The underdevelopment economy - Nino Galloni
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"All roads lead to Capitalism. Slaves are imported from the Third World, which is being ruthlessly exploited by the Capitalists for its raw materials, in order to control the labour market in the western world. Capital is exported to developing countries like China and India in order to make the money grow thanks to yet more slaves and at the expense of the environment. Capitalism must have Growth at all costs, but only for itself and, to this end, it feeds off the world." Beppe Grillo

Economist Nino Galloni’s Passaparola

Recovery takes time
Good day to all the friends of Beppe Grillo’s Blog. My name is Nino Galloni and I’m an economist by profession. Today I wanted to review the merits of a number of fundamental economic issues relating to our Country’s economy, but not only our economy. Let’s start with the issue of public debt and ask ourselves how come we have such a high level of public debt? Well, because in the early ‘80s it was decided to fund both productive and other public expenses, even the fight against terrorism, by issuing bonds bearing high rates of interest. At the time, the political and monetary authorities’ plan was aimed at cutting out a certain ruling class that was making too many investments, the kind of investments that had made Italy great. The other aim was to cut the legs off many small-medium size firms that were deemed to be essentially unproductive. The end result, however, was that interest rates increase exponentially and contributed to doubling our public debt. All other things being equal, if we had followed the advice of other leading economists who were instead totally marginalised, our current public debt would be somewhere between 60% and 65% of GDP.
A lot is said about this public debt, or sovereign debt, however, if the truth be told, paradoxically it would be better if less was said about it because it is nota s important as they would have us believe. For example, Greece’s public debt is only 1/8 of what has been lost because of all that has been said about it since last summer. Italy’s public debt as a percentage of GDP can be very easily reduced by simply increasing our GDP! Precisely the opposite of what has been done to date. We can go ahead and invest public money. An article written by Federico Rampini and published on no less than page one of La Repubblica spoke about these new, modern monetary theories. These are anything but modern theories; they are the monetary theories of the serious post-Keynesian thinkers that have always highlighted the fact that the issuing of money or low-interest bonds is not the problem. The problem is simply that we can only continue to issue new monetary vehicles for as long as our technology enables us to keep up by providing sufficient goods and services. Unlike the case of days gone by, today our technology can provide us with unlimited goods and services so that every human being could have everything he/she needs, however, there are certain interests that seek to prevent this from happening.
Problems only start to emerge when the distribution of goods and services is hampered for some or other reason, for example during the course of the recent Pitchfork Demonstration when products were prevented from getting to their destination so the prices went up. Another example is the current confusion surrounding petroleum products. If the truth be told, a litre of fuel should cost somewhere between 20 and 40 cents, depending on the type of fuel, the rest however, as we all know, is made up of levies and market speculation and strangulation. Then, obviously, if they used the currently available technology to produce motorcars that cost one hundredth or even one thousandth of what our current vehicles cost to run, then not only the problem of transportation costs but also the problem of pollution would be solved once and for all.
It seems to me that the current government has made the same old mistake of saying: “First we must get the public accounts back in check, then we can worry about economic recovery”. In actual fact the precise opposite is true in that a healthy economic recovery is what we need in order to get the public accounts back in check, as was proven by the disaster of the Maastricht parameters throughout Europe, parameters that were only more or less achieved by Germany, simply because Germany’s is a more highly developed economy. All the other less developed countries have a catastrophe on their hands from the point of view of these indicators.

Solutions that hit the people hard
Italy has hastened to embark on a path that will lead to a worsening of the crisis if the drop in consumption results in a drop in the level of supply.
We talk a lot about recession but instead we should be fighting it, otherwise there is a risk that the recession will get worse. The reality is that the world as we know it is changing, most firms are not making any profits and if they’re not making profits then all they’re doing is trying to hang in there to survive, to watch their resources and at least to offer their stakeholders some sort of present if not a future. What this does is ensure that the supply remains more stable than expected instead of changing according to demand, which offers some sort of temporary salvation. However, if the level of supply were to crash, we would all be up the creek without a paddle because prices would increase and income levels would drop!
The apparently easiest solutions, those that hit the people hard such as increasing taxes, lower efficiency of the public services and the cutting of consumption and public servants’ salaries are all wrong and are precisely what leads to a slowdown in development, or rather economic stagnation. We should be doing precisely the opposite, within the limits of what is possible. It’s true that everyone should cut their coat according to their cloth, however, applying standard public service contracts and replacing “easy” public service employment practices such as employing recommended candidates, short term contracts and useless consultancy contracts with sustainable real jobs is the main way of balancing the public accounts, increasing contribution levels and ensuring labour stability!
The problem arose back in the early 80’s when the monetary authorities at the time, namely Italian Central Bank Governor Carlo Azeglio Ciampi and Treasury Minister Beniamino Andreatta chose to go the route of increasing bond interests rates, total separation of the Treasury and the Italian Central Bank and the non-coverage of even the most basic and essential costs of economic development recovery by issuing public bonds with extremely high rates of interest. What was needed at the time was industrial restructuring but, as former Italian Central Bank Governor Paolo Baffi once said, they had to have growing demand so that the restructuring could be done with fewer workers being laid off because more lay-offs in turn meant more unemployment benefits and fewer workers meant less contributions coming in, more public spending and therefore a growth in public debt.
At the moment we are still fairly far from where Greece is because we have production diversification and an adequate level of supply but, should the level of supply drop and our level of production diversification decrease, we could very well head down the same route that Greece has gone. The route that Greece has gone is one in which the country grows too little and therefore the importance of debt increases. If I make debt, it means that I have to have sufficient income to repay that debt, but if you prevent me from having an income that enables me to repay the debt, then you are effectively chaining me up!
At the International level, the most important issue is the 16 trillion Dollars that the Federal Reserve has bestowed on the troubled banks to help their liquidity, which is essentially the very same thing that the European Central Bank has done too, namely printing money like there’s no tomorrow. Draghi has recognised this and we are probably headed for an unexpected period of significant growth in terms of the financial tools. If this goes, and continues to go hand in hand with a corresponding ability by the technology to produce adequate quantities of products and services, not only won’t we have inflation, but we will probably come out of this crisis.

In conclusion, therefore, the liberalist paradigm which says that you must free resources with less tax and less public spending, in other words first get the public accounts in order before starting a recovery, has been refuted by the facts. However, it is unlikely that the new paradigms will prevail because the old ruling class, the one that has been responsible for the current situation over the past 30-odd years, continues to sit on the fence, so let’s get a move on and spread the word!