CHAPTER 1

STARTING POINT

NEO's Opening Keynote

Friends, let me welcome you to this marvelous island wherewe have given ourselves the pleasant task of thinking aboutthe world and proposing feasible solutions to its problems. Iwill lead the debate throughout, but will entertain all sorts ofquestions, comments and challenges in the spirit of the PlatonicDialogues which have inspired this three week seminar.

You will note that Plato conveyed all of his philosophical andpolitical ideas through dialogue with characters. Successivegenerations of philosophers have preferred straight analyticalprose to popularize their theories. I myself have written all mybooks and articles in straight prose. This time, let us experimentwith dialogue.

The Agenda is ambitious. We resolve to consider the 2008Financial Crisis as a major world event which has revealed bothsevere cracks within, but also great opportunities for, the WorldEconomic System.

Today, in mid 2013, we are living the major sociopoliticaltsunami which has followed the financial earthquake of 2008.Other crashes are sure to come, but even if there were none, thehuge effects of the 2008 Crisis will be with us for a long time.

Our goals therefore are as follows:

1. To understand where we are and how we got to what wewill call POINT A.

2. To try and define where we want to go, which we cancall POINT B (in the singular or plural).

3. To identify paths that are both feasible and desirable ingoing from A to B.

Our first week will be devoted to the analysis of Point A; thesecond, which will take place in a few months, will define thecontours of one or more Point Bs; and the third week will dwellon the strategy necessary to help realize these objectives.

In essence, a think-tank for two weeks, and a do-tank for thethird, lest we be accused of just being dreamers on a dreamisland and nothing more.

QWERTY

Don't you think, O.T, that it is presumptuous for us to try anddo ourselves what has evaded the scores of experts at the IMF,the World Bank, and the OECD for decades?

NEO

Possibly, but I say, why not? We are not mandated to changethe world by anyone but ourselves. We are just a bunchof citizens, and if I may be so bold as to mention withoutarrogance, we are of high intellectual caliber, willing to applyour intelligence and knowledge to contemporary problems.

I believe that there are three features of our Athena Trilogywhich make it worthwhile and not just another me-too seminar,like the hundreds that take place all the time.

• First, by the very composition of the group, we arecombining a think-tank and a do-tank. We have assembledboth thinkers and actors in this gathering, which is a goodthing. It will ensure that we will stay on track.

• Second, we are dealing with a variety of issues whichgo well beyond the `plumbing aspects' of the worldsystem, i.e. financial regulation, deficit to GDP ratios,unemployment statistics, into the realm of philosophy.We are trying to connect the dots, uncover hiddeninter-dependencies and conversely highlight theuncoupling of previously closely-paired variables. Inmost of the other meetings, the dots are not connectedat all, and inter-dependencies are altogether missed.

• Third, we are reviving what I consider to be the mostpersuasive and efficient of all pedagogical techniques,the Socratic Dialogue method, though within thecontext of modern technology. The metaphor of ourgroup sponsoring this event, the New School of Athens,is PLATO WITH AN IPAD, the marriage of moderntechnology and perennial wisdom. Today, while weconverse, any of us can summon knowledge throughhis/her smartphone or tablet to support or challenge aposition, while remaining in the spirit of dialogue.

QWERTY

True enough, and this is why I consented to come. Although,I must say, I tend to mistrust blue-sky intellectuals, seekingnever-never lands and concocting unreachable utopias. I am apractical man. I like to do. I get tired of pompous intellectuals,and I hope this bunch does not fall into that category.

On that note, NEO, I understand, from your outline of theagenda, that we will be spending the whole of the first week ondiagnostics. Isn't this a colossal waste of time? Surely we knowwhat the problem is. What is missing is the solution. So why notskip diagnostics altogether and focus on solutions.

NEO

In my opinion, the first week is the most important. I believethat the absence of credible solutions comes from the factthat we have not understood the problem, and thereforemisdiagnosed it.

Let me recount for a moment a true anecdote. Some yearsago I was involved in a development project in Cameroon andexperienced quite suddenly a very severe and high fever. TheYaounde doctor whom I consulted told me that it was probablyeither Falciparum Malaria, a particularly virulent strain, orHepatitis B. I asked him what were the remedies. He answeredthat, were it malaria, it would be a large dose of quinine, whilefor hepatitis B, it would be antibiotics.

"Give me the quinine then" I said. "Not so fast", the doctoranswered. "If I give you quinine and you have Hep-B, you coulddie on the spot".

"Ok then, give me the antibiotics", I countered. Again, "not sofast", he responded, "falciparum is fatal in half the cases if nottreated early. We cannot afford to make a mistake".

In desperation I said, "how can you find out what I have?" Ablood test, he assured me, would give us the answer. However,because of budget cuts, no blood test could be performed inYaounde for at least three weeks. We would have to act now."I cannot give you a firm diagnosis without such a blood testbecause my professional reputation would be at stake", said thegood doctor. "I will therefore ask you to tell me what you thinkyou have and I will cure the disease that you will have identified.But the responsibility of diagnosis will be entirely up to you".

"Incredible" I said. "You are asking me to make a self-diagnosis,while you, a trained physician, refuses to do so. OK, so be it". Iwent outside, did a heads or tails. Heads turned out malaria andended up being right. I was treated with quinine for eleven daysand subsequently survived to tell this story.

Extrapolated to today, I believe that we have been greatlymistaken in our diagnosis of the current world predicament.We are applying austerity measures to get out of the 2008Great Recession, believing that the main problem is scarcity ofresources, with not enough to go around. What if the oppositewere true? That the problem was not scarcity at all, butmismanaged abundance? We could be applying the wrong cureand ending up killing the patient.

For this reason, I believe that we should spend a good third ofour time on uncovering the real issues. This is part of my moregeneral 'theory of errors' to which I will refer at a later date.

SCHEHERAZADE (A French Algerian doctoral student)

I have heard you talk about the "Theory of Errors" and itsimportance. Given its relevance to today's challenges, why don'tyou tell us more about it?

NEO

All right then. With the permission of the group, I will.

QWERTY

Permission granted. I too am quite intrigued by this concept.

NEO

Well then, consider the following proposition: contrary topopular belief in rational human behavior, errors are muchmore frequent that we would care to suspect. This is even truewhen everyone is rational and even super-intelligent.

In any zero sum game when there must be a winner and aloser (chess, poker, football, baseball, tennis), obviously oneof the two players will miscalculate. If there were never anymiscalculations, no two-person games would ever be won orlost.

Take the extreme of learned thought: two eminent lawyerspleading the opposite end of a Supreme Court case. One ofthem will prevail, while the other will lose. In all cases of zerosum activity, i.e. one winner only, where chance is not a factor,the loser or losers will have committed a mistake.

I would go so far as to say that, in win-lose games, half thepeople are wrong all the time. This is by definition true. Whatthis means is that errors are ubiquitous and not exceptionalat all. My own research on the matter has led me to concludethat half of all errors can be attributed to diagnostics, hencethe importance of attaching a special focus on it. A flaweddiagnosis is indeed the mother of all errors. Hence, a correctdiagnosis is the sine qua non of effective policy, while itsabsence dooms entire projects.

QWERTY

I hear you. Your points are well taken. But surely, with intelligentpeople and sophisticated institutions, prestigious universities,democratic governments, and informed media, the 'shelf life' oferrors cannot be very long. They are sure to be spotted quicklyand corrected. Don't you agree?

NEO

I wish I could, C.W. If errors were self-correcting, then ourproblems would be minimized. But there is a class of errorswhich are persistent and stubborn. They are usually relatedto inertia, urban legends, conventional wisdom, and areunfortunately not self-correcting. Prognostic and strategicerrors can be self-correcting, but the difficult ones are thediagnostic errors. These tend to be indefinitely sustainable, inthe pejorative sense of the world.

ANGUS MC THRIFT (a Scottish Professor of the Philosophyof Psychology and History of Media and well known for hisability to invent puns, epigrams and soundbytes to conveyprofound meaning in the simplest of terms)

I agree with NEO. Self-correcting errors depend almost entirelyon learning. If there is no learning, errors tend to be repeated.Witness a fly trying to get out of a room and hitting thewindow repeatedly. There is no learning there. It will continue todo so until it drops of exhaustion.

Also consider the famous answer by Alexander the Great whenhe was asked if he became an able general as a result of hisexperience in 20 previous battles. He answered, "Not at all. Mydonkey attended all of my battles, yet he is still a donkey."

Unless you are receptive to learning, the lessons of yourmistakes, you are condemned to repeat them ad infinitum.

The point was also admirably made by Thomas Kuhn, in hiswell-known book The Structure of Scientific Revolutions, in whichhe claims that a paradigm shift is needed for a true intellectualrevolution, not merely tinkering at the margin. Such a paradigmshift is difficult to achieve because it goes against the grain ofan established mainstream, controlled by editors of scientificpublications, university chairs and political appointments. Thismainstream is likely to resist true change.

In addition, evolutionary psychology shows that, as we age(both individually and as societies), there is a sort of hardeningof the categories which goes hand in hand with the hardening ofthe arteries. It is difficult to teach an old dog new tricks. Out ofhabit and ritual, we tend to do things the same way every day.

This is why it is important to challenge the status quo. As arecent TV ad put it: "if no one had challenged the status quo,the world would be flat, E would not be equal to mc2, the feudalsystem would still rule, and democracy would exist only inphilosophy books."

REA SYLVIA (a graduate student in psychology)

In fact, one of the most intractable errors is what somepsychologists have called FALSE CERTAINTIES: The stubbornbelief, that something, which is obviously false, is actually true.I think NEO will probably address this question later on inthe week in connection with labor markets, where it is blindlybelieved that more corporate profits will create more jobs, amantra widely held by the Tea Party in the US.

In some sense, we are all afflicted by false certainties, anduncovering them should indeed be one of our major tasks.

QWERTY

I would tend to agree. Let's do the diagnostics. Why not? Wemay uncover false certainties, but also possibly confirm othersas valid truths and get them off the maybe list.

This being said, Mr. Chairman, let me suggest that we followWoody Allen's timetable when he claimed that the three mostimportant questions are (1) where did we come from? (2) whereare we going? and (3) what's for lunch?

I suggest we now break to sample the wonderful buffet theyare proposing to us at the beach restaurant.

NEO

Fully seconded QWERTY, and timely, because our next sessionwill deal precisely with what I am calling Buffets and Breadlines,attacking head-on the central challenge of our time: scarcity orabundance.

The Scholars break for a tasty lunch of seafood andcharbroiled fish with Greek salad washed downwith retsina. For dessert, karpouzi (watermelon)and mangoes followed by Greek coffee. After ashort siesta (power naps are de rigueur), theyreconvene for the continuation of the openingsession.

NEO

Before we can properly address the problem of inequalityin the world (Buffets and Breadlines), I believe that we shouldget a historical perspective of how we got to our current state(Point A). This will help discover the roots of the problem andhopefully make a convincing diagnosis.

KEN HERNANDO (a radical leftist graduate student)

Are we going to go back to high school and the standardhistory lesson? Don't you feel we know how we got here andwhat the problem is and that we should instead concentrate allour energies on solutions?

NEO

No. I don't think so. Understanding the historical antecedentswill held us to avoid repeating the same mistakes. Allow me toquote GEORGE SANTAYANA: "Those who cannot remember thepast are condemned to repeat it" (1905), and more relevant toyou, as a practicing Marxist, the words from the master himself:

—"History repeats itself, first as tragedy, second as farce." KarlMarx.

I have asked our resident historian ARNAUD Crosby to walk usthrough a short history of capitalism and economic crises

ARNAUD CROSBY-LAFFITE (a world-famous historian, Crosbyhas specialized in macro history, the long-term evolution ofMankind, and is a specialist on counter-factual conditionals.Burdened with an extremely busy schedule, it was a veritabletour de force to get him to accept to come to Corfu for awhole week.

Thank you Neo. What I will do first is give you an overview ofsignificant historical events prior to the 2008 crisis, and thenexamine the chronology itself of the crisis from 2008 to the endof 2011. Does that sound ok with you?

NEO

Sure

CHAPTER 2

THE EVOLUTIONOF MODERN CAPITALISM

ARNAUD

From the early modern period (1500-1750), Capitalism has beenmarked by business cycles: periods of intense euphoria andeconomic growth, usually accompanied by rising prices and amoney illusion, which tend to stimulate entrepreneurial activityin the short-term. The cycles continue through investor panicand economic depressions. So the vagaries of the market arenothing new.

Towards the end of the nineteenth century, there was asignificant downturn in the world economy, dubbed The GreatDepression. The name was later abandoned when the twentiethcentury Great Depression 1929-1939 occurred and dwarfed theearlier downturn.

The shocks associated with the financial upheavals of everybusiness cycle could be compared to earthquakes: an initial joltand some aftershocks. As in the case of physical earthquakes,sometimes followed by tsunamis or tidal waves, financialearthquakes have similar characteristics. The economic disasterusually engenders a social sequel, and then a political upheaval,which can lead to regime change.

I have called this historical pattern F-E-S-P.

F is the financial earthquake,

E the impact it has on the real economy of production andconsumption,

S are the social disruptions which result from theaccompanying economic hardship,

P are the political consequences. P may take the form ofdemocratic regime change or, more ominously, socialconflict and-or international wars, as was the casefollowing the 1930s Great Depression.