Author: Yanis Varoufakis
Yanis Varoufakis, an author of a bestseller, Adults in the Room (which I did not read), wrote a book interestingly called, Talking to my daughter about the economy: A brief history of capitalism. The book is written in a personal way, and as a long letter from the author to his daughter who lives in Australia. The author acknowledges that there is never enough time to talk about all topics when she visits Greece, so he used the book manuscript, which he said was completed in a few days, to give her a view of the economy and why there is so much inequality. Using memories from Xenia’s childhood, well-known tales (Oedipus, Faust, etc.), the author explains everything one needs to know to understand why economics is the most important drama that influences people’s political and social behaviour. The book tries to make sense of a troubling world and inspire change.
I knew lots of things the author wrote about, particularly on economic models and various theorists, because of my degree in Political Science and some work I’ve done on corporate social responsibility. However, I never encountered an explanation of why every Government always saves banks when they are struggling, even left-wing governments, which nominally fight banks and capitalism, and then save banks when they come to the brink of collapse. Varoufakis explains that banks are too big to fail because their collapse would destabilize the entire financial system, the economy, and the national currency, leading to a widespread collapse of businesses, entrepreneurship, and the credit system. A nation’s currency and ability to provide credit depend on banks, and many banks operate on unsound foundations, moving money around the system in such an intertwined way that makes the system easy to collapse. Varoufakis explains this by painting a picture of people withdrawing cash suddenly, and banks being unable to finance businesses that then go bankrupt too, along with the bank, which then spills over into further economic issues, such as inflation, prices skyrocketing, the loss of credit and currency, etc. However, this does not mean Varoufakis is in favour of saving banks. He proposes a public banking system where central banks provide public digital wallets for safekeeping of savings, separating them from credit intermediation. This would then lead to private companies providing intermediation services, but would be subject to market rules, allowing them to take risks and fail without causing systemic problems.
Whether one agrees with Varoufakis’s position or not, the book is certainly food for thought as it explains economic systems and the way they operate in a very easy-to-read way.
Thank you for reading!