About the new Italian government leaders, Mingardi writes,
Salvini and Di Maio both champion a vulgar form of Keynesianism: a blind preference for government spending, regardless of the macroeconomic outlook.
This has dire consequences for the long-term health of the economy.
Italy’s cost of borrowing has roughly doubled since the government took power last spring. This is a serious matter in a country where the public debt is over €2.2 trillion or 132 percent of GDP. It also translates into a higher cost of credit for households and businesses.
In an email exchange with me, he writes,
perhaps for the first time in my life I see the danger coming from the right, not the left. Immigration (that is: an exaggerated perception of it and its negative externalities) is triggering parties that are making nationalism great again. Their narrative is centred around the need to restore national sovereignty: so that immigrants, but also products and foreign financiers, can be kept at a distance. They do defend the welfare state and define it, somehow, as a national welfare state: the nation is that unit (established upon an alleged common culture/language) in which you can redistribute money from Peter to Paul.
. . .At the end of the day, they are campaigning against the idea that politics is a limited activity: that it can offer just a certain amount of answers, and at a certain cost. They claim that once proper sovereignty will be restored there will be no limit to what government can achieve. In short, they are campaigning against budgetary constraints and those that they see as enforcers of such constraints: the EU, financial markets, et cetera.
“Immigration (that is: an exaggerated perception of it and its negative externalities) is triggering parties that are making nationalism great again.”
Well, maybe a word of advice for people who are worried about ‘triggering nationalism’, which would be to strategically dial back the support for open borders and more immigration, instead of responding by doubling-down on it. Perhaps it’s a bit unwise to dismiss very common preferences regarding policies with irreversible consequences?
It’s almost as if none of the established elite politicians or political parties are willing to give the voters what they want, then new, less predictable entities will use the issue to pick the $20 bill off the electoral sidewalk.
If Libertarians in particular are alarmed by what democracy is producing on the ‘right’, they should take a look at how all those immigrants and their descendants tend to vote, and in the influence they have on the left (e.g., the libertarian and pro-business paradise of California). There’s plenty of alarm to go around.
One of the problems is that the immigration issue has been so thoroughly ideologically-moralized among the open borders crowd – entrenched by the typical assertion that all opposition is racism, the worst thing in the world – that proponents simply have no language they can use to walk back their platform, even out of temporary electoral expediency.
Handle,
Another angle on this issue: the welfare state. It’s used as a pretext to justify infinite immigration to the elites, because of the obvious pyramid-scheme-like funding profile. But the voters are never given an explict opportunity to tradeoff welfare spending and immigration, even though they are naturally linked. Perhaps one of your “less predictable entities” will come along and grab that $20 bill too.
The interesting thing about welfare arguments is that almost everyone is able to make them for their own side.
For instance, some libertarians have argued that one of the incidental benefits of more immigration and diversity would indeed be precisely a decrease in support for the welfare state, which they regard as a win-win scenario.
For example, internal migrations due to the ‘welfare magnet’ effect (See Jason DeParle’s American Dream and the Chicago Tribune’s The American Millstone) provided a considerable amount of the impetus for welfare reform in the 1990s. An the situation then in Wisconsin with regard to poor blacks emigrating from Illinois and further south is comparable to what is happening at the international level today.
That’s a naive hope. In practice, and in the long term, it just doesn’t work out that way. The feedback between statist ideology and what it takes to win elections tends to resolve all the various tensions and inherent contradictions in the progressive coalition. The clientalist deal at the heart of the left advocating for more immigration is that votes for the left translates into benefits for those immigrants, especially amnesty and welfare. One the number of left-wing voters passes the blue one-party-state threshold, immigrants are no longer beholden to the sympathies of the majority population and can comfortable vote the benefits for themselves, and all by themselves.
This is the democratic version of the singularity scenarios where machines start building other machines, and software starts programming other software. As Caldwell said about affirmative action, “One moves swiftly and imperceptibly from a world in which affirmative action can’t be ended because its beneficiaries are too weak to a world in which it can’t be ended because its beneficiaries are too strong.”
One recent example of this “welfare self-justification feedback loop” was the Obamacare Medicaid expansion. The proponents of Obamacare explicitly predicted that it would be impossible to repeal that aspect of the plan, and they have been proven to be correct.
Also, this “welfare justification switch pre-and-post-implementation” is analogous to Dreher’s Law of Merited Impossibility: “This welfare expansion will never bankrupt you evil tax-paying fat-cats, and when it does, you evil tax-paying fat-cats will deserve it.”
Italy has a collapsing fertility rate and a severe dependence on international tourism. This requires lots of service workers and an open economy. They can’t afford to go down this road, whether they like it or not.
> They can’t afford to go down this road, whether they like it or not.
Because the current road they are on may be unsustainable does not mean that the one they were one is.
Why not fix the fertility issue and invest in developing other parts of the economy?
lliamander –
I suppose you are correct. But following one path just requires some adult governance, while the other requires a complete cultural and political reorganization of Italian society and will require 40 years to begin taking hold.
Can anyone point to a society where this type of social retrenchment worked?
….they should take a look at how all those immigrants and their descendants tend to vote, and in the influence they have on the left.
Oddly enough, California still has some Reagan DNA in it but there are issues.
1) The main drivers and beneficaries of immigration (low wage immigration) is Small Business like farmers and landscapers along with the middle class who hire contractors. That is one reason I suspect studies of immigration impact on native wages don’t disprove the null hypothesis. That low wage immigrants create a lot economic activity and is disappearing a little bit over the last ten years.
2) I still hold the worst offenders of housing regulation are the Obama Republicans with Reagan DNA in them. In Orange County, that would be towns Irvine, etc.
3) In my Middle Class with some fringe lower classes, the Hispanic-Americans I live with really sound a lot like the White Working Classes of the 1950s. It rather different that the claims I hear from the rest of the nation. Also it appears a good portion of Hispanic-Americans are still voting Republican in Texas. Our state rep is a Republican Hispanic-American.
4) If immigration is such an Issue in the US, why did the three largest states on the Mexican border move away from Trump and towards HRC? (New Mexico was the exception here and Nevada did drop for HRC.) Trump’s gains in 2016 were in states with a low number of Immigrants.
It has gotten too easy to label people as ‘far right’…Salvini and Di Maio are labeled this way because of their anti-imigrant and nationalist sentiments….but most of what they are touting as policy comes from the left: larger government, more spending, more government control of the economy, a robust welfare state, income redistribution… even, in Mingari’s words, “they are campaigning against the idea that politics is a limited activity……no limit to what government can achieve”.
Nazi was a slang term for “National Socialist Party” in the ’30s, yet people persist in calling them the far right. It is a strong indicator that the terms of the political discussions are dominated by the left in Europe….even people deemed ‘far right’ are basically leftists in their economic preferences. The only real difference is open/closed borders and a preference/refutation of national sovereignty.
Well there should be very much worrying about the Left & Right populism although maybe it is just a reaction to the stagnation of wages the last 18 years. And I do worry about the US government with debt in terms of economic growth but still feel Italy and Japan go a generation before we do.
1) The main reason why I believe the birth rate is so important is Japan per capita of government debt is increasing both denominator and numerator. I really can’t see how it ever comes down. So long run it is impossible for Japan to grow the total by greater than 2% with declining work force.
2) I generally do think the issue of immigration over-stated impact here as most studies (like Bojas, etc.) can’t disprove the null hypothesis Immigration has an increase or decrease on wages. (Probably because it has a modest impact but other aspects of an economy are more important.)
3) The one aspect I wonder about with European nationalism is what happens when they are start turning against themselves? The real Brexit Immigration complaints were Polish immigrants and Muslim immigrants are fairly low part of the population. Or what happens to Italy and Hungary when some of the population flows to Germany or France? Or the population of the richer European starts slinging mud as the Eastern European ones.
4) And some of the left need to understand the issues of Valenzuela. Some assistance on prescription drugs is not Chavezism but Valenzuela is a problem.
I’m uncertain of the link between fiscal responsibility and nationalism. It seems to me that before we had a choice between fiscally irresponsible globalists and fiscally responsible globalists. And the fiscally responsible globalists generally lost. When was the last time government spending was less than revenue? Now we’re moving to a choice between fiscally irresponsible globalists and fiscally irresponsible nationalists.
Maybe someone will start a fiscally responsible nationalist movement. But I don’t think it’s fair to say that nationalists are fiscally irresponsible, and ignore that the other side was pretty irresponsible as well.
RohanV,
Government deficit spending is what allows the private sector to net save.
If the government was to balance the budget, or even worse run surpluses until the debt was eliminated, there would be no money left in the economy.
As a simple example, if the government spent $100 into the economy and taxed back $80, the $20 deficit would be the private sector’s net saving. Were the government to tax back the whole $100 of its spending, i.e., run a balanced budget, there would be no money in the economy.
The yearly deficits accumulate to form the government debt, which is the total amount of private sector net saving.
While the idea of a balanced budget is intellectually appealing, it must be remembered that the government is not like a household, where balancing a budget is prudence. In the case of the government, that is folly.
> As a simple example, if the government spent $100 into the economy and taxed back $80, the $20 deficit would be the private sector’s net saving.
Ah, but where does that $100 dollars come from? Money the government spends can come from one of three places:
1) Taxation
2) Debt
3) Printing money
As you mention, taxation accounts for $80, so the remaining $20 must come from either debt or printing money.
If you finance it with debt, then eventually the government will have to pay it’s debtors more than $20 it borrowed, and so you still have to come up with that money somewhere.
That leaves the final option of printing money. It’s a convenient way of magically getting that missing $20, but the cost is that all of the money currently in circulation becomes devalued. The $100 dollars in the market today can still only purchase what $80 could yesterday.
If anything, printing money actually destroys cash savings, because unless you directly receive a proportional share of the printed money added into the market, your own purchasing power goes down.
What’s really needed is a way to increase the purchasing power of the money currently in circulation (because money can only serve as a medium for saving if it’s value is stable or increasing). How does that value go up? By adding new things to the market for which that money can be exchanged (raw resources, technological advancements, etc).
Now, in this scenario printing money does have value – in the form of adding liquidity to the market. Deficit spending does not in any way contribute to private savings (except by increasing the savings of some at the expense of others).
It is possible mix printing money with healthy market activity in such a way that it makes market transactions easier (through the general availability of money) while at the same time still allowing for either a stable or increasing value to the currency itself. However, it is clear that we are nowhere near a responsible equilibrium. If it were, we would not see such an over-investment into the stock market. Everyone is looking for an escape hatch to the wildly deflating dollar.
To the core subject of government deficits: the real issue is government debt. My sense is that governmental debt delays the onset of inflation caused by printing money, which can be useful in the short run (i.e. ramping up military spending during a war effort) but that the debt needs to be managed such that it does not exceed the government’s ability to pay back such debts through taxation/inflation. Otherwise, you risk impoverishing the whole nation. This is what it means to run a balanced budget.
lliamander,
Here’s a YouTube video that explains why the government must run deficits.
MMT: Sectoral Balances – Why The Government Must Run Deficits
https://www.youtube.com/watch?v=zxDVRISfsls
lliamander,
If the government deficit spends into the economy in order to build roads, bridges, etc., there is no need to worry about inflation because the economy’s output expands by virtue of that infrastructure to match the printed money. Also, there is no need to pay the debt down, as long as a reasonable debt/GDP ratio is maintained. It’s a question of using that printed money wisely.
” Deficit spending does not in any way contribute to private savings”
I was referring to NET private SAVING.
Without government deficits, there would be no net private saving, i.e., saving net of investment. Absent government deficits, there would be no money in the economy, on account of government taxing back all it spent.
re: saving versus savings
Saving is a flow variable, savings is a stock variable. Both saving and savings are economic terms. Neither of these have anything to do with the term “savings”, as is commonly used by the public. (I don’t know how you’re using the word “savings”.)
To be clear, by saving I’m referring to “S” in the identity, S = I.
Given that the deficit is lager than spending on productive infrastructure it could be that it is crowding out more productive private investment and thus the net private savings is a bad thing.
And money can be created by fractional reserve lending. There is no need for deficits to create money.
If you’re a Fiscal Responsibilist (of either the nationalist or globalist variety) and you have to choose between a Nationalist Irresponsibilist movement and a Globalist Irresponsibilist movement, whom do side with?
Obviously it’s fair to continue to promote Responsibilism whenever you speak publicly, but when it comes down voting time and you only have Irresponsibilists on the ballot, which do you choose?
To me it seems that the Nationalist Irresponsibilism is to be preferred because when such states fail (and fail they will) it will be independently from one another. Those nations who have not yet jumped off the cliff will have a chance to reflect on the fate on the poor souls at the bottom of the ravine with some degree of equanimity (and perhaps a bit of schadenfreude) before deciding whether to follow.
If out of a sense Unity and Brotherhood we all decide to chain ourselves together while we approach the edge of the cliff, all it takes is for one nutter to perform a Venezuelan swan-dive of the edge for the rest of us to be dragged screaming into the ravine.
“Renzi’s rhetoric portrayed the negotiation over budget limits as a diplomatic skirmish with the European Commission — a framing that plays into the hands of the populists in charge of the country today.”
Those are the incentives.
That’s the reality now. This is what the European Commission created. If you set it up so that the buck never stops anywhere, then the buck never stops anywhere.
So why not rethink the commitment to ever more centralization? Are you better off doubling down on the democratic deficit? Maybe legitimacy matters after all?
Why not reconsider the forgotten virtues of localism or federalism or competition or of putting skin in the game? Why not look at the results in practice and take the opportunity to recalibrate? If extremism and buck-passing and populism are the actual consequences of your policy, then what should you do next?
There’s more than one team playing the blame game. The people who put the rules in place should take some responsibility for how it’s working out.
Yes, Alberto, “they are campaigning against the idea that politics is a limited activity”. In all constitutional democracies, people are finally understanding that the limits of politics emerge from fighting with your enemies —the winning party will take all that they can and the losing one will pay a high price, while ordinary people will have to choose a side on election day. Yes, in all countries, there was a time in which the limits of politics were set in the battlefields, but today at least in constitutional democracies they emerge from fighting with words and threats to deny losers their fundamental rights (just pay attention to the stupid utterances of some politicians and their lawyers, in particular professors and graduates from Harvard and Yale, to encourage “their” young people to use violence). Why should losers respect constitutional checks and balances when winners have already shown they won’t? You know well that when part of a government, everywhere leftists have shown repeatedly that they don’t care about constitutional limits, so tell me why others should respect them? Now leftists’ enemies are ready to fight back because coexistence has become impossible. For years the judiciary of all constitutional democracies has been decaying. Although the U.S. judiciary still is much better than the judiciary of any other constitutional democracy, only after two miserable years Hillary and her losers are starting to feel that they may fail to weaponize the judiciary against Trump (and I hear the noise of some Libertarians complaining about Trump’s abuses of power!). Sorry, Alberto, too late to regret Libertarians’ failures —and please review again what politics is about and how it has been played over the past 10 thousand years.