Too Close for Comfort


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Yanis Varoufakis has an interesting post in which he wonders why those who espouse a faith in the ideas of Frederick von Hayek do not follow them through when it comes to the liquidation of public debt, that is the bank debt which has been socialised.

“On the one hand they are keen to spread Hayek’s message that, within Bailoutistan (with Greece being the most prominent province of this new ‘nation’), there is no alternative to liquidating stocks, farming values, real estate prices, most government departments and much of still employed labour. However, in sharp contrast, the only one thing that they are not prepared to see liquidated is Greece’s public debt to the banks which, according to Hayek himself, created the problem in the first place! Why the exemption of Greek public debt from the list of bad debts/assets to be liquidated?”

In his conclusion though he tries to guess why this double standard seems to be applied in the case of Greece:

“A Faustian Bargain seems to have been struck between Bailoutistan’s Hayekian neoliberals (with Greece’s variety the most striking example) and the statist ECB-EC-IMF bailout approach. This explains partly what I shall term the European Periphery’s Neoliberal Anomaly: neoliberals that are happy with the idea of huge new taxpayer-funded loans on insolvent state entities. However, this explanation is only partial as it fails to explain an important observation. Recalling Sherlock Holmes infamous ‘dog that did not bark’ inference, the question arises (regarding Greek but also Irish Hayekians): Why have they said nothing about the need to liquidate the nation’s bankers? (Or Irish bank bondholders for that matter?)

My point here is that, even if we accept the Faustian Bargain hypothesis above (namely that local elites have lost faith in themselves and want the troika to supervise their own odd ‘Road to Serfdom’), there is nothing in the neoliberal manual that can explain their total silence on the national (e.g. Greek or Irish) banks which played a huge, and hugely negative, role in causing the boom that led to the bust. Whereas Hayek would recommend that these bankers are liquidated forthwith (in order to teach all a lesson about the consequences of excessive credit creation), Greece’s and Ireland’s neoliberals are utterly silent on this. Why is that? In the case of Greece the answer is evident: Because of the extremely cosy relationship between the said neoliberals and the bankers. Period.”

To help things along a bit I’d like to provide the answer in the case of Ireland: ditto.

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Donagh is the editor of Irish Left Review. Contact Donagh through email:

4 Responses

  1. ex labour

    February 28, 2012 11:39 pm

    all I know about Hayek is that, He was a just one of the disciples of Mises, the leader of the so called Austrian Ecomomists, who talked about the impossibility of the Socialist Ecomomy ( Socialism & Ecomomic Calulation).In the Soviet Union there was never a real market for any commodity, ie when talking about a market for say tribants(cars). The Professional Managers ( The 5 YEAR PLAN) could never decide the real price for cars(INSTEAD OF LETTING THE MARKET decide)& assign proper resources to their manufacture or manufacturing tractors etc…

    The managers would look to the so called capitalist west to figure out the bprices.

    These are just one example of how the socialist planned ecomony could not allocate resources accordingly to demand or efficently. Hence in the 90’s the collapse of the soviet union & its satillites occured, along with the lack of protest of their populations.

    Watching Warren Buffet(the sage of Omaha)on NBC this morning,advocating for greater taxes on the rich, still reckons the Capitalist system is still the best economic system we have.. if not so perfect.

    Finally I do not know where yanis yaroufakis gets his ideas about the myirad of mainstream economic thought, but not all those who advocate the economic status quo advocate perpetual deflation of our ecomomy over the next few years..
    Ireland’s present predictument is a lack of governence over society by FF etc, ie a property tax & associated taxes, water tax, should have been introduced over the last 20 years instead of the opportunistic tax we had, when buying houses etc.

    The public sector should have been reduced, instead of, behind the door,in explicable pay increases being done by Bertie !!.
    What the Troka are looking for now, should be implemented, ie open up the Legal ,Medical professions to competition( reduce their income)
    Finally as Buffet said, noting the USA, leadership should be shown by the political class !!.

    Politicans to reduce their wages & expenses in our time of need …

  2. Donagh

    February 29, 2012 1:00 pm

    @Fergus, Hayek is generally attributed with the nostrum that the private sector (market) is more efficient at allocating resources via the price mechanism than government. I agree that discussion of economic theory is not the norm of politicians, but it’s fairly clear in the opening to the Action Plan for Job when Enda Kenny says.

    “Governments don’t create jobs, successful businesses and entrepreneurs do.”

    Just as it is when David Cameron says the same thing: “Governments don’t ­create jobs, businesses do,” he said yesterday.

    “The role of government is to make it easy as possible for industries to grow, ­invest and take people on.”

    Or Obama does, via his press secretary:

    As President Barack Obama once again pivots to focus on economic growth, Press Secretary Jay Carney declared Thursday that “the White House doesn’t create jobs.”


    March 1, 2012 10:45 am


    Hayek was neither the first nor the last to say that the private sector via the price mechanism is more efficient at allocating resources than the Government.

    Nor is it necessarily a peculiarly right-wing view. IMHO it only becomes so when pursued beyond its proper borders.

    Even Sinn Féin can see that Government does not “create jobs”, except in the narrow and unhelpful sense that it (Government)can obviously employ & pay people even if nothing useful is being done by them and/or the wages are being borrowed recklessly.

    The only useful sense of the phrase “job-creation” is where people freely spend their money on new goods or services which people are employed to provide. Or, where economic activity results in tax revenue in excess of outgoings and we decide to employ people with that revenue.