Varoufakis teaches Economics. He must know that there can never be 'a single real interest rate that would spur investors to funnel all existing savings into productive investments'. I suppose he is referring to the return on a riskless asset to which risk premiums are added. No such assets exist because if you buy Treasury Bills and the currency falls, you may get sacked.



In any case the existence of Liquidity preference means 'all existing savings' will never be channeled into productive investment. Rather it will fluctuate with Knightian Uncertainty of various sorts.



Similarly, because of information asymmetry, it is never the case that 'employers hire all who wish to work at the prevailing wage.' This is because there are costs and lags involved in acquiring signals or performing screening.



Why does Varoufakis speak of 'Capitalism's natural tendency to stagnation'? Any Social arrangement may be accompanied by economic stagnation unless reformed in a timely manner. But such arrangements don't have a 'Nature', an 'entelechy' or teleology. To pretend otherwise is to take a mere figure of speech to be a concrete fact.



In Economics, the first thing we are taught is that in the short run, where technology and physical capital is fixed, diminishing returns arise. Thus 'stagnation' is bound to occur as you hit the boundary of the production possibility frontier. 'Self regulation' is about noticing this is happening and doing things differently by using smarter technology. This takes time. Slowdowns and shake-outs enable this process.



There was once a very foolish branch of mathematical economics called 'Growth theory'. It was abandoned because it was not just useless it was mathematical garbage. A Capitalist economy can be represented as an Arrow Debreu General Equilibrium. However, the 'anything goes' theorem, proved in the early Seventies, showed there were no 'magic numbers' of the sort ignorantly sought by Neoclassical Growth theory- or, indeed, the Monetarists. By the time Varoufakis and I got our first degree, this was widely known. Moreover we could see with our own eyes that Mass Unemployment did not matter. Thatcher got re-elected despite high real exchange rates 'deindustrialising' great swathes of the country. The interest rate became a policy instrument. Then in '92, Lamont raised them too far and Britain finally committed to floating exchange rates. It was obvious that no 'magic numbers' for Inflation, Unemployment, Interest rates or Exchange rates exist either in the Political or Economic sphere.



Varoufakis quotes Freidman who, though wrong about a magic number for monetary expansion was right that, if something is scarce, it is costly. Information is scarce and therefore costly. Suppose I want to open a factory to supply widgets to China. If I have enough alethic information and others have enough information about me to judge me worthy of credit, then I can get a loan at the prevailing risk premium. However, since the information I am speaking off is very costly, it would not be worth purchasing it. If someone gave me a free gift of this information I could use it to make myself rich in the options market. I wouldn't bother with a factory.



More generally, because most resources are not homogeneous and radical uncertainty prevails, the general equilibrium of the economy is multiply realisable or 'anything goes'. This is true of both a Kantorovich 'shadow price' type Command Economy as well as an Arrow Debreu Capitalist Model. I think all economists of my generation- including Varoufakis- knew all this and could see this was true during the course of the Eighties and subsequently.



It is precisely because there is no 'magic number' which can clear markets for heterogenous supply that it is nonsense to say 'The ECB’s interest rate must fall to at least -5%'. Moreover, it would erode but not destroy pension funds. The effect is the same as inflation at 5 percent above the nominal exchange rate- which actually happened as older people like me can vividly recall.



Money markets adjust quickly. The problem with the EU is it thought Physical Capital would be more mobile than Labor because it neglected to take account of production externality and network effects. Still, if the EU had a common language and education system and licensing system and had equal ease of doing business- i.e. if it was more like the US- then it would not demonstrate these sclerotic symptoms.



Varoufakis says investment depends on short term predictions by Central Banks. This is silly. Capital projects are medium to long term. The Investors may use the futures market to reduce risk but that is the extent of their sensitivity to money markets. Similarly, for legal reasons, M&A, stock buy-backs etc typically have eighteen month lags and are based on medium term projections for the sector in question. It is a different matter that structural changes in the financial sector can spark a mischievous type of activity. However, that is where mechanism design- 'reverse game theory'- comes in. Pretending that everything is the fault of 'natural tendency of Capitalism' is as silly as pretending there is a 'natural' rate of unemployment or inflation or interest rate etc. What is important to understand is that Economists no longer have the slightest scrap of prestige. Their own reckless publicity mongering means that we can check, using the internet, that they keep making foolish predictions while thriftily recycling their old essays. It seems there is a small but profitable globalised niche for silliness of this sort. But it has no effect on anything.



Varoufakis and I are too young to remember the Bretton Woods system- which was about preserving the economic rent of the former Colonial Powers through Capital Controls (which Keynes wanted to make legally enforceable at both ends) and rigging prices for primary products. The OPEC countries rebelled against this inequity and helped fuel deregulated spaces- e.g. the Eurodollar market or the Amsterdam commodity market. Ordinary Americans had also started rebelling during the Sixties- they wanted to hold gold and foreign currencies. Similarly the 'Belgian dentist' wanted a better return for his money from 'the gnomes of Zurich'. The elite White Man's club was broken up. Countries like Nigeria and Venezuela started getting rich. In London, the posh locality of South Kensington gained the sobriquet 'Saudi Kensington'.



Deregulated Financial markets increasingly hired women and blacks rather than blue-blooded White Males. Why? Because they had to stay competitive- not rely on an 'Old Boys' cartel.



Other exporting countries- the Tigers, China, India etc started to take off. Why? Because Bretton Woods- a straitjacket devised by elite, misognynistic, racist, White Men- had broken down.



The world has never needed any sort of vision from people who have been consistently wrong in their forecasts and utterly calamitous in their actions while holding public office. Instead, we should listen to people who have genuine expertise in the industries which will shape our future.