Commentary
Gentiloni's big bluff on ‘Italy’s growth’
European Commissioner Paolo Gentiloni expressed satisfaction with Italy's economic growth, saying GDP will grow by 1.2% in 2023, the highest growth rate among other European countries. But there’s little reason to use this figure as a benchmark for national well-being.
European Commissioner Gentiloni expressed great satisfaction with Italy’s economic growth, claiming that our GDP is going to grow by 1.2 percent in 2023, the highest growth rate among all other European countries. Aside from the fact that we should stop using this indicator to measure a country’s well-being, for reasons that have already been discussed extensively, this figure is also the result of manipulation, which is only allowed to stand because of the silence of most mainstream economists.
Let us explain. One does not need to have studied Keynes to know that if additional liquidity is injected into a given country, through government spending, it increases national income. As is well known, Keynes recommended this therapy in times of economic recession, going against something that up until then was an untouchable taboo: having a balanced budget. Through what is called the “Keynesian multiplier,” GDP will increase by x times the surplus of government spending, depending on the marginal propensity to consume. This means that, depending on how government spending is increased, economic growth will be more or less sustained as demand for consumer and investment goods increases. All this is true only if we are not in a phase of full employment of human and material resources; otherwise, an increase in liquidity may turn into more inflation or end up with financial bubbles.
Of course, if additional government spending goes directly into the pockets of the unemployed, as Keynes famously proposed (“pay people to dig holes and fill them up”), the increase in consumption will be very significant and this will have a major effect on aggregate demand (consumption + investment).
Conversely, if additional government spending ends up in the hands of the high-income classes, it could partly end up in the world of finance, or luxury consumer goods, and have little impact on the real economy.
Given the programs of the NRRP, we can easily assume that some of the approximately €60 billion we will collect from the EU this year will go directly to investment and consumption. Based on a realistic estimate, we can say that the multiplier effect of additional government spending will be about 1.5 percent for this year, which translates into a total expenditure of €90 billion.
Given that our GDP in 2022 was €1.9 trillion, this estimated increase is about 4.7 percent. And now it’s quite easy to compare this estimate of GDP increase with that of Commissioner Gentiloni and realize that we are actually in a sharp recession, that without this injection of funds from the EU we would have experienced, according to these estimates, a recession of 3.5 percent, subject to other domestic and international market variables. Moreover, at least a third of this €60 billion we will have to pay back, and this means that we’re getting into more and more debt by shifting an unbearable financial burden onto the future.
What is being touted as a great success is in fact a giant bluff that the forces in opposition to this government should call out instead of falling into the trap of such games of financial three card monte.
Originally published at https://ilmanifesto.it/italia-in-crescita-il-grande-bluff-di-gentiloni on 2023-05-16