Germans Must Be Taxed More – Yianis Varoufakis

Yanis Varoufakis is again banging the drum that German’s should be taxed more in order for Germany to send money to incompetent governments.

To quote Varoufakis directly

an extra-market surplus recycling mechanism is one which relies on political (as opposed to market) institutions. For example, unemployment insurance or the food stamp program in the US offer automated extra-market mechanisms by which surpluses from the surplus regions or states are recycled to the regions or states with higher unemployment and/or poverty

Well at least he is honest!

To implement what Varoufakis is suggesting there needs to be something like an EU income tax paid to the EU parliament in addition the income taxes that people pay already.

The EU commission would then redistribute these funds to areas of the EU where the funds were “required” in order to balance the trade account between countries.

Varoufakis prefers this solution of centralised economic control to one of competition between countries.

The logical solution would be for governments which have a trade deficit to adjust to their economic policy by figuring out what they are doing wrong compared to the countries, which have a trade surplus.

Varoufakis would probably call this rubbish.

Take Greece for example.

The recession in Greece is caused by extremely restrictive employment regulations, massive tax increases and a reduction in government spending.

In other words, the recession in Greece is 100% caused by the government.

Using Varoufakis’s recycling mechanism, he is proposing that the Greek government should be allowed to continue financially oppressing the Greek population rather than freeing up the economy.

Freeing up an economy is not difficult, if the Greek government were having a hard time coming up with ideas they could simply copy the templates used by the surplus countries themselves.

But to repeat. Varoufakis is saying this is not the answer.

The answer in his mind is that hard-working Germans should be forced to pay more taxes whose proceeds are then ploughed into despot governments in order to keep them afloat.

The whole “surplus recycling mechanism” is illogical.

As is typical of Varoufakis he actually identifies the problem exactly correctly in his article and then comes up with a solution that completely ignores the problem he himself has identified.

In the article, Varoufakis gives this analysis of Germany

national economies that comprise large oligopolistic manufacturing sectors, replete with economies of scale (as well as of economies of networks and of scope), with production units operating at excess capacity (that reflects their market power and their capacity to deter competitors) and concentrating much of economic activity on the production of capital goods; and

this paints the picture that the German economy is somehow dominated by the large multinational businesses and this is how Germany has a trade surplus vs. Greece.

But this is simply not the case.

Large multinational companies such as Mercedes and Audi employ only 36.7% of the population. http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-review/files/countries-sheets/2012/germany_en.pdf

SMEs employ the majority of people in Germany just as they do in Greece.

Varoufakis then goes on to explain the trade imbalance perfectly

national economies where the capital goods sector is atrophic, where production is much less capital intensive, and where economic rents are not due to economies of scale but due to corrupt practices and socio-political impediments to competition (e.g. restrictive practices, crony relations between authorities and particular business interests).

So to repeat, Varoufakis explains perfectly why Greece has a trade imbalance i.e. centralised control that has led to bad practices.

Yet Varoufakis’s solution to the whole problem is to concentrate even more power in the hands of fewer people who would  be even less democratically accountable that the ones we have now.

This is a textbook example of doublethink.

There is only one logical explanation to Varoufakis’s thinking.

He believes that the system of centralised control in undemocratic organisations such as the ECB and EU is fine.

The problem lies in the people who are there. We simply have to ensure that the right people are put in the job.

This is naive.

We have tried this principle of trying to put the right people in positions of power already through the “democratic” process in Greece, in Spain, in Portugal, in Italy, in France and looked what happened. The EU economy as a whole can only dream of 5% GDP growth and unemployment rates are at record highs.

To propose creating and even more powerful entity and hope it is not infiltrated by the same type of people who have infiltrated the governments of Greece, Spain, Portugal, France and Italy is misguided.

Instead of hoping that the monolithic organization (with a track record of failure) that you create does not fall into the wrong hands, is it much wiser not to create the possibility of living under tyranny by not creating the despotic organisation in the first place?

 

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