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Magnum opus on how the world economy works since WWII��

Preamble:
--If Varoufakis is my favorite writer, why postpone reading his first general public book?
…Well, the other Western political economist I’ve learned so much from happens to be Michael Hudson, who published in 1972(!) the infamous (in government/military/intelligence circles) Super Imperialism: The Origin and Fundamentals of U.S. World Dominance. This was the first detailed study of what Varoufakis later (in 2003) termed the “Global Minotaur��. So, how is it that Varoufakis�� research makes zero mention of Hudson’s work?!
--Of course, Varoufakis�� approach still turned out brilliant (read the 2nd edition), as he is a much better writer for the general public. To salvage the situation, my review will include a comparison with Hudson’s book.

Highlights:

1) Real-world Capitalism::
--There is now a litany of “what happened?�� books on the 2008 Financial Crisis with numerous explanations (systemic risk, regulatory capture, greed, cultural origins, toxic theory). Varoufakis incorporates some of these, but takes a deeper dive into the structural crisis of capitalism (ex. David Harvey: ).
--I prefer Varoufakis�� framing of capitalism’s accelerating abstraction/contradictions (for lovely intro, see Varoufakis�� Talking to My Daughter About the Economy: or, How Capitalism Works—and How It Fails) over Hudson’s framing of a “progressive�� Industrial Capitalism vs. neo-feudal Finance Capitalism, which Hudson doesn’t seem to synthesize enough with his own critique of “Free Trade�� imperialism (Trade, Development and Foreign Debt) or US “monetary imperialism�� in this case.
a) Abstract Production:
--Mainstream economics naturalizes capitalism, thus failing to capture its significance in history. Markets where goods (commodities) are exchanged have long existed. Capital took root when the focus for elites turned to selling goods (ex. wool) on the global market, necessitating the commodification of land and labour (The Great Transformation: The Political and Economic Origins of Our Time): the Enclosures kicked serfs off feudal lands (creating the land market) and the dispossessed were forced to sell their labour (creating the labour market).
--“Societies with markets�� now became “market societies��. A “Great Reversal�� took place: during feudal times, production came first (where the serfs performed the harvest) and then came distribution (when the lords took their share). Thus, production and distribution were clear and visible to the labourer. With land and labour commodified, distribution came first (credit from Finance for capitalist investments, wages to the labourer), then production. Thus, commodification abstracts the productive inputs of land/labour (Marx’s “commodity fetishism��), enabling the manufacturing of consent for capitalist distribution (providing stability for the ideology).
“Capitalist production, therefore, develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth - the soil and the labourer.�� -Marx, Capital Vol. 1.
b) Volatile Finance:
--Greater production required greater investments, thus greater Financialization (i.e. its social mobilization) and its abstraction of value/risks (credit = bringing future productivity to use in the present, buoyed on the waves of optimism/pessimism). This led to further stability of ideology amidst instability of outcome: economic stability breeds instability (Hyman P. Minsky) as Finance accelerates confidence into reckless speculative bubbles.
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.�� -John Maynard Keynes
c) Networked corporations:
--By the beginning of the 20th century, industrial capitalists (ex. Edison) were building monopoly power; this involved not just the final product (ex. light bulb) but also control of the infrastructure (ex. electricity generation stations + wire distribution), resulting in corporate mini-states. Such ventures meant Finance also grew colossal, and prices were less sensitive to supply/demand (thus no longer shock absorbers where a fall in demand means fall in prices, ensuring the supply is sold).
d) 2 Gremlins (labour market + money market) :
--For an industrial capitalist, both labour (wages) and money (credit, thus debt payments) are unavoidable costs, means-to-an-end (profits). Thus, unlike commodities which may be purchased when prices fall, capitalists are thinking about the long-term profitability (good future with plenty of demand). So, we encounter the “prophecy paradox��: during a downturn where wages fall and the State tries to stimulate investment by cutting interest rates, pessimism of the future can cause the capitalist to not take advantage of the falling costs of wages + credit to invest, fulfilling the pessimistic future and worsening the downward spiral (rather than balancing to “equilibrium��)!
e) Ghost in the machine (labour value vs. mechanization):
--Finally, the Sisyphean contradiction of the competitive capitalist drive to automate away labour costs while labour is a source of value, thus cheapening the product and squeezing profit margins (and demand).

2) US’s Global Plan (1950-1971):
--This contradictory system of stability (in ideological abstraction) amidst instability (in routine economic crises of increasing scale), of mass productive social mobilization during booms and complete shambles during busts, reached a global scale with the Great Depression that was only resolved by the creative destruction of the greatest war in human history, WWII.
--US New Dealers, haunted by the Great Depression, were greatly concerned of another global crisis post-WWII, as global trade converged on a single currency (US dollar) and Financial center (Wall Street). See Hudson on how US’s isolationist creditor role during WWI burdened global trade and pushed the world into WWII.
--Keynes (British) was concerned with trade imbalances (where deficit countries become a weak link due to debts, triggering a chain reaction in falling demand), proposing an international central bank (“International Clearing Union��) and international trade currency (“bancor��) to automate the regulation of imbalances by recycling surpluses (“global surplus recycling mechanism��, GSRM).
--US New Dealers could not reach this level of enlightenment, given their surplus power while the rest of the world powers were in ruins from WWII. So, US rejected Keynes�� automated, internationalist GSRM and opted for a US-controlled GSRM (US’s “Global Plan��, i.e. Bretton Woods). Both Varoufakis and Hudson point out the US’s enlightened recognition of a GSRM over the pre-WWII isolationist approach, as now the US funded the re-building of recent-enemies Japan and Germany to establish 2 strong regional currencies as shock absorbers. However, Varoufakis and Hudson are more blunt in addressing the underbelly of this “Golden Age of Capitalism�� than moderates like Chang in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism: the US was pivoting into the Cold War, reviving reactionaries in Japan/West Germany (and throughout the rest of the world to control cheap inputs, a departure from FDR’s supposed disdain for European colonialism).
--Varoufakis highlights the flexibility of Bretton Woods: China was supposed to be the market for Japan, but Mao’s revolution prevented this; so, the regional US-led war against Korea fed the Japanese Miracle of reindustrialization (subsequently, the war on Vietnam fed South Korean industrialization: Drums of War, Drums of Development: The Formation of a Pacific Ruling Class and Industrial Transformation in East and Southeast Asia, 1945-1980). However, wars can take on a life of their own��

3) US’s Global Minotaur (1971-2008):
--Hudson stresses the central role of US war spending in Korea and Vietnam in unraveling Bretton Woods (Varoufakis agrees, adding in falling US corporate profits). War spending abroad meant dollars flooded into foreign central banks, who in turn would exchange them for US’s gold reserves given Bretton Wood’s dollar-gold convertibility. US spent so much in these wars that it effectively went from a surplus to a deficit country.
--To retain its global hegemony, US dismantled its “Global Plan�� of Bretton Woods (GSRM via US surplus) to replace it with what Varoufakis calls the “Global Minotaur�� (GSRM via US deficit); hegemonic power lies in retaining control of the GSRM. Such a drastic reversal required several shocks:
a) Nixon Shock: ended Bretton Woods�� dollar-gold convertibility; US Secretary of the Treasury John Connally to G10: the dollar is our currency, but it’s your problem! The rest of the world was incapable of establishing an alternative trade currency, while the US controlled the dollar’s “printing presses��. US now freely turbo-charged its twin deficits (esp. under Reagan; trade deficit + domestic budget deficit i.e. military spending and tax cuts for the rich) financed simply by printing dollars while the rest of the world returned trade goods and paid for US military encirclement. This is the tribute paid to the Minotaur (Greek mythology, as expected from Varoufakis). See Hudson on the economic details of the “greatest free-ride in history��.
b) Volcker Shock: new Chairman of the Federal Reserve Paul Volcker: “controlled disintegration in the world economy is a legitimate [US] objective for the 1980s��. Varoufakis counters the conventional framing of stagflation as the OPEC oil crisis vs. US. US was able to take advantage of the crisis to reign in competition from Germany/Japan/Third World industrialization (all much more reliant on oil imports) while Volcker spiked interest rates to attract foreign capital for the Minotaur (esp. petrodollar recycling).
--Once the Minotaur was born, the “beast’s handmaidens�� were:
a) Wall Street: Bretton Woods�� shackles on Finance were removed, and the Wall Street casino got busy with the massive inflows to the Minotaur with “financial innovations�� to mobilize society into a speculative euphoria. CDOs (collateralized debt obligations) packaged together debts to hide risks, while CDSs (credit default swaps) made bets on others defaulting. Such financial instruments become not just a store of value but also a means of exchange (i.e. traded and speculated with), thus taking the role of private money (Hayek would be so proud!).
b) Corporate profits: Walmart business model of squeezing labour + small producers rather than technological innovations.
c) Trickledown politicians: Reaganomics and Thatcher’s “shareowners�� democracy�� privatizations.
d) Supply-side economics: Varoufakis’s academic career was focused on such mathematical abstractions and makes an illustrative connection to the real-world Wall Street CDO calculations that assumed one debt going bad is unrelated to other debts, thus no risk of systemic crisis!
e) Household debts to keep the American Dream alive (since the rising-wages compromise was broken)

4) Death of the Minotaur while its handmaidens reign (2008-present):
--The Minotaur’s tribute feeding Wall Street’s casino eventually burst (for a more economized analysis, see Keen’s Can We Avoid Another Financial Crisis?).

Notice the irony: in a world ideologically dominated by monetary conservatism [against Government spending], and ringing with long sermons about the perils of printing money, the effective money supply had been turned over to privateers [private banks] bent on flooding the markets with money of their own making [ex. CDOs]. How did this differ, really, from handing the Fed’s printing presses over to the mafia? There is not much difference, is the honest answer.

--The book’s 2nd edition confirms the hypothesis that the Minotaur died because a US hollowed out by Wall Street (unemployment + black hole of private debts, i.e. debt deflation) is now insufficient as a GSRM (despite the continuation of its twin deficits). The key handmaiden (Wall Street) continues to reign since Obama failed to seize the moment of public outrage to reign in Wall Street like FDR, instead insuring Wall Street and reviving their casino at the expense of the public. Without the Minotaur GSRM, what is left is Wall Street “b���԰���ܱ�ٴdz�����������.
--Varoufakis reviews the rest of world powers: “dimming sun [Japan], wounded tigers [Southeast Asia], flighty Europe, and anxious dragon [China]��. For Europe’s abyss, see And the Weak Suffer What They Must? Europe's Crisis and America's Economic Future. On China, Varoufakis reviews its contradictions as the production base of global capitalism (thus competition) while also offering an alternative (to imperialist IMF/World Bank). After the 2008 crisis, China inflated its own bubbles to save global demand/production from completely collapsing, and one question is how these bubbles can be deflated without a new GSRM. Hudson seems more optimistic on China building an alternative.
--On a new GSRM, Varoufakis praises a Global South or Keynesian internationalist initiative, but concludes on a disappointing note:

With Europe out of contention, and the emerging nations buffeted by both the Crisis and a lack of tradition in mould-breaking on a global scale, once more it is the United States that must provide, perhaps for the last time, the missing agency. Put simply, I just cannot see how genuine progress towards building a wholesome GSRM can be made otherwise.

The Missing:
--While Hudson and Varoufakis both recognize imperialism, their research methodology + framing are still Western-centric. This should be balanced with the global South geopolitics of Vijay Prashad (The Darker Nations: A People's History of the Third World, in particular the Global South as a historical actor esp. decolonization’s internationalism + NIEO proposal) and the (dense) political economy of Utsa and Prabhat Patnaik (Capital and Imperialism: Theory, History, and the Present)
--The irrationality of capitalist crises (i.e. if demand briefly halts then epic crisis) becomes exponential when we consider this demand underlying “economic health�� is GDP’s compound growth, which is driving us to existential environmental crisis! Less is More: How Degrowth Will Save the World
-Facing the Anthropocene: Fossil Capitalism and the Crisis of the Earth System
--For a longer view than just the 20th century:
-World-Systems Analysis: An Introduction
-Debt: The First 5,000 Years
--Transcending global capitalism? See Varoufakis' Another Now: Dispatches from an Alternative Present