Italy's problems are due to endemic corruption. I don't see how a more libertarian set up would help, as that would seem to preclude any mechanism for dealing with corruption. You can be utterly corrupt in the gilded age of the United States and you can be utterly corrupt in the Soviet Union, and the degree of economic liberalism matters not a whit.
Doesn't sound all that plausible to me. Wasn't Italy growing fine in earlier years with similar regulations and guilds? On the other hand the Euro was adopted about a decade ago.
1
Corruption as an explanation for inferior recent performance is subject to the same objection. Is Italy more corrupt than when it was doing better?
3: It could be that the advent of the Euro stressed the corrupt system, and inherent weaknesses and vulnerabilities flared up.
I've always found Italy kind of mysterious that way. As long as I can remember, the story has been that it was encumbered by ridiculous levels of insane regulation that was only workable because of the high levels of corruption. And the government has always been some sort of complicatedly horrible mess, even long before Berlusconi. And yet until this last crisis, they seem to have been consistently ticking along just fine, in the sense of being a wealthy pleasant place to live with a reasonable level of provision of public services.
If you read news about Italy, it's been next thing to a failed state forever. If you go there (again, before this current mess), it's basically in the same category as Germany, except with better food, weather, and more attractive people. Clearly I've been missing something all along, but I don't know where the disconnect is.
5: A former co-worker of mine took care of his aunt who had moved at Florence as she was dying. He needed to get something out of a bank or a some government document, and the process was completely ridiculous. One of his aunt's former lovers had been VP of a bank and was able to get it easily.
On the one hand, the formal procedures are more cumbersome than comparable ones in the U.S. On the other hand, you can get around them in ways that would not be possible in much of the U.S.
I read a book once about Italy where someone asserted that the reason that people put up with the corruption there (which would never happen in a Nordic country) was that in the evening you can have a delicious meal in delightful surroundings outside and forget about your cares. The Swedes who are stuck inside more are less forgiving for that reason. Total pop psychology, but I think that the author was attributing the theory to a citizen of a Nordic country who had moved to Italy.
Anyway, Italy is in worse shape than Germany right now. Why is that?
The corruption did result in a lot of people not paying taxes and getting away with it. Greece had a similar problem.
Yglesias has a graph depicting Italy's economic performance over the last 50 years. It appears to have been doing fine for the first 40. Although I believe a log scale would show growth was actually slowing during those years.
I am a bit skeptical of Italy specific explanations as lots of countries haven't done so well recently.
I think BG nails it, more or less. That the Euro was a less than wonderful idea for countries other than Germany, France and Benelux (sorry, Martin) now goes without saying, because it was essentially a merger of the Mark and the Franc which was also acceptable to smaller countries that were highly integrated economically with Germany and France (although Denmark took one look and ran for the hills). Krugman has been quoting somebody or other as citing "Original sin" - being forced to borrow in a currency not your own (but Germany's and France's) - as underlying Italy's immediate problems. But this applies equally to Spain, Portugal, Ireland, Latvia, which, although they're in a hell of a mess, seem to be coping slightly better.
A huge part of Italy's problems is that it has Germans in charge of its monetary policy. It sounded like a good idea at the time. But it turns out that Germans run monetary policy in a manner suited to match the economic conditions of Germany, not Italy.
6
Anyway, Italy is in worse shape than Germany right now. Why is that?
Because euro monetary policy is suited to Germany not to Italy. Before the euro Italy could just devalue the lira and be fine.
I am here reminded of a post by Daniel Davies, that I would link to, were it not for the obvious, that basically came to the conclusion that instead of the UK adopting the Euro, the Eurozone ought adopt the pound. (The point being the better oversight of the Bank of England compared to the ECB.)
(I am somewhat distrustful of arguments against the Euro, as they all have a whiff of the crazed Euroskeptic about them. Which is unfair, but.)
Most explanations for Italy are obviously wrong, since Italy has been Italy for all this time, and yet economic growth used to be pretty quick. For example, Italy has always been corrupt, and always had lots of regulations and guilds.
The explanations I've heard that are plausible are:
1) Italy is getting old, and has fallen behind in women entering the work force.
2) The political system changed. In the good old days, governments would fall every year, and everybody was linked to organized crime. The bad new days have had more stability, but that stability came in the form Silvio Berlusconi.
The obvious explanation is that it's because of the euro, but I'm not quite sure why it would have impacted Italy the way it did.
9
... But this applies equally to Spain, Portugal, Ireland, Latvia, which, although they're in a hell of a mess, seem to be coping slightly better.
Is this really true? The crisis only recently reached Italy, Ireland was hit very hard a few years ago and is still in very bad shape.
Is Italy really that badly off? I mean, it has crazy amounts of debt, but I thought that the Italian state, at the moment, was making money. This is different from the Greek economy, which is actually losing money.
13. I'm not remotely ant-European integration, though I may at the moment be sceptical about the Euro, a position I share with a majority of actual economists, AFAICS. If the ECB was a proper central bank, and if the Euro was a proper European currency and if the European parliament was able to exercise proper controls over it, then it would be a wonderful and desirable thing. And a pony.
-economy +state
(Spain is an interesting comparison, and an argument that Berlusconi/governance is important.)
14
The obvious explanation is that it's because of the euro, but I'm not quite sure why it would have impacted Italy the way it did
One thing it did was make loans to Italy (and Greece etc.) appear safer than they actually were. Which allowed these countries to run debts they may be unable to repay.
5: It's astounded the amount of bullshit that's been spread about Italy over the years. From the coverage, I had exactly the same impression of Italy as a failed state, until I looked at the economic statistics, which make it clear that post-war Italy is one of the big success stories of the 20th century.
At this point, I think it's clear that high-level economic decision-making is driven by the self-interest of an oligarchic elite. I don't know if reporters have passively picked up the world view of this elite without recognizing it, or if they're in the job of deliberate deceit, but it doesn't really matter. The effect is that they're lying to us, whether they know it or not.
17: yeah, I know you aren't, and I know most economists aren't. But there is still that inevitable o god, a euro-nutter thing.
19: Italy has been paying down debt over the last 10 years, not running it up. They had a high debt level before the euro.
Italy has always been very corrupt, and very badly regulated, and very badly governed. The fact that the economy still got on is not a reason to ignore the appalling record of the Italian governing classes, since, like, forever.
16
Is Italy really that badly off? I mean, it has crazy amounts of debt, but I thought that the Italian state, at the moment, was making money. ...
The debt is now in euros and Italy is increasingly unable to roll it over at reasonable interest rates. Which makes it hard to sustain in the long run. Italy is better off than Greece in that if it repudiated the debt it would have a budget surplus and could get by without additional loans (assuming unrealisitically that default did not cause collateral damage) whereas Greece would still have a major budget deficit and would still need additional loans even if it defaulted on its current debt.
The debt is now in euros and Italy is increasingly unable to roll it over at reasonable interest rates.
Yeah, which is the difficulty, obviously. (But how were the fundamentals, Mrs Berlusconi?)
It should also be noted that the European Central Bank hiked interest rates earlier this year, out of fear of the inflation boogeyman. The ECB is also demanding strick austerity measures as a prerequisite for providing these countries any sort of help. In short, the ECB is actively working to drive the European economy into the ground.
I've always been very pro-Euro, but boy have they been testing me lately.
22
19: Italy has been paying down debt over the last 10 years, not running it up. ...
I find this a bit hard to believe. Do you have a source?
In any case the debt is now in euros not lira which makes it harder to manage.
Here's Eurostat's data on government debt as a fraction of GDP. It was at 109% in 2000, and had dropped to 103% in 2007. It of course has shot up since then.
It was dropped much faster pre-euro, though.
If I might venture some uninformed speculation, 28 sounds more like GDP movement than debt movement.
And some countercyclical spending, of course.
re: 29
Which it is. There's a drop down box at the top left that shows the debt in Euros rather than as a % of GDP. It's always gone up.
But this applies equally to Spain, Portugal, Ireland, Latvia, which, although they're in a hell of a mess, seem to be coping slightly better.
As James notes, this isn't correct. But even if it were, so what?
Participation in the euro is both a necessary and sufficient condition for turning economies like these into basket cases. They need expansionary monetary policy and they aren't getting it.
Looking at the Eurostat numbers, Italian GDP grew very slowly over that period. Debt grew too, but even more slowly.
Joe Biden the evil manipulator behind the scenes. But maybe he gets a pass for copying everything from previous monsters.
Italy has been paying down debt over the last 10 years, not running it up.
Although, funnily enough, Italy's off-balance sheet debt shenanigans during the 2000s make Greece's look like child's play. The difference is they did it publicly, Eurostat called them on it, and it was brought back on balance sheet. Whereas Greece's shenanigans, for the most part, weren't caught until it was too late and the revelations came on top of lying about the deficit.
34: Wrong thread. Not that it makes that much less sense here.
The Italian Job ...Naked Capitalism
Ed Harrison at Credit Writedowns is a very good source and has been getting recognition lately. His site seem temporarily offline, but he is a regular at Smith's place. Hudson is more general on Europe, though he focused early on Latvia as an example of what was going to be done.
What, you think we have a "free" bond market with rational actors and EMH etc? That bond prices and interest rates are determined by fundamentals?
Somebodies are doing Italy. For power and profit.
Anybody seen Too Big to Fail?
All the players not only know each other, it is like they are in a room watching each other play chicken with the global economy.
Banker A tells Merkel I am buying 100 billion E of Greek Debt this morning.
Merkel:I ain't covering that.
Banker:Oh, yes you will. I am hedging it with French Sovereign debt and selling Italian bonds to drive up the interest rates.
Bonds are not even the product. We are the product, and the income flows that governments can force us into providing the banks.
Harrison is wrong that Italy was secretly insolvent all this time, and we're just waking up to it. It's happening because the ECB raised rates, and because European policymakers let the resolution of Greece drag out so long.
We are the product
I think about putting product in my hair, but it seems inadvisable.
40: Are you shopping in the store section called "produce"?
Christ, is this all one big joke to you people? Italy could go bankrupt at any moment. This could permanently disrupt the world supply of cannoli.
This could permanently disrupt the world supply of cannoli.
Mike's Pastry's march to global domination begins! Boston cannoli over all!
Mike's makes the tubes taste sublime?
I've never felt informed enough to have an opinion about European integration, but I seem to remember people predicting that something like this would happen if the Eurozone were formed. I specifically remember Italy being used as an example (and not Greece)
Is Europe full of people saying "I told you so! I told you so!"? If not, why not?
I think that too much is made of the formal distinction between monetary policy and government debt on the one hand, and bank regulation and household debt on the other. Since a housing crunch or bank run forces huge government outlays, bank debts become government debts quickly.
For Italy, this viewpoint is basically good news. Per capita mortgage debt is very low, and there was no housing bubble there. So, a theoretical possibility would be for Italian citizens to use equity in their homes to buy bonds. This gives the country a bottom-up expansionary monetary policy. No need for Italy to rely on the outside world for finance, which is more than Greece or the US can say. I think this is an unlikely outcome, but the theoretical possibility points out the problem in blaming Germany for Italian government's borrowing.
The espresso machine I want costs $800 new, there is no Chinese or US substitute. I would be very surprised if the price dropped due to europolitics.
I think this is an unlikely outcome, but the theoretical possibility points out the problem in blaming Germany for Italian government's borrowing.
I think this misstates what people are blaming on Germany. Germany is being blamed for pursuing a set of monetary policies that have led to disaster for Italy and others. Nobody is blaming Germany for Italian debt.
I wonder if more localized currencies (so West Virginia, say, can devalue against DC, just like Greece should be able to against Germany) could be more feasible and non-trade-restraining if at some point all currency has become digital.
In the tradition that Eggplant established a while back, let me ask a very naïve general economics question which is semi-on topic for this thread.
Is not inflation the best answer in almost all current situations including Italy*? Was thinking about my personal situation in relation to the general economic situation a few weeks ago and it occurred to me that there are two kinds of people/institutions/countries in the world--those with too much money and who won't spend it, and those with too much debt who can't (or are reluctant to) spend. In both cases, a good dollop of inflation gets things going in the right direction.
Hard to do politically, and of course there should be a lot of well-grounded anxiety about the prospect because depending on which things float up in concert with inflation (wages, interest rates) at what rate there are winners and losers. But it also seems to me that one way or another by the medium term inflation will be occur. We can do it in a more controlled way now or just react when the day inevitably comes.
Everyone can tell me how I am wrong on the specifica, but I believe that I am right in general.
49: I think you've got it all right except this:
But it also seems to me that one way or another by the medium term inflation will be occur.
If by medium term, you mean the next, say, five or 10 years, this seems incorrect. Italy is having counterproductive austerity forced on it. The U.S. and Germany are choosing counterproductive austerity, and there's no end in sight.
It's okay, JP. I've killed threads with my naïvety too.
49: Possibly. Everyone talks about Weimar hyperinflation, but that was tamed, and produced much less human suffering than the heavy austerity practiced in the early 30's, which may have been instrumental in the rise of the Nazi party. (I haven't read enough to verify this, but supposedly key Reichsbank administrators were connected with the Nazis, and lowered interest rates immediately after Hitler became Chancellor.)
48. Money is created by banks. Cross-border lending and uncertainty coming from exchange-rate variation are drawbacks of having many local currencies.
49. Inflation is very hard on people on fixed incomes, and discourages long-term investment. Turkey, Brazil, and Argentina are all basically functional economies that had recent bouts of inflation serious enough to significantly contribute to emigration.
At the risk of stating the obvious, it's not clear that the even best-informed people have a good feeling for how much government should spend to create manageable levels of inflation. And the best-informed are not in charge of fiscal policy.
Basically, it's easy to say "not enough" at the current US levels of government spending. But I think not at all easy to say whether 0.5% of GDP or 1.5% of GDP is appropriate, and not at all clear how to actually get the money into the economy since so many mortgages are underwater.
Is not inflation the best answer in almost all current situations including Italy?
Yes. Yes it is.
and not at all clear how to actually get the money into the economy since so many mortgages are underwater.
Sure its is. Bury stack of $20 bills at the bottom of abandoned coal mines, obv.
I sort of buy the case for more inflation (as it should iron out problematic nominal obligations), but I have concerns.
Do differents implementations have different distributional consequences? I find it hard to believe that buying assets will have the same effects as a helicopter drop.
We've had a decade, arguably several, of expansionary fiscal policy. Why will inflation be any more successful at creating a better distribution of wealth, and more growth?
53: not at all clear how to actually get the money into the economy since so many mortgages are underwater.
What about government funded underwater mortgage grants? I.e. for owner-occupiers of properties valued at less than $500K, grants of up to $5,000 per year, or 5% of the assessed value of the house/condo, whichever is lower, who have mortgages in excess of $50K and who can be shown to be more than 5% underwater. Seems pretty clear to me. Obviously, if you were going to do another middle-class benefit like this, then the sensible money-injections-into-the-economy ideas to benefit working class people, such as increased foodstamp allotments and eligibility would be necessary as well.
Also, I have yet to speak to anyone who does not believe we should bring back the CCC and the WPA.
Do differents implementations have different distributional consequences?
You betcha
I find it hard to believe that buying assets will have the same effects as a helicopter drop.
Well, neither of these are technically inflation, which is specifically defined by economists as a persistent rise in the price level, with/or an expectations of increases in general price level.
An asset-buy or a helicopter drop with a promise to keep it up until CPI/NGDP reaches X is inflationary. I believe, otherwise, they are actually disinflationary and contractionary.
We've had a decade, arguably several, of expansionary fiscal policy.
Sort of. We have had high-end tax cuts, which I believe are contractionary and disinflationary.
And we have had deficit spending, which sends money to savings and the rich. This is probably my most controversial position. Michael Kalecki, 1942.
This is probably my most controversial position.
I'm going to have to stick with the 'nuking Japan' idea for that one.
I suspect that inflation encourages long-term investment. I don't see any obvious mechanism by which it discourages long-term investment. You know what would make an excellent hedge against inflation? Real productive assets, like factories.
59:Okay, one part of 59 last should be uncontroversial.
Kalecki says the rich will let gov'ts deficit spend, because they get the interest. But most so-called Keynesians then say that when times get better, you just tax to get the deficit down. And Kalecki said wait, the rich own all those fucking bonds providing income,so they have the power to prevent taxes. The politics won't work.
Ring any bells?
I ate all my Halloween candy already.
I think inflation would be a good idea, but it's definitely not inevitable. Japan hasn't any inflation, even though it would have been a good idea.
Also, in the medium term if everything doesn't blow up then inflation would no longer be necessary. If the Western economies stagger on like they are, then we'd probably be back at full employment by 2020.
re: 65
We haven't been at full employment for decades, no? It's not even been a political target for decades.
then we'd probably be back at full employment by 2020.
9 years? I guarantee three grey and two black swans supply shocks.
We may go negative GDP in a half-dozen countries in the next six months.
Is the new NAIRU 7%? Staggering on, IMO, could be considerably worse than catastrophe, in that I believe the tools have been developed for a permanent wage-disflationary social equilibrium using arbitrage with low-wage regions.
Also, in the medium term if everything doesn't blow up then inflation would no longer be necessary. If the Western economies stagger on like they are, then we'd probably be back at full employment by 2020.
Doesn't the Fed in practice guarantee to forestall the attainment of full employment in boom times?
You know what would make an excellent hedge against inflation? Real productive assets, like factories.
Making something obviously useful like Buicks or solar cells. In China people are hoarding copper; other places, warehousing building materials or food has been popular. Look, there have been countries in the very recent past with disruptive inflation, the effects are not theoretical.
Beyond small proximal steps, it's not at all clear to me what can be done with predictable consequences, either in the US or southern Europe.
69: Because 10 years of 10% unemployment is so costless? (Or 25% in unemployment, like in Spain.) We have examples of countries with persistent high unemployment too -- these are countries that undergone revolutions, some of them violent. Real GDP growth in Brazil is 7.5%. Turkey is 8.2%. There are worse things in this life than high inflation. High unemployment is one of them.
Anyway, there are a whole bunch of steps between 2% inflation and 445% inflation. I say we take a couple.
I suspect that inflation encourages long-term investment.
Is this one of those situations where the economists clutch their models, but in practice there is very little switch to consumption from savings?
My thinking was more at the micro-level: Assuming that the biggest issue is aggregate demand, what would get both types of non-spenders spending? And sure, there is no guarantee of a more equitable distribution, but under current austerity programs I think there is an absolute guarantee that wealth distribution will not become more equitable. I'll take it to the other thread.
In China people are hoarding copper
Also, pecans. Seriously, check the prices next time you're at the grocery store. A Thanksgiving Pie Gap looms.
Also, pecans. Seriously, check the prices next time you're at the grocery store. A Thanksgiving Pie Gap looms.
Pecan pie is deprecated. Walnut pie is where it's at.
73: Ah, that may be why they've disappeared from the deli where I generally get them.
74 is the most shocking thing I've ever seen on Unfogged, and I'm including apo's links.
(Halford's last comment in the "My Lawn" thread rendered it too dirty for the netnanny. God only knows what he could possibly have said.)
Oh no. I was trying to pick a fight with you!
NetNanny does not approve of Halford's lurid bacon-wrapped tube fruits.
F____ b_____ a_____ C__ d_ D_ bacon ___ tube fruit b____ O____ c___ Paterno.
Now I'm curious. I will fight through the weak cell signal on my phone.
Like many hidden treasures, it's not that exciting once you uncover it. More like the secret of Al Capone's vault.
Groupe de Francfort, "Europe's New Hit Squad"
Berlusconi was a harder target. He has dodged enemies for most of his 17 years in politics, from the opposition to the Italian vice squad. Furthermore, Italy is not really bust. Strip out the debt interest, and its national books would not just be in balance but have one of the greatest surpluses in the eurozone. Its prosperous north is one of the richest parts of the Continent, and would be far richer if there were a lira to devalue and help exporters. Its households are savers, with an astonishing €8.6 trillion squirrelled away. Government debt, at 100 per cent of economic output, is high -- but stable. Debt comes in many forms, and the average Italian owes half as much as the average Brit.
1) Conservative Greek opposition (they are part of the coalition) says today they will not vote for austerity. Another vote of confidence scheduled
2) Italian and Spanish spreads moving back up
3) Republicans in US Congress say they will only vote for social welfare cuts if tax increases are sent to committee and put off til next year. Democrats say "Oh thank you thank you"
Once China has cornered the pecan supply, the market will be flooded with Peking pie.
There are worse things than Berlusconi. I turned on NPR this morning and got a profile of Ayn Rand.
Conservative Greek opposition (they are part of the coalition) says today they will not vote for austerity.
Are they just fucking around because it's fun or do they have an alternate strategy that nobody talks about?
87:Hey Chris! Quick, before it scrolls off!
Austerity and Fascism in Greece
As expected and predicted. We'll get there.
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This is kind of a weird thing to say, but if any of you were reading academic-adjacent blogs in the early half of the decade and were friendly with the woman who wrote about her daughter's liver transplant needs, she's writing again and having a hard time in her personal life. I know some of you don't use feeds and probably haven't checked back, but I'd suspect she'd appreciate hearing from old friends. I was just a lurker.
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