Unlike many other European countries, Italy still has not restored economic growth to its pre-crisis level – a fundamental failing that lies at the heart of many of its political problems. Now that a new anti-establishment government is taking power, it remains to be seen if the economy will be remade, or broken further.
.. Italy has become the first major EU member state to be governed by a populist coalition... M5S and the League both openly question the benefits of eurozone membership, though neither party made leaving the euro a specific commitment of their governing program in the election campaign, a failure that Italian President Sergio Mattarella seized upon in vetoing key cabinet pick... They also disdain globalization more generally.. The League, in particular, is obsessed with cracking down on immigration... promised to tackle corruption and topple what they see as a self-serving political establishment, while introducing radical policies to reduce unemployment and redistribute incomes... There are rumors that the parties want to write down Italy’s sovereign debt.. In such a scenario, Italian banks currently holding considerable amounts of government debt would suffer substantial balance-sheet damage. The risk of deposit flight could not be excluded... Italy’s nominal (non-inflation-adjusted) growth is too weak to produce substantial deleveraging, even at today’s low interest rates... Italy’s real per capita GDP remains well below its 2007 pre-crisis peak.. a worldwide retreat from globalization and growing demands for national governments to reassert control over the flow of goods and services, capital, people, and information/data... For years, global market forces and powerful new technologies have plainly outstripped governments’ capacity to adapt to economic change... Italy could soon find that its leading export is talented young people... the Italian government needs to root out corruption and self-dealing, and demonstrate a much stronger commitment to the public interest... Italy needs to develop the entrepreneurial ecosystems that underpin dynamism and innovation. As matters stand, the financial sector is too closed, and it provides too little funding and support for new ventures... collaboration between government, business, and labor has played a key role in the countries that have adapted better to globalization and technology-induced structural change.
What’s Been Stopping the Left?
If progressive political parties had pursued a bolder agenda in the face of widening inequality and deepening economic anxiety, perhaps the rise of right-wing, nativist political movements might have been averted. So why didn’t they? Why were democratic political systems not responsive early enough to the grievances that autocratic populists have successfully exploited – inequality and economic anxiety, decline of perceived social status, the chasm between elites and ordinary citizens? Had political parties, particularly of the center left, pursued a bolder agenda, perhaps the rise of right-wing, nativist political movements might have been averted.
.. Part of the reason for this, at least in the US, is that the Democratic Party’s embrace of identity politics (highlighting inclusiveness along lines of gender, race, and sexual orientation) and other socially liberal causes came at the expense of the bread-and-butter issues of incomes and jobs. As Robert Kuttner writes in a new book, the only thing missing from Hillary Clinton’s platform during the 2016 presidential election was social class.
.. One explanation is that the Democrats (and center-left parties in Western Europe) became too cozy with big finance and large corporations. Kuttner describes how Democratic Party leaders made an explicit decision to reach out to the financial sector following President Ronald Reagan’s electoral victories in the 1980s. Big banks became particularly influential not just through their financial clout, but also through their control of key policymaking positions in Democratic administrations. The economic policies of the 1990s might have taken a different path if Bill Clinton had listened more to his labor secretary, Robert Reich, an academic and progressive policy advocate, and less to his Treasury secretary, Robert Rubin, a former Goldman Sachs executive.
.. Until the late 1960s, the poor generally voted for parties of the left, while the wealthy voted for the right. Since then, left-wing parties have been increasingly captured by the well-educated elite, whom Piketty calls the “Brahmin Left,” to distinguish them from the “Merchant” class whose members still vote for right-wing parties. Piketty argues that this bifurcation of the elite has insulated the political system from redistributive demands.
The Brahmin Left is not friendly to redistribution, because it believes in meritocracy – a world in which effort gets rewarded and low incomes are more likely to be the result of insufficient effort than poor luck.
.. Ideas about how the world works have played a role among the non-elite as well, by dampening the demand for redistribution. Contrary to the implications of the Meltzer-Richard framework, ordinary American voters do not seem to be very interested in raising top marginal tax rates or in greater social transfers.
What explains this apparent paradox is these voters’ very low levels of trust in government’s ability to address inequality. One team of economists has found that respondents “primed” by references to lobbyists or the Wall Street bailout display significantly lower levels of support for anti-poverty policies.
.. Trust in government has generally been declining in the US since the 1960s
.. But a progressive left that is able to stand up to nativist politics will have to deliver a good story, in addition to good policies.
Big Banks Get a Big Win in Senate Rollback Bill
Nation’s largest banks would gain incentive to buy more municipal bonds in legislation targeting smaller banks
.. a section aimed at making it easier for them to buy state and local bonds.
The provision, championed by Citigroup Inc. and other large banks, would ease a new rule aimed at ensuring banks can raise enough cash during a financial-market meltdown to fund their operations for 30 days, requiring them to hold more cash or securities that are easily salable.
Under federal banking rules approved in 2014, those “high quality liquid assets” included cash, Treasury bonds and corporate debt—but not municipal debt. Banks historically like to hold municipal bonds because of their safety and tax advantages.
.. Sen. Elizabeth Warren and 31 other Democrats who opposed the procedural vote.
.. State and local officials have praised the move, saying their securities could suffer if banks begin to shun them.
.. Analysts have said changing the rule for municipal products would be a mistake because it would erode the core of a bank-safety rule put in place after the 2010 Dodd-Frank law. While municipal securities have relatively low default rates, they are traded thinly and shouldn’t count as liquid assets, critics say.
.. “It’s an outrageously bad idea,” said Phillip Swagel, a professor at the University of Maryland who served in the George W. Bush Treasury, characterizing the provision as an implicit federal guarantee of the municipal market. In the next crisis, banks will have trouble selling their municipal securities, freezing up the market for them and requiring the government to step in to backstop it, he predicted.
Planet Money: Episode 761: The Bank War
Banks and governments have been fighting each other for hundreds of years, but never more dramatically than during the showdown between President Andrew Jackson and Nicholas Biddle, the president of the Second Bank of the United States.
Jackson was a populist, who rode to victory on promises to wrest control of the country from the East Coast elite. He was angry at the power structure, and he was furious at the banks. To him, they were the phantom controllers of the economy, issuing spurious scripts that often vanished with the banks when they collapsed.
Biddle was pretty much the opposite of Jackson, raised in the one of the country’s earliest aristocratic families. He was a poetical kid and a classics scholar, who started Princeton when he was 17. He believed in banks and he believed that a well run bank would serve the nation and create stability.
In the 1830s their two views of the nation collided, with disastrous and long-ranging results.