is being interfered with and there's unfair legal procedures.

1:12:19Rory Stewart:I guess if you were him as well, you'd also be saying, well, well, well, this is pretty worrying. Look, I'm a relatively senior, respected former cabinet minister, and these guys are trying to take me down in very weird ways, put me in jail, ban me from entering countries, ban me from speaking. And also, he said that he described the current government, he said what Mitsotakis has done essentially is it's like badenock basically hoovering up reform he says he mitsutakis has given some of his far-right positions in the cabinet including some of the positions some of these guys that have gone out and said he should be he should be prosecuted so i said to him well look do you think if badenock or another tory leader and farage ended up running a coalition government after the next election here do you think this kind understand what would happen he said absolutely and he said look look at america and remember what's happening here is that why are they going after him they're going after him because he is a big public voice they wouldn't go after some other ex-cabinet minister who said that 30 years ago they'd taken an ecstasy pill or a smoking pot no this is deliberately about trying to silence somebody who is trying to expose them anyway there we are i think um he is a very interesting guy I last saw him in, we were at the same event in Australia, and he has got a bit of a kind of, he's got a global following now, partly because his books are genuinely interesting.

1:13:45His techno-feudalism book is genuinely interesting. And I think these books that he's written, you know, writing to his daughter, apparently he's really pissed off that he styled the whole book as a letter to her without actually telling her he was doing it. and then one to his father as you said and he's now written he's written a book also about the five most important women in his life and what he learned from them so he's got an interesting kind of quirky academic economic mind i think also he is you know i wouldn't necessarily agree with everything he says certainly not about the labor government in the uk of which i was such a proud part but i think he's somebody who does have this capacity to explain really quite complicated stuff in a simple way.

1:14:26And I love the fact that he said, game theory, you must use your first question, pretty much. One of the first serious questions we did was, you know, how do you use game theory in political and real life? He basically did, do not touch it with a barge pole.

1:14:41Rory Stewart:You're right. He's a great communicator. He's very, very smart. He thinks clearly, and that allows him to explain ideas simply. And I'd give his father a bit of credit here. There's a lovely moment, which you remember in the beginning of Technofheavalism, where his his father, who's working in a metals factory, brings back raw bronze, iron, tin, and melts it in the family fire for the young Yanis, who I think is a small child, and encourages him to see how the metal changes and bangs it. And I think there's something he's really inherited from his father, and maybe also from his mother, about how to bring ideas to life and explain them very simply what do you think vonem is a politician just to finish with i mean what do you what's your sense of his strength and weaknesses as a political campaigner or a leading political figure well it was interesting how he he said that there were these he clearly feels a lot of people that he knew he went into politics lost their bearings lost their moral compass i think because he was there for such a short time it was a few months that he was a high profile politician i mean he's still in politics but the party he created i think they got eight mps nine mps first time around and then they got none i think he's an outsider i think i think he's better as an outsider but he's a very very he's a charismatic guy and he's a clever guy and he's he's a he's a clear communicator but yeah i think he's i think he's more comfortable being outside than inside politics bit like yourself rory if only i was just tall and good looking but at least i'm younger than him.

1:16:14Rory Stewart:That's the thing. I have to hold on to that. You are, and you always will be. You always will be, and I will always be older than him. Forever. Exactly. Thank you, us. Bye-bye. See you soon.

1:16:28Hello, it's Orman Peston from The Rest Is Money. I've just had the most gripping conversation with an economist, Nick Bloom from Stanford, who's published a very influential paper on the costs of leaving the European Union. He and his colleagues calculated that leaving the EU has cost us 8 % of our national income, our GDP. That's 240 billion, more than we spend on the NHS every single year. What's really striking is that his numbers are now the numbers being used by the Chancellor, Rachel Reeves, when she talks about the advantages of getting closer to the EU. So if you want to know how damaging Brexit has been and whether that 8 % number is robust, whether it's real, join me for the latest episode of The Rest is Money.