Welcome to the age of diminishing returns

Sunday, November 25, 2012

One year of Mario Monti in Italy: grandfather's government

After one year as head of the Italian government, there is no doubt that Mr. Mario Monti has been successful at implementing  a policy of fiscal rigor and cost containment. He has been successful also because he has been good at managing his media image, consistently playing the role of the wise grandfather. However, the Italian economic problems can hardly be solved by purely fiscal measures. What follows is a personal interpretation of the situation.


In a debate that took place in 1980, Ronald Reagan, then presidential candidate,  demolished the incumbent democratic president, Jimmy Carter, with a single sentence, "There you go again!" That sentence became so famous that it even has a specific Wikipedia entry.

That old debate came back to my mind when, this month, I read that the Monti Government, in Italy, had reached one year of life. But what was the connection between Mario Monti and Ronald Reagan? It took me some head scratching before I could find an answer. And then it downed on me: yes! Monti was playing the role of the grandfather, just as Reagan did in the 1980s.

Ronald Reagan was a genius of communication and he had a natural talent for playing roles. In the 1980 elections he consistently played the role of the wise grandfather and he used that role to demolish his younger opponent. It was a case of asymmetric rhetorical warfare: Reagan could tell to Carter "there you go again", but Carter could not tell that to Reagan. It was grandfather vs. grandson: no contest. That would have gained the election for Reagan even without the help of the Iran hostage crisis that arrived later on.

At 69, Mario Monti is younger than his predecessor, Silvio Berlusconi (76), but he has been playing a completely different role. Whereas Berlusconi played the "alpha male," rich, powerful, and successful with women, Monti played the grandfather; calm, reassuring, and wise. He showed a remarkable skill at this role; avoiding displays of power and continuously dropping hints of normalcy in the media: his wife shopping at the market, having Christmas dinner with his family, and the like. Just as in the confrontation between Reagan and Carter, there was no contest in the struggle of Monti against Berlusconi. After decades of rule by an elite that looked more interested in sex and money than in serving the country, Italians appreciated a lot having a prime minister who didn't boast about how many women he had and about how rich he was. In a way, Berlusconi was victim of his own success: alpha males tend to generate a lot of opposition and to be toppled after their first major mistake (and Berlusconi made more than one).

In Monti's implementation of government, people look at their leader as if they were looking at their grandfather: a wise figure that helps them when they are in trouble. Grandpa may ask you sacrifices, of course, but you have no doubt that he is doing that for your well being. So, Italians submitted to Monti's cure of fiscal rigor and higher taxation with startling patience; at least up to now. So far, we haven't seen anything like the disorders that have accompanied the similar crisis in Spain and in Greece.

But can Monti's political experiment continue for a long time? Maybe, but there is a big problem: Italy's troubles may be well beyond fixing by fiscal rigor alone. Facing the convergence of the resource crisis, of onrushing global warming, and the general ecosystem disruption, even grandfather's wisdom may not be enough. The old ways of fixing an economy just don't seem to be working any more. Italy's whole economic system seems to be collapsing and the country needs to find new resources in order to survive. These new resources could have been obtained by continuing the politics of support for renewable energy which, instead, the Monti government abandoned. At the same time the Monti government failed to disengage Italy from some extremely expensive public works, such as the new high speed railway line from Turin to Lyon, which are weighing heavily on the country's budget. In short, Monti's cure for the Italian economy is starting to look more and more like curing a cough by chocking the patient to death. 

After one year of sacrifices, Italians haven't seen improvements in their condition: taxes keep rising, services keep being slashed, finding an apartment for rent at reasonable prices is nearly impossible, unemployment is increasing, and the struggle to arrive to the end of the month is becoming more and more difficult even for those who still have a salary. Mr. Monti keeps saying that someday growth will restart, but that is starting to sound hollow. Right now, Italy seems to be on the brink of a collective nervous breakdown and the recent street protests are a symptom of what may happen in the future. Grandpa's pill to cure Italy's illness was always bitter, but now it looks more and more ineffective.













5 comments:

  1. At the end, if you have more and more troubles and less and less resources there's no fix which works.

    Here in Catalonia (part of Spain yet) times start to look interesting. The collapse of our societies keeps some troubled moments in reserve for us...

    Regards.

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  2. Alas, Grandpa's medicine doesn't work. As a professor which teaches students macroeconomics, I can say that European austerity measures are putting EU and Italy on the knees. Today my student made an interesting presentation on Sweden where the government has decreased taxes and especially property taxes in order to attract rich people from abroad. As the result, Sweden is one of the first EU countries to restore it's economic growth.

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  3. When industrial societies run into the physical limits to infinite growth on a finite planet, ill-advised attempts to manoeuvre around those limits may seem be successful, but such success is more apparent than real, and is both limited in scope and brief in duration.

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  4. What is also "amazing"(not really) about our time, is that if people like Monti are now pushing austerity, they are in the line of the same "economists" thinking that started piling on debts to no end since around the mid seventies (quite obvious looking at US debt curve for instance), with a quite strong acceleration under Reagan (and Friedman doctrine).
    And when you relate that to the Carter/Reagan exchange, Carter was the one having raised the alarm on energy very strongly, even if not really stating the US peak in 1970 message.
    As I don't know how it is in Italian/Italy, but if there is a strong legend these days it is the "equation" :
    first oil shock = Arab embargo = geopolitical event and not resources constraints event.

    Whereas the reality is (if you define the first oil shock as a strong rise of the barrel price) :
    - 1970 US production peak (first producer of the time by a lot), shortages started from there in the US as well as rising pressure on price
    - accentuated by dropping of Bretton Woods in 1971 and devaluation of the $ (and start of the credit bubble soon after)
    - For oil majors after US peak the rise in barrel price was necessary to start more expensive "plays" : Alaska, North Sea, Gulf of Mexico
    - barrel price rise was also the US diplomacy politics
    - The declaration of the embargo pushed the price rise further, but the embargo was almost a non event in terms of number of barrels taken out of the market

    See for instance starting around 20mn in the documentary "la face cachée du pétrole" part 2 below (exists also in German but not in English to my knowledge):
    http://iiscn.wordpress.com/2011/05/06/bataille-et-lenergie/

    So we could say that not only we missed the clear cut message of US peak in 1970, but we piled on debts throughout then and now, and the ones at the helm now are more or less the ones having set up these policies ...

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  5. Monti solved nothing - he does not understand energy, economics, ponzi nature od financial derivatives, and the role of debt in economic activity... sigh!

    Is he "better" than Berlusconi? No doubt!

    Alex

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