Ep104: Yanis Varoufakis "Power, Markets & Power Markets"

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Michael Liebreich So Yanis, thank you very much for joining us here on Cleaning Up.

Yanis Varoufakis It's a great pleasure, Michael, thank you for having me.

Michael Liebreich We are we're doing this at a very stressful moment in history with what's going on in Ukraine, what's going on in the energy markets, energy prices for average people. People are seeing their energy prices absolutely soaring. So, that's really the topic for today. And I suspect it's a topic you're doing, you're talking about all the time, is that right?

Yanis Varoufakis Absolutely. Incessantly.

Michael Liebreich Now, the most recent piece of yours that I read was in Project Syndicate, and you wrote a piece called - it had this very provocative title - Time to Blow Up Electricity Markets. Maybe we'll come on to the specifics of the blowing up of the electricity markets. But could you give us your overview of... we're going to start really on energy markets overall. And we can go into politics, macroeconomics, the electricity markets, we will definitely talk about. But give us your overview of the energy situation that we face now in Europe.

Yanis Varoufakis The idea of electricity markets, is a contradiction in terms - it always was. The simple reality is that it is a natural monopoly. And it can be nothing other than a natural monopoly. There is only one wire coming out of your wall, whether it's your home, your office, or your factory. We don't have, and we shouldn't have, 50, 60 different wires coming out of our walls, corresponding to 50 or 60 different companies that produce it and distribute it, because it would be highly inefficient. Imagine having 50 overlapping grids running through the land and the buildings and the urban areas. So there's a there's a natural monopoly. There's one wire, and then what happens is you have the government, the state, coming in simulating a market and creating circumstances that at the best of times, create the semblance of a marketplace. A marketplace, so power generators. the marketplace supposedly provides us with, buy in bulk electricity from the power generators. So, you see, it used to be the case that the left and the right, we used to have, you know, these interminable fights and debates regarding the efficiency of the market, whether the state should step in to regulate. But when it comes to electricity, there can be no market unless the state creates a quasi-market, something that resembles a market. I always thought that it was madness, madness in action. And the depth of the madness becomes apparent when you have an energy crisis. When you know, the costs of producing electricity skyrocket, at least partially when it comes to natural gas, currently, or oil in the 1970s or coal during an industrial dispute, like back in the early 70s in Britain and the 1984 with the miner's strike. And now what we have is a situation where the wholesale and deep-seated irrationality of the notion of an electricity market is coming to the surface as a result of the escalation of the price of the of the one fuel, which provides the marginal cost of the pricing system. And that's natural gas.

Michael Liebreich And of course, we've seen the price of natural gas soaring. And you're saying that it's that combined with this natural monopoly, which is leading to the pain that's felt on the utility bills?

Yanis Varoufakis Yes, but it's a local thing. If you look at the UK, the UK has done magnificently well, along with some other countries like Denmark, in installing renewables. So more than half of your electricity comes from renewables, so shouldn't be affected at all by the price of natural gas. Why is affected by the price of natural gas? Why is it that you know, your electricity bills, even though 52%, 53%, if I'm not mistaken, of your electricity comes primarily from wind farms, why is it that you have the same crisis that we have here in Greece, where we have much, much, much smaller penetration of renewables? The reason is because you have marginal-cost pricing.

Michael Liebreich When you said marginal cost pricing... I mean, I'm an energy wonk, so I immediately jump up. And the marginal-cost pricing just to explain it - our audience are knowledgeable, but they're not technical - that means that the price of the kind of last unit of energy required to meet demand is the price that applies right across the whole supply. So even if it's cheap wind, cheap solar, cheap anything, cheap nuclear, the gas is driving the price. Now, what's that got to do with the fact that there's only one wire into the building?

Yanis Varoufakis Well, allow me to say it in my own more exaggerated terms, because sometimes exaggerating helps make a point. So, imagine that you had 100 kilowatt hours produced in the United Kingdom, and 99 of them were free - free, 0 cost. Yeah, just God was providing it for free, wind was providing it for free, and one of them was produced by very expensive, imported liquefied natural gas from Texas. Okay, then all the 99 ones, plus the one that is produced by LNG, will be charged at the price reflecting the cost of the expensive Texan LNG. That's what marginal cost pricing is. Now, if you have a monopoly or indeed a monopsonistic competitive market - that is, a market with quite a lot of market power amongst those who are providing the good or the service - it's very natural, is it not, that the marginal cost, the most expensive, the cost of the final unit is going to be the price that applies for every unit. So if you and I were producing widgets, right, and every widget had a different cost. So, the first few widgets that we produce, cost us a lot of money, and so on and so forth. We would charge one price for every widget, but not every widget would provide us with the same price-cost margin, because some of them would be cheaper to make than others. Okay, now, we would continue to produce widgets, you know, your company, the Michael and Yanis company. will continue to produce widgets and sell them, as long as the next widget that we would sell would give us more money than it costs us. As long as the marginal value was greater than the marginal cost. When we would stop producing widgets, we would stop producing widgets when the last widget that we produced cost us the same as the revenue that we brought in. Okay, that's the condition for our profit to be maximized - that the revenue from the last unit produced equals the cost of producing that last widget. So, that's marginal cost pricing. Okay. So, that means that, you know, if we produce n widgets, the n-1 gives us a higher profit margin, n-2 a higher profit margin, n-3 a higher profit margin. Now, that happens when you and I are running a monopoly over widgets. Naturally, when the government simulates a marketplace, for a natural monopoly, like electricity with one wire coming out of the house, the same thing applies. So, you have a situation where, you know, you've got all this free energy being produced by wind farms in the North Sea, and you pay for these kilowatt hours as if they were produced by the... Now that is a scandal, because you have the government playing the role of the monopolist, or actually allowing the privateers who are now utilizing this privatized utility - electricity - to extract monopoly profits out of the population. And that is a scandal.

Michael Liebreich I mean, it has turned out scandalous, right. I'm not going to disagree with that. It is, you know, it's outrageous that people producing electricity cheaply or being paid these super rents, right. They're completely unexpected. I can tell you I talked to financiers, developers all the time, none of them invested in wind offshore in the UK, saying, you know, Vladimir Putin one day will invade and then we'll make our money, none of them. That's completely unexpected excess rents. But there are other ways of structuring the market. So right now, big discussions about capping the prices from various resources. So, you could say, right, wind never costs more than x to produce, and so therefore the price it receives should never be more than y and you have some margin. And that's being discussed. My own proposal, which I put out there was to split the market and say, look, fundamentally, we want... what's happening is the system was designed around... it was designed in a time when nuclear and coal, which are two things that need to run 24/7, were cheap. And then the gas was allowed to be at the margin because it was the peaking resource. But of course, we don't live in that world anymore. Now, we have these very large amounts of zero marginal cost renewables, and we fundamentally need to restructure the markets. Now your reaction is, it's a monopoly, and therefore, I don't want to put words in your mouth, but it should be nationalized, it should be one single provider. Whereas I suppose mine is why not reform the market to remove the excess which has been revealed by the current price spike in gas? Why throw away a system that actually for decades has produced pretty good outcomes?

Yanis Varoufakis It hasn't actually produced really good outcomes. It's produced pretty miserable outcomes, except that they were not that painful, because the price of natural gas was not that great. But let me answer your question directly. First, a preface. And what you are proposing was what I'm proposing for the short term, because even if you made me Prime Minister today, God forbid, I would do what you're suggesting, what I've been proposing from day one from back in February, which is, you know, cap the wholesale price from each different unit of output of production, in proportion to the average cost - not the marginal cost - the average cost of each production unit. So, hydroelectric, how much does it cost? What's the average total cost of hydro - it's 25. Okay, cap it at 30. Let the provider have a small profit, but nothing exorbitant. What is it from wind farms? What is it from solar? What is it from gas? What is it from coal? Because we still have some coal here in Greece unfortunately. And then, you know, effectively cap different wholesale prices, such that the actual price is no more than, say, 5%, of average, total cost. So, look we agree with one another on what needs to happen. Where we probably disagree is when I say that, look, this is a bit weird what we're doing, there was no such thing as a market, the state came in to create a market, which failed, and then the state comes in to regulate the market that it created. That's madness. Why do we need it?

Michael Liebreich Let me come back to this question of natural monopolies. Your claim that you can't have a market because there's one wire, why can't you just regulate the wire? I mean, are you saying we should nationalize fibre internet provision, because we're only going to have one fibre? So, the internet should also be nationalized? Or what else do you want to nationalize on the basis that it's only... It feels to me like, there are lots of things that have only one delivery platform? I mean, even you know, we're going to regulate social media players. And in fact, we regulate media players because they are, you know, sort of pseudo monopolies. What's wrong with regulation? Why does that drive you to nationalization as the solution?

Yanis Varoufakis Well, it's a question of efficiency. You mentioned, telephony, and communications and optic fibre and so on. Well, firstly, it is perfectly possible to have multiple ways of connecting to the internet, not just optic fibre. And there are some, I mean, for instance, my home is connected to three different optic fibres, and there is no problem with that. So, the same thing as electricity, optic fibres are much thinner, you can even have wireless connections. You can't have that with electricity, electricity is closer to water than it is to telephony and to the internet. So, when it comes to water and electricity, I'm adamant about that, that only profiteering and profiteering companies have a vested interest in pretending that we can have a market, or that we should have a market that is regulated. When it comes to social media, there's a big discussion - do we want social media that is regulated or not, I happen to be more of a libertarian when it comes to that. I hate the social media that we have, but at the same time, I don't believe that states stepping in and regulating them is the solution. So, for me, it's horses for courses, if I may...

Michael Liebreich It's not a blanket... some kind of natural monopoly, or network monopoly, and therefore... But the thing is that the wire into the home that you're talking about, I mean, there's a there's a transmission grid, distribution grid, and then the distribution grid goes into your home. But you go much further than that, you say the whole thing needs to be blown up to use your words, even the generating side. So, you would presumably applaud... Kier Starmer, has come out in the UK and said he wants to have GB energy, which will invest in energy generation, and presumably, you would like it to own all of the energy generation is that right?

Yanis Varoufakis I would, you know, I would. And you know why? Because we have a very pressing task ahead, which is the transition to renewables, which is a transition to a different kind of network. We need very quickly to move away from the economies of scale, factory based notion of power generation. The future is smart, decentralized grids, with very, very small units of producing, generating electricity, whether these are solar, a combination of solar and small windmills, and heat pumps and small, green hydrogen producing units, that need to be grounded in the communities; communities must have ownership rights over both the electricity that is generated and the actual machinery. So, we need to think much in a much more decentralized fashion. But that needs to be designed. So instead of a market, which is dominated in the end, by the very large players that either enjoy exorbitant profits - rents, effectively - or go bust and then they need to be bailed out all the time. I mean, think of what is going on now, what has been happening over the last year... What has been revealed, is that even companies that charge, very high price cost margins are more or less bankrupt, because as private profit maximizers, they seek to hedge their future prices. So, you have this absurd situation where you've got companies that make hefty rents being bankrupt at the same time, because they have borrowed so heavily in order to invest in derivatives that stabilize their long-term electricity prices. And now they're facing margin calls, because they never had the money to pay for these derivatives - they borrowed in order to pay for these derivatives, using as collateral future electricity bills. So, the market that the state has created, following the Thatcherite privatization of the Central Electricity Board back then, that market is absurd. It is just an abomination. And it can be nothing other than an abomination.

Michael Liebreich But I do think we've got to be very careful about the value chain we're talking about here. So, in the UK, the companies that have gone bankrupt have been retailers. And what they did was they sold electricity contracts to homes to businesses. And then were buying in the wholesale markets - largely in the wholesale markets - to fulfill that and the wholesale prices shot up. So, they had sold long at low prices and had to buy... But their margins were never your classic sort of evil oligopolist’s vast profits, they were actually making very low profits, even before, because all they were doing was buying and selling, they were kind of passing it through.

Yanis Varoufakis Why do we need them, Michael? These are homogeneous products. I'm gonna say, Michael, it's absurd. We shouldn't we shouldn't have those companies. That is not a return to any entrepreneurial effort.

Michael Liebreich You say that but actually they are entrepreneurial. If you talk to Greg Jackson at Octopus, and I had him on this show, he is innovating for instance... if you give me a second... Octopus is the only company that has got what they call the agile tariff, so they've got time-of-day pricing. In other words, he is delivering a price signal to you so that you know when to run your washing machine or whatever, or charge your electric car at a time which is enormously value creating, given the variable renewables that we increasingly have on the system. This is a huge innovation...

Yanis Varoufakis I'm sorry, but I'm not impressed. A postgraduate student can create such a piece of software that does that for a publicly owned provider, a distributor of electricity; this is all rubbish. This is all to explain why they need to exist, they don't need to exist...

Michael Liebreich Has your utility in Greece produced such a product? No. Right. Name one state-owned utility, which is providing time-of-day pricing to consumers? None, right? Okay, I come from a different political tradition...

Yanis Varoufakis Is that your powerful argument as to why we need a market for electricity? EDF in France has, you know, has the capacity of providing these pieces of software very easily. And in any case, you know, the privatization of the British electricity market was simply a nationalization by the wrong state, because EDF got most of it. There is doubt that a privateer can come up with interesting little ideas that we could adopt. And I'm sure that private individuals have much to contribute to a decentralized but publicly-owned, neighborhood-based renewables-heavy electricity grid.

Michael Liebreich Let's move to... Then you've got the you've got the grid, the national grid, which is which is heavily regulated, natural monopoly. But let's go to the other end... I'm by the way a big fan of community-owned solar, and wind, and so on. And I've done lots over the years, over the decades to try to promote that. But there's a couple of things though. First of all, the bulk of renewables comes from vast offshore wind in Northern Europe, and vast solar in southern Europe and combinations of those. And the community in no way has the capital access to produce those things. And I would argue, and I was on a call this morning just listening in to a developer of a portfolio of renewables projects. The detailed work, even for a 20, 30 megawatts solar project, the amount of detailed work that needs to be done, to develop that project, to finance that project, to do all of the environmental assessments to do this, to do that... The idea that either some nice kind of, you know, sort of ideal community, or that some vast state monopoly could do that detailed work across literally 1000s and 10,000s of projects. I mean, I find it... how can I put it? I'm just not seeing it.

Yanis Varoufakis Well, that's ideology for you. Your ideology is not allowing you to see it. What was the internet, Michael, what was the internet, the first internet?

Michael Liebreich Oh, very easy, very simple. So, the first internet was developed by, you know, out of CERN, there was the technology, there was a backbone that came out of the academic community. And you know when it really took off? When there were 1000s - I lived through this, this was part of my history, right -  there were 1000s and 1000s of ISPs, private companies using risk capital to do crazy things like buy modems, and buy phone lines, and market products to people who didn't understand them. That's the way it really happened.

Yanis Varoufakis Well, you know, I happen to be more or less your age, too. So, I have, it's a shared history. But we may have different perspectives of the shared history. The point I'm making about web one, and let's see if we can find common ground, was that it was created by big state, by big status - the Pentagon to begin with, right? And state funding and research to which the JANET network, the joint academic network was fused, with public universities playing a significant role in this. And then you had an internet commons of privateers that was added, very much like you're describing it, that produced protocols that we still use today, like HTTP and SMTP, and so on. They still use it today. As a commons, didn't charge a penny for it. So, you have the combination of the state and the community working hand in hand. That was the best period of the internet until you had big tech taking over and effectively turning it into a dystopic internet, the one that we have today, that's my view. So, the idea of public infrastructure... You're absolutely right; local communities cannot create the technology which is necessary at a local level, in order to maximize the benefits to the community and to connect to the broader network, I agree. This is why it needs to be publicly-owned, effectively opening it up to smart startups, companies that want to use this grid in order to try out their own technologies for maximizing the efficiency of local generation and so on, create an ecosystem, but move well away from the model of you know, the factory-like either nuclear power station or you know, lignite or coal-fired power station, which is by construction, an oligopolist’s delight. So, a publicly-owned and run and planned and designed network, which gives space to small companies with very little market power to try out their expertise and try to gain in the short term, amass economic grants from genuine innovation. Innovation, however, that does not lead to them cornering a natural monopolistic market.

Michael Liebreich So, who is deciding prices in this world? Because you've got a grid at one end and you need to feed stuff in and you need information and electricity to flow across some sort of network. Right. And there's much, much that we do agree on. So I, you know, it's clearly the role of the state to ensure that there is such a network and it's the role of the state to ensure the protocols both for the electricity and for the information, but who sets prices? So, if you've got a battery in the Orkney Islands, or you've got a solar panel on my roof, which... I don't think you want the state to own the solar panel, and you're okay with private...? I want to smile and call it rent-seekers like me... But you're okay with private individuals owning resources? But who's going to set the prices? How are you going to allocate space on the network between all of these literally millions of different players; each wants to feed in, each wants to take out, and so on? How do you allocate that?

Yanis Varoufakis Well, the grid will have to have a base load to begin with. There has to be... at least during the transition period... there has to be some baseload stations. And those base load stations...

Michael Liebreich Meaning substations? What is your definition?

Yanis Varoufakis Today, for instance, you have some large natural gas using facilities, you have nuclear stations, these are providing the base load to the system as we speak.

Michael Liebreich Yanis, Greece has just done the first five hours with only renewables. The reason I jump on baseloads is because everyone has a different definition....

Yanis Varoufakis In Greece, it's natural gas, hydro and lignite. These are the baseload providers. And as you said... actually we did a whole 24 hours, last week. A whole 24 hours - a lot of very sunny days and very windy nights....

Michael Liebreich And a lot of hydro to be fair. So, in the UK the national grid in the UK is targeting 2025 to be able to switch off all of the thermal power stations, the ones that spin and provide all the inertia, and then run only on you know potentially wind, solar and some small amounts of hydro.

Yanis Varoufakis Okay, I mean, the reason why we have hydro is we have tall mountains. Some in Scotland as well. Now, look the answer to your question, it's a good question. Who sets the prices? If you look at any oligopolistic model, right? Any oligopoly; if you want to regulate an oligopoly, a duopoly let's say, right there are two ways of doing it. One is to set a price cap. And the other is to take over one of the two producers, and use the public ownership of the of the producer to set prices low in order to force the privateer to follow through and also reduce prices, otherwise, they will lose their market. Now, my view is that, in this publicly owned grid, the state that needs to control at least in the first phases, the larger what I call the baseline, the base load producers, they can, the state can lead price formation through a policy of average cost pricing plus 5%. In order to give space to privateers to operate without giving them an opportunity to extract massive economic rents.

Michael Liebreich So, if I've understood... let me make sure I'm... because this is getting really, really interesting and your sort of heritage as a micro-economist is coming through here. So, the state would own some very big resources, and in a sense, could set the price because if anybody tries to profiteer, they can just kind of dump some they can dump some power. So, does that mean that they're running those resources? Or are they keeping them kind of in reserve ready to dump if anybody, you know, if the market misbehaves. Are they like Saudi Arabia in the oil markets?

Yanis Varoufakis Both. Both. It depends on the circumstances. It depends on demand conditions, supply conditions, you know, how the system is running, if the system can run without those large power generators functioning, then you keep them in reserve. And you don't use them until you have to. But and also in addition, you have social criteria, you have original development criteria. So, you mentioned Orkney, or you know, the Isle of Skye or whatever; the price that should prevail there must be a price which is consistent with preventing those rural areas from becoming deserts, people leaving them. There has to be a series of planning parameters, which are fed into the planning model to provide you with the optimal policy. But that optimal policy can never be replicated by trying to simulate a marketplace. That was the richest,

Michael Liebreich Why could you not just have somebody, a private player who owns that resource, and you say, right, we want you to deliver these services? It's either electricity or capacity, we want you to sit there ready to provide, and you know, you've capped the price because the marginal cost pricing has produced this, you know, bad outcomes. But why does the state have to own the things, these resources? I don't understand the ownership requirements...

Yanis Varoufakis If you want to say that... that you can substitute public ownership with price caps and quantity minima... Yes, in theory, you could, but what happens if a company says the price you are setting for me, and the minimum quantity you demand of me, I cannot function and I need a bailout?

Michael Liebreich Well, what happens? What happens there is, I mean, essentially what the government has been doing and across, you know, all of Europe is setting those quantities and then getting bids, and players have been coming in and bidding on Contracts for Difference.

Yanis Varoufakis And make some money and eventually... look at Uniper. Look at Uniper in Germany. They had to be bailed out at huge cost to the taxpayer....

Michael Liebreich Right. But the reason there was, the reason Uniper has needed a bailout is because they are being forced to buy gas at the international price. And they're not allowed, effectively, to sell it at the international price. At which point you say, fine, then the government has to come in. And at that point, there has to be a bailout. But what you're saying is Uniper should never have been a private company over the last however many decades in the first place?

Yanis Varoufakis I see only demerits in it being a private company. And absolutely no benefit whatsoever. You're not going to tell me that Uniper was innovative in any particular way. It was simply scrounging off what should have been a publicly owned system.

Michael Liebreich The argument for Uniper - I actually want to move back on to something else - but the argument there is it attracted an enormous amount of capital, which the state then did not have to provide through the international bond and equity markets and funded vast amounts of development of resources.

Yanis Varoufakis And at the same time, it extracted huge rents from society that now are gone and finished. Now Mr. Olaf Scholz has to find money that doesn't have. But he'll never be able to recoup the rents that Uniper has been extracting all these years....

Michael Liebreich Well, I could rephrase that as yes, they've paid a lot of people's pensions. But let's move back to one thing, I want to go back to the pricing question, because I did find that that was fascinating, and I'm not sure we finished, because the markets are not just electricity. The market also includes inertia, frequency response, backup of various sorts, ramping, you know, because when evening comes and the sun goes down, then you have a lot of power falls off the network, and you need something to step in and do that. Is that all going to be done in the same way? Because each of these are effectively separate little markets, there's a market for keeping the voltage right, there's a market for the ramping rate there's a market for what do you do if there's an eclipse, who is supposed to deal with that, and there are all these different markets...

Yanis Varoufakis It was working perfectly well. In Britain, all that was working perfectly well. There was some magnificent, innovative contribution by universities. I remember, people at the University of Birmingham and University of Manchester contributing to the Central Electricity Board, you know, competing models using Fortran, if you remember. And they were doing all of this very, very nicely before it was all privatized.

Michael Liebreich But two things. First of all, it was a brutally simple world, because you had coal, and then you had peakers, which at the time were oil, and now would be gas. Well, you had coal... When I describe that era, I call it, you know, I call it baseload and peak, long lunches, and knocking off early, because it was brutally simple. There was no wind, there was no variability, there was no solar, there was no demand response. There were no solar roofs, there was no electric vehicle charging, it was just such a simple world. And we were dramatically over-invested, there was an enormous capital mis-allocation, because of course, those civil servants who run it, it's always much easier to have too many power stations, too many pylons, too many substations and then simply charge people. And there was an enormous pushback against that which you now don't remember, but there was. The standing charge! There were almost riots about standing charges...

Yanis Varoufakis There's always pushback against this the status quo. But allow me to say that, you know, when, when you're when you're conjuring up the notion or the image of long-lunch-enjoying civil servants, right, I can always counter with the image of those toxic executives boarding their Learjets sort of running around the place. And at the same time, if you want to remember Enron, laughing at the little people and treating them like muppets, the people that they exploited, and the people that they, you know, treated like cattle that whose price was going up or down. So, you know, we can we can do that. Let me counter your main point. Your point is that complexity means that simulated markets work better. My point is exactly the opposite. That greater complexity means that a centrally planned system utilizing modern IT technologies, software, in particular, and artificial intelligence, is far better placed than a marketplace, which is made far more unstable, primarily because of the speculation and the derivatives, the derivative trades, that go hand in hand with every one of the of these sub-markets that you mentioned before.

Michael Liebreich So somehow, a state-owned monopoly is going to be able to hire these amazing technologists. These are the best data scientists, the best machine learning people, and they're going to be able to optimize, somehow centrally-planned, are going to optimize the supply and demand of electricity in every distributed grid, every little grid of solar roofs and demand response, washing machines and electric vehicle charging, down to the most granular level. I mean, it's not an ideological position....

Yanis Varoufakis Can I give you an example of such a magnificently functioning, centrally-planned system? amazon.com. amazon.com may be private. But when it comes to its organization, it operates like Gosplan, like the Soviet Union. The fact that it's owned by Jeff Bezos doesn't mean anything. It's one organization; there is no market within amazon.com. There are suppliers and there are buyers, like you and me ordering books or whatever from amazon.com. But the system, the system is a centrally-planned system, using artificial intelligence, using a series a sequence of warehouses, the whole thing is a centrally-planned system. This is what I'm advocating, except that it should be publicly owned. And not owned by Jeff Bezos.

Michael Liebreich The funny thing is, you should listen, I really encourage you to listen to the episode with Greg Jackson, which was earlier on Cleaning Up because he is basically building the amazon.com of the of the electricity system.  He is basically funding wind farms at one end and selling, and using, you know, time-of-day pricing, which is very much like promotions on Amazon at the other end. But the idea that he would have come out of a centrally-planned system is, to my mind as ridiculous as suggesting that, I don't know that Minitel would have produced Snapchat, and Skype, and Zoom, and all these other technologies, if only it had been allowed to flourish and not destroyed by this evil privateers on the internet.

Yanis Varoufakis Well, let me put it this way. I don't want a snazzy electricity system. And I really do not get moved by the analogy of an electricity system that produces the equivalent of Zoom and TikTok and Facebook and so on. The bloody thing is meant to produce one thing, homogeneous electricity, okay? We do not aim for an output that is heterogeneous, and all singing, all dancing. We just want a steady electricity supply that guarantees low prices, and ample quantities, especially for the people out there who as we speak, have no access to cheap electricity, or, you know, affordable electricity at a time of a horrendous cost of living crisis. So all this stuff, you know... I'm as excited by the idea of snazzy, all singing, all dancing innovations as the next man or woman. But when it comes to electricity, I prefer a boring electricity system that actually makes the smooth transition to green technologies, and which guarantees the many out there who are struggling an electricity supply that prevents energy poverty from being the other, the flip side of the coin of huge economic rents for very few smart guys.

Michael Liebreich I think there's lots to agree with. The people listening on the podcast, by the way, what they would not be able to maybe pick up, the people who watch on YouTube, which is only about 20% of them, would be able to see that we're actually smiling quite broadly, this is actually quite fun. I hope you agree. This sort of jousting, I think, may not come across, it may come across as bad-tempered on the on the podcast, it's really not. What I would say is I've spent 20 years, you know, in this space, and I have personally met, I'm going to say tens of thousands of people, you know, incredibly creative and innovative. And there are around the world, hundreds of thousands or even millions... To provide boring cheap electricity - and I totally agree, what it should be is boring, cheap, resilient, and of course, also sustainable electricity - requires just the vastest levels of innovation, because everything that was in that old CGB system of coal, nuclear and some oil, which then became gas, that's all gone. And the world is so incredibly complex. We want a boring outcome from a very complex and innovative system. And I'm struggling to see a single state-owned model that has delivered that.

Yanis Varoufakis Oh, yes. I mean, there's no doubt that it hasn't happened yet. But then again, just because something hasn't happened yet doesn't mean that it's not the right way of going, right? I mean, let me not be populist now and mention other realms of thought. The point I'm making is this: you and I agree on a number of things. One of them is that whatever grid we have, it should leave room and space for innovators to come in, do snazzy things, try this try that, you know, improve the efficiency of the system at the margin. And if you have lots of them, improving the system at the margin, then the whole system is going to become far more efficient. The question is who owns the large components of the system? Do you start with a system like we have now and you try to regulate yourself towards some kind of social justice to begin with? You know, the fact is that there are people out there paying huge, huge prices for kilowatt hours that were produced very cheaply. Do you do this through regulating the market? Or do you follow my cue, which is to say, there shouldn't have been a market on these things, these things should be publicly owned, and then within that network, which is publicly owned, you have neighborhood systems, and you have privateers that are encouraged to come in and try their own luck with the system; they're given enough room in which to develop their own technologies and innovations. So it's in the end, Michael, I have no doubt that it boils down to ideology. I cannot prove that you're wrong, and you cannot prove that I'm wrong. But that's, you know, the big political questions are exactly like that. It's like, you know, philosophy. A rationalist can never prove an empiricist wrong, and an empiricist can ever prove a rationalist wrong; it's a fact of philosophy.

Michael Liebreich So maybe we should run a poll in parallel with this episode, and then we let the viewers decide. But what's fascinating to me is this is, to me, this is also part of the latest round of revolution versus reform, Herbert Marcuse versus Karl Popper; do we need to kind of break what we've got, or can we, you know... what gives the best outcomes? Is it breaking what we've got and build something new? Or is it tweaking, modifying what we've got? And, you know, I think clearly you've called your article, Time to Blow Up Electricity Markets, not time to reform them, which is kind of what I'm saying....

Yanis Varoufakis Sure. That's the difference. I mean, Margaret Thatcher was a rebel in the sense that she blew up what existed. And I'm saying that what she created is now blowing itself up. And sticky plaster is not going to do it. For me, regulation is sticky plaster. Don't forget, also, you know, the whole thing about regulatory capture. It's easy to say that the state should regulate, but what is the state? The state is a bunch of bureaucrats and politicians, you know, whose interests sometimes align with those of the regulated...

Michael Liebreich I think if we got on to regulatory capture, and if we got onto corruption, and if we got on to vote-buying, particularly in the US, I think you would find that we are... there's probably not even a cigarette paper between us in terms of our concerns. But, I wanted to use the final few minutes, just to talk about the broader sort of political environment within which this is playing out. You founded your own political party, but it's unusual, because you immediately were trying to create it as a pan-European movement, or a multi-country party, which is very ambitious. But you've also said that you don't give a damn if it fails. So are you ambitious for it? Are you a trickster and a joker? Or are you really trying to change the politics of Europe?

Yanis Varoufakis Well, whether I'm a trickster and a joker is not for me to answer, it's for you know, the audience. And for the wider public and the voters, let's not forget the voters. Now, look, a preface first.  Especially in this country, which is bankrupt and small, and has a tradition of corruption, the discussion we're having is not even interesting. Because there are five oligarchs that own the electricity, power generation and power distribution. And they're the same gentleman who own all our television channels, and every single newspaper. Need I say more? Do you see what I mean? Intellectual discussion, like the one we're having is beside the point. It's us together, caring about efficiency versus the brute force of an oligarchy that cares only about owning everything. Now I very much fear that this is a generalized situation these days in the European Union, across the European Union; not as bad as it is in Greece, but the Greek disease is, as always, spreading across the continent. And unless we have a political movement that can speak to the minds and hearts of the Germans, the Austrians, the French, the Italians, the Spaniards and the Greeks, since we are a European Union, and we all have a common directive regarding to electricity markets and banking and all that, then politics is simply never going to succeed in overcoming the inertia, the brute force of business interests that are very much aligned and very much coordinated along cartel lines across Europe. So, I strongly believe that if politics is going to be relevant in Europe, in the European Union, we need to develop transnational political parties. It's very hard... you're right, it's a tough ask. And, you know, we're starting a new political party now in Italy on the 12th of November. And it's hard yakka as the Australians say, hard work, and it may fail. But it is my strong conviction that it's the only thing that can work. That nationally-based political parties that issue manifestos to different national audiences, and offer all sorts of things to them, and all sorts of promises, which when they get into power, they cannot deliver because it's a transnational pan-European system, and national governments can simply not find solutions that are good for Italy, but not good Europe, good for Greece, but not good for Europe. So, for me to sum up, transnational, pan-European political parties, like the one we're trying to create, is the last chance of democracy in Europe. May it fail? Of course, it may fail. Do I care whether it fails? I care whether it fails or not. But the fact that there is a very strong probability that what we're trying to do is going to fail is no argument for not doing it. In that sense. I don't give a damn.

Michael Liebreich If I rephrase, or let me see if this is aligned.... During the Brexit debate, there was always this question, you know, the remainers thought that Europe was democratic, and the leavers, of whom I was a sort of mild version of one, said it's not. And my view is that the EU is not democratic, because there isn't a demos. There isn't, there's no way that you could have a movement spread from Germany through the rest of Europe, or from Italy, or from Greece, that could change the government. And the fundamental test of democracy is can you change the government? And the answer is, within the EU, proven over decades, the answer is essentially, no. The people can't change the government, because there is no shared demos. So, is that the problem you're trying to solve here?

Yanis Varoufakis Yeah. And look, I agree with you. And I agreed with you. However, my point was back during the pre-referendum campaign, in which I participated, as a weird remainer - weird remainer - was yes, you know, someone like Michael is absolutely right. But that is a good argument for not creating the European Union the way we created it. It's not a good argument for exiting it, given that we've been in it for 45 years. Even though...

Michael Liebreich Yanis, so now, you were the reformer, and I was the revolutionary, in that situation. So the tables have turned.

Yanis Varoufakis Yeah, just I didn't think that it was a good revolution to have. I thought it was too much wasted energy on a rebellion that would only create a lot of toxicity within Britain, as it did, still does. And I never thought that the people who were promoting Brexit had what it takes to make Brexit work, even if Brexit succeeded. And I very much fear that turned out to be the case. Look at Liz Truss, today. She's really not.... Let's forget my argument that you should have stayed in. Let's say that, okay, what is done is done. I'm a Democrat, so from the first moment the referendum yielded the Brexit outcome, I supported Brexit only because I support the view of the people, right? I was against all the other remainers wanted a secondary referendum, and so on. But if you look at the current Prime Minister, and Boris Johnson - Boris Johnson was all over the place- but this current Prime Minister doesn't have a plan for making Brexit work. What is the plan?

Michael Liebreich She had a plan until last week, but then I think it got torn up.

Yanis Varoufakis That wasn't a plan for Brexit. Lowering corporate tax rates and income tax rates could have been done within the European Union. That was irrelevant. Any plan for making Brexit work would have to be about regulation... artificial intelligence. It will have to be about you know... all the differences between British commercial law and EU commercial law that would allow Britain to steal... a few steps in the race on the future technologies, vis-a-vis the European Union. But she had no such plan, did she?

Michael Liebreich This would be a long and very interesting conversation... I'm on the Board of Trade, I actually worked with Liz Truss when she was the Secretary of State for Trade. And, you know, I watched her as she rolled over the deals that people said couldn't be rolled over, as she did actually, a digital trade deal with Singapore, the most advanced digital trade deal, in fact, the only digital trade deal in the world. So you know, there is something there, but I don't want to over trade it because you know, we are where we are. But I wanted to ask you one final question, because I promised you that I would get you out at the top of the hour. So DiEM25, is that how you pronounce it? DiEM25, will there be - the most important question - will there be a UK affiliate or franchise as I would call it in business speak?

Yanis Varoufakis We have 10,000 members in the UK. But we're never going to create a party in the UK, because you have something called first past the post, right? It would be suicide. So what we have been doing for years now, we've been working with progressives across Europe, across the UK. We launched a campaign that you may have heard of, but you will see the DiEM25 only in the small print, even though we launched it -Save our NHS campaign. That's our campaign. That's a DiEM25 campaign in the UK. So, we're very active in the UK, we've been active for a very long, long time. We have strong connections with people in the Labour Party, Caroline Lucas, the Brighton MP is a member of ours and a great friend of mine personally. We've been working with some people in the Liberal Democrats, with people in the SNP, with communities up in the north of England. But we're working at a grassroots level, nothing posh, and nothing large scale, because of your electoral system.

Michael Liebreich Okay, very good. Well, the good news there is hopefully that brings you to the UK from time to time. And when you are here, if you want to tear into the areas where we disagree, or if you want to enjoy and explore the areas where we do agree, I'll be more than happy to do that over a glass of wine. It's a great pleasure talking to you, Yanis.

Michael Liebreich Thank you very much. I really truly enjoyed this, Michael.

Michael Liebreich Very good. Thanks for joining us here on Cleaning Up.