I’ve thoroughly enjoyed reading The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy by Yanis Varoufakis. (An aside: I also quite like this trend towards long and chatty subtitles, a return to a much older style.) However, although I agree strongly with certain points the author makes, it’s essentially a conspiracy theory view of the world. At times it felt a bit like wearing a pair of glasses with slightly the wrong prescription, so that the scene is recognisable but subtly distorted. I’m not a conspiracy theorist – I believe problems are much harder to solve than that perspective implies.
You can tell Prof Varoufakis is a proper, crunchy economist. He recounts this anecdote:
“A friend of mine once complained that he could not sell his stunning holiday home. I offered him $10 to make the pedantic (but not inconsequential) point that it was not that he could not sell it, but rather that he could not sell it at a price of his choosing.”
The book also makes a lot of proper, crunchy points about the financial crisis and how it came about. He sets out the evidence on the failure of the great majority of Americans to see increases in their real incomes despite huge productivity gains – all of which went to the profit share of national income. That was unsustainable, and is in the process of no longer being sustained, although we do not yet know how the politics will play out. He describes the multiple contributory factors to the growth of toxic derivatives transactions.
The book’s central argument is that the huge transfers of capital from current account surplus countries to the United States, year after year, were the main reason for the collapse. Hence his metaphor of the Minotaur, needing constant tribute from the rest of the world. This is not exactly controversial, albeit told in a very readable way – I like an economist who can cite Classical myths and literature. Martin Wolf, for example, has made the same argument.
However, Varoufakis superimposes on the conventional economic account a political story – that the emergence of the American minotaur and the global recycling of capital was a deliberate strategic plan on the part of the US authorities. I’m really not convinced. The book does not make enough detailed reference to works of political history to lend this argument credibility. There’s one specific point on which I know it’s at least over-confident and probably wrong – a note claims Harry Dexter White was hounded to his death by false allegations that he was a Soviet spy. The hounding was real, but he almost certainly was a Soviet agent, it emerged in the Mitrokhin archive (see Christopher Andrews, The Sword and the Shield – although this IMF paper of 2000 argues the case is unproven). A few quotations are offered (Paul Volcker referring in a 1978 speech to the ‘controlled disintegration of the world economy’). The political history is selective – Jimmy Carter, for example, does not rate a mention; we jump straight from Nixon to Reagan. And finally, my own minor brushes with the inner workings of government make the cock-up theory of history profoundly more credible than the conspiracy theory.
So in the end, although I always find it interesting to get a completely different perspective, and although I certainly think it’s useful to think about the crisis in the context of longer-term geopolitical and global economic trends, and although this is a very enjoyable read, I wouldn’t recommend it unless you want your own conspiracy theory taste buds tickled. And it’s a shame Professor Varoufakis has been devoured by his own Minotaur metaphor, because the reality is shocking enough without interpreting it in the light of a supposed 50-year conspiracy by the American elite.
The Global Minotaur: America, The True Origins of the Financial Crisis and the Future of the World Economy – Economic Controversies