The Lost Heritage of Economic Freedom in Italy Wed, 07 May 2008 10:31:00 -0600 Next Monday will be the sixtieth anniversary of Luigi Einaudi's inauguration as Italian President. Einaudi (1874-1961) was a distinguished economist and defender of classical liberalism. In the immediate period following World War II, he was governor of the Bank of Italy and finance minister. Many credit his policy of low taxes and dismantling tariffs with having laid the foundation for Italy's 'miracolo economico' of the 1950s and 1960s.
However, while his role as president between 1948-55 is still remembered, his legacy of economic freedom as a key to Italian post-war development has largely been forgotten. In a recent article, the Milanese financial newspaper Il Sole 24 Ore lamented that currently there is no political force in the country which feels inspired by Einaudi's actions and insights.
The center-right led by Silvio Berlusconi which won the recent general elections in April cannot be considered a catalyst for market reforms. Its new economy minister Giulio Tremonti has expressed hostility to free trade and blames most of the world's economic problems on an ideology he calls 'marketism'. At the same time, the Northern League, Berlusconi's junior coalition partner, is impossible to categorize in terms of its economic policy. It demands decentralization and reducing the role of the Italian state but also advocates protectionism.
Neither can Einaudi's heirs be found on the Italian center-left. The recently founded Democratic Party (PD) has its origins in communism. One can appreciate its transformation towards more moderate positions and a certain openness to economic liberalization. However, the transition is not complete and cannot be compared to the process initiated by Tony Blair in the UK Labour Party in the 1990s.
It is regrettable that nobody wishes to emulate Einaudi's achievements. These go beyond the technical mastery and application of market economics. Einaudi's understanding of freedom also led him to insights of more wide-ranging importance for Italian society. He believed that an excess of state power tends to make citizens more lazy in the way they live their lives and think of their responsibility towards others. This attitude leads them to tolerate the social ills around them. They view the poor state of public services as inevitable and accept corruption and rent-seeking as unchangeable phenomena.
Now, that so many people in Italy worry about the economic situation of the country and feel alienated from the political institutions and their lack of accountability, one might think that the time is ripe to return to Einaudi's lessons. Author: blog@acton.org (Bernd Bergmann) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2325-The-Lost-Heritage-of-Economic-Freedom-in-Italy.html#comments
The Deutsche Bank Tragedies Mon, 05 May 2008 09:57:00 -0600 The story of the Deutsche Bank building following the NYC 9/11 attacks is a study in bureaucratic incompetence...but more importantly it’s an ongoing experience in human tragedy and loss.
The article begins with an introduction into the fire at the building site in August of last year:
...Thick black smoke was pouring out of the shell of what used to be the Deutsche Bank building. The structure had been badly damaged in the terrorist attack when portions of the collapsing south tower dug a 15-story gash and propelled toxic dust into it. Six years later the bank building was finally being taken down.
The fire quickly spread to 13 floors. The 100 firefighters inside the building couldn’t douse the flames because, as would become clear later, the basement standpipe that should have supplied water to the floors above had been disconnected. The scene was chaotic. Firefighters couldn’t see through the dense smoke and found their retreat blocked by a mazelike series of plywood walls and polyethylene sheeting that made it nearly impossible to locate exits. Panic was audible in the voices on the firefighters’ radios.
Eventually some 275 firemen used ropes to hoist hoses up the scaffolding on the building and tamed the seven-alarm conflagration around 10:30 that night, seven hours after the blaze began. But the struggle to extinguish the flames had cost two lives. Firefighters Robert Beddia, 53, and Joseph Graffagnino, 33, were found lying on the 14th floor near a hose line and pronounced dead at a local hospital. The cause: smoke inhalation.
Here’s a picture of the building when it was on fire:
Author: blog@acton.org (Jordan J. Ballor) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2322-The-Deutsche-Bank-Tragedies.html#comments
Utopia! Wed, 30 Apr 2008 15:45:00 -0600 Continuing with my posts highlighting just how wonderful things will be here in the United States when the government finally does its job and takes over the healthcare sector of the economy, I’d like to bring your attention once again to the fabulous success story that is the Canadian health care system:
Last year, the Canadian government issued a series of reports to address the outcry over long wait times for critical tests, procedures and surgeries. Over a two year period: ' Wait times for knee replacements dropped from 440 to 307 days. ' Wait times for hip replacements dropped from 351 to 257 days. ' Wait times for cataract surgeries dropped from 311 to 183 days. ' Wait times for MRIs dropped from 120 to 105 days. ' Wait times for CT scans dropped from 81 to 62 days. ' Wait times for bypass surgeries dropped from 49 to 48 days.
Sure, you might have to wait a couple of months for that lifesaving bypass surgery. But remember: it’s free! Author: blog@acton.org (Marc Vander Maas) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2318-Utopia!.html#comments
An Advertising Stimulus Mon, 28 Apr 2008 10:24:00 -0600 One sector of the American public that hasn’t missed out on the government’s purpose for the economic stimulus package is the advertising and marketing industry. Savvy marketers are targeting sales and special offers to the federal rebate checks, which start to go out today.
One sector of the economy especially banking on how people will spend their stimulus rebates is the automobile industry. Here, for instance, is a local car dealer’s ad specifically targeted to the stimulus package:
I’ve seen another major car ad that is currently running nationwide featuring the advice of an economist to a young car buyer. The young buyer is presumably saving a great deal of money on the new car through a special cash back incentive or zero-percent financing or some such other offer. What should the buyer do with all the money he’s saving? Go out and buy something else?
No, says the wise economist. Save it or pay off credit card debt. Of course, the economist doesn’t give the really solid advice, which would be to forgo buying a new car in the first place and taking on all that new debt. Dave Ramsey, a guru of financial stewardship, consistently exposes the lie that financing the purchase of a new car, no matter what the incentives, is a good use of money. As Dave notes, it’s no coincidence that the financing arms of automobile manufacturers are generally among the more profitable aspects of the business.
It’s no surprise that auto sales are often an economic bellwether, since new car payments are typically one of the easiest things to put off in tough times. These are also precisely the kinds of payments that folks facing credit card debt and dwindling savings accounts should be looking to avoid when spending their stimulus rebate. Author: blog@acton.org (Jordan J. Ballor) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2314-An-Advertising-Stimulus.html#comments
Returning to the Real Economy Thu, 24 Apr 2008 11:54:00 -0600 In the April 24 edition of the Vatican newspaper L'Osservatore Romano, Ettore Gotti Tedeschi focuses on the origins and lessons of the global financial crisis. In a previous article, Gotti Tedeschi argued that the downturn is an opportunity for Italy to reform its economy and cut down on unnecessary public spending.
He now examines what the crisis means for the state of international finance and draws some unusual but noteworthy conclusions. In his view, the principal answer for improving global financial architecture cannot be provided by more government regulation.
Instead, Gotti Tedeschi interprets the crisis as a wake-up call to return to 'other rules '" older rules which restore the priorities of the banking profession.' These rules of sound economics have been partly eroded by an excessive lowering of interest rates by central banks, inducing other actors to take excessive risks in their financial operations.
The over-stimulation of markets led bankers and business leaders to abandon the path of solid long-term growth in favor of short-term gain: 'Too often managers with a poor sense of responsibility have created the illusion of realizing miraculous growth and profitability.' They abandoned the search for 'concrete results and above all, long-term sustainability.' His advice is to return 'to what is real, responsible and durable.'
He suggests that what is needed is a spiritual refreshment to deepen the understanding of how a successful bank or business is run. This would enable people to resist temporary financial fashions and evaluate real risks and possible gains adequately.
Gotti Tedeschi is in a good position to combine the practical insights of the world of banking with a profound theoretical grasp of business ethics. While he is one of the most well-known bankers in Italy, he has also found the time to write books about the relationship between Christian values and economics.
His advice deserves to be taken seriously. As politicians around the world propose a whole range of new regulation in response to the credit crunch, it must not be forgotten that public authorities provided the markets with cheap money and excessive stimuli. The result was a widely distorted perception of risk and profitability. It would be unfortunate if a period of over-stimulation was followed by a period of over-regulation. Author: blog@acton.org (Bernd Bergmann) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2311-Returning-to-the-Real-Economy.html#comments
Ahhh, it's spring! The weather is warming; the trees are blooming; and our minds turn inevitably toward taxes. In addition to filing our 1040's in time for April 15th, the average worker (over 25 years old) has already lost an additional $2,000 this year to the federal government's payroll (FICA) taxes on income.
At the state level, the Governor and the legislature just passed property tax reform. People are mildly irritated at the recent 16.7 percent increase in the sales tax rate on April 1st. But they're looking forward to lower property tax bills in the future.
All of this begs the question: How should we evaluate taxes?
Economists answer this question with three criteria. Continue reading "Happy April 15th to you and yours!" Author: blog@acton.org (Eric Schansberg) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2293-Happy-April-15th-to-you-and-yours!.html#comments
A Newsworthy Stimulus Fri, 11 Apr 2008 07:44:00 -0600 Late last month I argued that recipients of the federal government’s stimulus package “should use this rebate money as they see fit, since they are the ones most familiar with their own situations and their own needs. Consider giving part of the money to charity or saving, paying off debt or investing.” Now other voices are giving similar advice, recommending saving rather than spending.
Rick Haglund, a Michigan business columnist for the Grand Rapids Press, notes that “Some saving measures can go a little too far, though. I recently heard a personal financial consultant say people can save by no longer buying that cup of coffee and newspaper on the way to work.”
“Give up the coffee, but please, please keep buying the paper. The newspaper business is in a terrible financial state,” he writes. Haglund thinks that newspapers are more important to the country than coffee...a debatable proposition. Coffee, not oil, might well be the lifeblood of American enterprise.
But the economic status of newspaper publishing is in a strange place. I’ve been getting the weekend paper for a year or so, and when I renewed I received a call from the paper just to tell me that I’d be getting the rest of the week for free (a good thing too, or I would have missed Haglund’s column).
It reminded me of getting a postcard in the mail from the government telling me to expect a rebate...no notice necessary, just send the free stuff and the money. I don’t think it cost the Grand Rapids Press millions of dollars to make the phone calls, though (it cost the feds $42 million to mail out those inane little rebate notices).
In any case, it makes more sense for many newspapers to give their issues away to get a boost in circulation numbers than it does to count on the income from subscriptions. I also recently saw one of the narrowest daily newspapers I had ever seen last weekend, part of the trend to cut printing costs. (I can’t complain too much, though, since the Port Huron Times Herald has published more than one of my commentaries. Keep up the good work!)
Of course, some folks, like Betty J. Mazur, are going to do just what the government wants them to do with the money. “I’m going to buy new clothing with my check,” she said. (The piece linked above is in part about how it is necessary to file federal taxes for 2007 in order to get the 2008 rebate. Marketplace discusses that, and also debunks some myths about the rebate, here.)
Oh, and don’t forget to blame conservative theology for the credit crisis. After all, it seems as if adherents to so-called “conservative” theology don’t save as much as they ought.
How any decent sociologist could have this reaction is beyond me: “Keister was surprised that when demographic factors '- such as education, age and race '- were held as constant, religion still proved to be an influential factor in wealth accumulation” (emphasis added).
Keister says a typical “conservative Protestant” might be a member of the Assemblies of God, Churches of Christ, Nazarene and Pentecostal churches. I guess they’ve forgotten what John Wesley said. Author: blog@acton.org (Jordan J. Ballor) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2288-A-Newsworthy-Stimulus.html#comments
New Deal for April Fools Tue, 01 Apr 2008 16:35:51 -0600 Last month marked the 75th anniversary of the beginning of FDR’s “New Deal”.
The Great Depression is the most famous event in U.S. macro-economic history. Most or all of my students know that it happened in the first half of the 20th century. They have no sense of what caused it-- except perhaps to lay blame on the 1929 stock market crash. And they have a vague sense that the New Deal policies of FDR were helpful in ending it.
Because their impressions of the New Deal are limited, it is relatively easy to communicate what economists know about the Great Depression and the New Deal.
The Great Depression was noteworthy for its length and depth. A typical recession-- probably what we’re dealing with now-- is relatively short (e.g., 6-9 months in length) and features a slowdown in economic activity (negative output growth with reduced income and production). The most notable feature, politically, is a modest increase in unemployment. Even unemployment of 6-7% is enough to induce howls of pain from the unemployed and unlikely promises to make things better by a range of politicians (e.g., the recent macro “stimulus package”).
That said, some recessions are (much) more severe than others. For example, in fighting the inflation of the mid-late 1970s, we ended up with double-digit unemployment in the early 1980s. In further contrast, the Great Depression lasted for more than a decade and featured unemployment as high as 25%.
One quick way to note the limits of the New Deal: unemployment was 19% in its 6th year.
Markets may have trouble “adjusting”, but they don’t have that much trouble. So, it is wise to look at government policy during the 1930s to fill out one’s hypothesis of cause/effect about the Great Depression. Economists point to four major policy blunders:
1.) four tax increases, including the initiation of Social Security’s payroll tax on income-- a tax on labor, thus making it more painful to hire workers
2.) a shrinking money supply-- not from the Fed actively reducing it, but from passively sitting by while confidence decreased, lending activity dropped, and the amount of money in the system fell (in contrast, note the Fed’s activity-- or even hyper-activity in recent days)
3.) the Smoot-Hawley Tariff Protection Act of 1930 is generally considered the primary catalyst for the stock market crash of 1929-- as investors looked forward to the devastating impact this would have on international trade and the significant impact it would have on our economy
4.) the imposition of laws that would prevent wages and prices from adjusting downward (as they need to do in a recession): most notably, price floors (e.g., in farming), wage floors (the minimum wage), and a spate of pro-union legislation.
Bad policy was responsible for the bulk of the Great Depression-- and perhaps is entirely responsible for its length and continued depth.
Finally, the most famous part of the New Deal could not have been all that effective. The government worked hard to create jobs-- most famously, through the Works Progress Administration (WPA). And it was successful in part. But in doing so, it must have destroyed at least as many jobs. To note, where did the money come from to create the jobs? From the private sector-- where economic activity was squashed and jobs were destroyed as a result. Government spending is typically a shell game-- moving resources from one area to another, creating some and destroying other. Moreover, government rarely does things in an efficient manner, so one would expect the net effect to be negative. And again, if one looks at the results, it is clear that government policy was not a cure for a struggling economy.
As Christians, we believe that history matters. As an economist, I know that economic history matters. May we study both-- to learn both the good and the bad from our past. Author: blog@acton.org (Eric Schansberg) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2268-New-Deal-for-April-Fools.html#comments
The Burden of Italian Red Tape Tue, 01 Apr 2008 09:47:00 -0600 In yesterday's Wall Street Journal Europe, Alberto Mingardi of Istituto Bruno Leoni (and long-time Acton friend) lists some of the reforms Italy needs to boost economic growth, which is forecast at a measly 0.6 '" 0.8 percent for 2008.
Mingardi advocates a number of tax cuts and a more determined privatization of state assets. Some of these issues are being discussed '" timidly '" in the current election campaign; Mingardi also focuses on de-regulation and de-bureaucratization, issues heretofore neglected by Italian politicians.
Current labor regulations are 'so numerous that no one can even give their precise number. No one can comply with rules they don't even know about.' Mingardi adds that 'it's safe to say at least half the statutes currently in force should be repealed, as their only effect is to create confusion.'
A recent study shows that it takes on average 696 days to dismiss a worker in Italy compared to only 19 in the Netherlands. Critics of de-regulation would argue that Italian workers are therefore better protected. Wrong. Unemployment is 5 per cent in Holland compared to 6 per cent in Italy.
This may seem counter-intuitive but makes economic sense. If I know it will be impossible to fire an unproductive worker, I will be much less likely to take a chance on hiring any worker I don't personally know. Hence, the Italian model of 'family capitalism' and higher levels of unemployment.
Italian bureaucracy also exacts high costs on business creation. According to the World Bank, the cost of opening a business is 18.7 per cent of per capita income compared to only 0.8 per cent in the United Kingdom and 0.3 per cent in the Republic of Ireland. Moreover, an Italian business spends an average of 360 hours per year filing taxes whereas in neighboring Switzerland 63 hours suffice. (Not surprisingly, Switzerland is the economic envy of Europe.)
Workers also pay for onerous regulations. Everyone in Italy nowadays complains about stagnant wages, these are clearly the result of decreasing productivity caused by bureaucratic disincentives for businesses to invest and grow.
An overwhelming bureaucracy undermines both individual liberty and the public interest. It punishes the creative spirit of the entrepreneur by obstructing investment and innovation, and harms society by killing the potential for growth and employment. The irony is that regulation and bureaucracy are often enacted in the name of social values.
Author: blog@acton.org (Bernd Bergmann) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2266-The-Burden-of-Italian-Red-Tape.html#comments
Spending the Stimulus Tue, 01 Apr 2008 08:51:00 -0600 Last week the Providence Journal ran a piece by me on the forthcoming “rebate” checks from the government intended to be an economic stimulus, “The mandate is to ‘spend all you can’.” I take issue with the idea that the government gives us money that is our own in the first place, and then tells us how we ought to spend it: on consumables and retail goods to spur growth in the economy.
Instead, I propose that people “should use this rebate money as they see fit, since they are the ones most familiar with their own situations and their own needs. Consider giving part of the money to charity or saving, paying off debt or investing. And if it makes sense for you and your situation, you should feel free to buy that hi-def TV if you so desire.”
“But you certainly should not feel obligated to do so as if mere consumption is a civic responsibility,” I add.
The real problem with the package is that it perpetuates a view of the government’s role in the economy as the final arbiter of how markets ought to work and what people should be doing with their money. No doubt this is in part a response to the idea that the federal government in general, and the president in particular, has a primary formative influence on the shape and health of the nation’s economy.
Alasdair MacIntyre puts it this way,
Government insists more and more that its civil servants themselves have the kind of education that will qualify them as experts. It more and more recruits those who claim to be experts into its civil service.... Government itself becomes a hierarchy of bureaucratic managers, and the major justification advanced for the intervention of government in society is the contention that government has resources of competence which most citizens do not possess.
Update: It’s 3 am...and this time the crisis is economic...
Of course, if we’re really concerned about someone answering a phone in a crisis, maybe we should elect a Wonder Pet:
Author: blog@acton.org (Jordan J. Ballor) Item Category: Business and Society Item comments: http://blog.acton.org/archives/2267-Spending-the-Stimulus.html#comments
