May 30 2018

The Italian Establishment’s Economic Illiteracy and Assault on Democracy

Needless to say both supported by the mouthpiece of the Neo Liberal establishment, The New York Times. Our friend Bill Black explains-

The New York Times Praises the Italian Establishment’s Economic Illiteracy and Assault on Democracy
by William Black, New Economic Perspectives
May 29, 2018

I start with the NYT’s second lie, for exposing it also exposes the first lie. Giuseppe Conte, the “designated prime minister,” did not “announce … that he had failed to form a government.” He announced an undisputed fact – a political rival, President Sergio Mattarella, refused to allow the two parties to form a coalition government because he objected to their selection of Paolo Savona as their economics minister.

Italy has a very different political system than the United States, so let me make the key point clear that the NYT writers sought to obscure. Italian voters crushingly rejected the political policies of President Sergio Mattarella in the recent elections. They strongly supported the views of rival parties – the (generally leftist) Five Star Movement and the (hard right) League. A strong majority of Italian voters rejected Mattarella’s policies. The Five Star Movement and the League’s supporters share the view that Mattarella’s establishment economic policies have done catastrophic damage to the Italian economy and people. The establishment economic policies include devotion to the euro, austerity, anti-worker policies, and continuing public bailouts of failing Italian banks.

The euro is a terrible creation that has caused immense harm. The eurozone violates even the neoclassical economic requirements for an “optimal currency zone.” Every honest economist recognizes that fact. Stephanie Kelton was one of a material number of economists who predicted the euro’s inherent problems over 15 years ago. The NYT presents opposition to Italy’s membership in the euro as bizarre and obviously bad economics. In reality, it is even good neoclassical economics. German neoclassical economists, for example, typically think that the EU should never have allowed Italy to adopt the euro. If you have freed yourself from neoclassical nostrums, your opposition to the eurozone will be even more profound. The NYT authors’ first lie is the wacko claim that Conte was “planning to sneak out the back door of the eurozone.” It would take too many paragraphs to explain each aspect of nasty, dishonest rhetoric contained in that single clause, so I will shorten my response: BS.

Virtually every economist opposes the way Italy continues to bail out its failing banks.

Because adopting the euro and economically illiterate and destructive austerity removes Italy’s most effective means of responding to the Great Recession, the European establishment economists’ policies have proven disastrous. The eurozone, a full decade after the acute phase of the financial crisis began, finally has a broad recovery. Even now, however, its overall unemployment rate is over twice that of the United States. As of March 2018, Italy had 11.0 percent unemployment – nearly three times the U.S. rate. Youth unemployment remains at scandalous rates in several EU nations: “Greece (42.3% in January 2018), Spain (35.0%) and Italy (31.7%).”

It is true, and scandalous, that EU establishment economists typically continue their dogmatic support of austerity. In the United States, fortunately, the opposite is more nearly true. The overwhelming majority of U.S. economists supported stimulus in response to the Great Recession. The loud minority that predicted that stimulus would lead to hyper-inflation has, as Paul Krugman rightly emphasizes, proven as intellectually dishonest as they have proven wrong for they refuse to admit error. We have run (again) a real world experiment. Stimulus proved a great success. Austerity proved the financial malpractice equivalent to bleeding the patient.

Paola Savona has enormous experience with the Bank of Italy, the academy, industry, and government. His economic positions are the best hope for Italy in a decade. In the U.S. context, he would be a mainstream economist. His views on the euro have repeatedly proven correct while the Italian establishment’s economic policies have repeatedly proven to be grave failures. The Italian establishment, despite this record of economic failure and the election results has literally taken the position that it is so illegitimate to adopt economic views and policies that accord with reality that no government can be formed if the economics ministry is not occupied by a failed ideologue who worships the euro and austerity.

In Italy, elections have not had consequences. The neoclassical establishment, crushed in the elections primarily due to their persistently terrible economic policies, are blocking the voters’ preferred parties because they intend to appoint the first competent Italian economic minister in over a decade. The establishment is blocking that appointment at the behest of bankers and the Germans, who dominate eurozone economic policies. The Italian establishment’s economic policies and blocking of the winning coalition that crushed it in the elections; are anti-democratic, pro-banker, economically illiterate, and anti-Italian sovereignty.

The NYT authors of the article present it as a straight news column. The authors seeks to obscure all the analytics that I have emphasized. They also engage in blatant propaganda.

Mattarella very good. He calmly gave a “civics lesson” to benighted Italians too dumb to vote for a government “that protected Italian interests.” Note the context: this means, first, that the “civic lesson” is that Mattarella will overturn the results of the democratic election that repudiated the establishment, which is an interesting concept of “civics.” Mattarella, the fictional “keeper of Italian institutions,” does not believe in “keeping” the Italian institution of democracy.

Second, failed establishment economic policies that have manifestly harmed “Italian interest” and favored the interests of German bankers are the only acceptable policies to Mattarella. What are the odds that Mattarella would admit that those establishment economic policies, which he has championed for over a decade, were failures, apologize, and work fervently to undo the harm his dogmas caused to the Italian (and Greek and Spanish) people? Recall that none of the small minority of U.S. austerians has been willing to admit error even in a context where their failed policy recommendations caused vastly less harm because elected officials rejected their worst policy recommendations. Mattarella would have to admit that his policies had caused severe harm to tens of millions of Italians for over a decade. Such an admission would destroy the establishment in the next election.

The authors do not call Mattarella on even his most obvious lies. Instead, they embrace the lie, quoting without contradiction Mattarella’s lie: “I did all I could so that a political government could be formed.” He actually vetoed the formation of the government and he did so for the most anti-democratic of reasons to avoid admitting the crushing error of his own disastrous economic policies.

Five Star, very bad. The authors’ describe the Five Star Movement as an “outrage machine.” Recall that the Five Star Movement got more votes than any party in the election – and got shafted by the establishment because it had the audacity to oppose the establishment’s terrible economic dogmas that devastated Italy. How dare the Five Star Movement be “outrage[d]” at the establishment’s anti-democratic and economically illiterate actions?

The authors do not bother to inform the reader that the IMF has, for decades, functioned as the chief acolytes of austerity. They also do not inform the reader that even the IMF has now published studies demonstrating that stimulus in response to the 2008 financial crisis had proven even more effective than its proponents had predicted. The Italian establishment wants to give power to Cottarelli, however, because he is an unreconstructed austerian and supporter of Italy remaining in the euro.

The NYT’s coverage of European economics continues its mindless and dishonest embrace of failed economic dogmas. It has now descended to the point that it praises even the most anti-democratic actions designed to thwart the will of European voters who demand an end to the self-inflicted injury of austerity and the euro.