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Commentary. The inability to ensure full employment and an arbitrary and inequitable distribution of wealth are the most obvious evils of our society.

Unemployment and inequality in Italy

What do you think of our poor country, where only a few are doing well? Here is the summary: 3 million unemployed; more than 10 million inactive, of which nearly 2 million are “discouraged”; 2.5 million temporary workers; nearly 2 million illegal workers; an overall tax evasion between 20 and 30 percent of GDP; an income distribution that proves that 1 percent of the population owns more than 10 percent of the total wealth — while 7 million live in poverty.

Italy, therefore, does not meet two of the “fundamental principles” of its own Constitution: “Italy is a democratic republic, founded on work” and “It is the duty of the republic to remove all economic and social obstacles which, by limiting the freedom and equality of citizens, prevent the full development of the individual and the effective participation of all workers in the political, economic and social organization of the country.” Article 53 of the Constitution is not respected either: “Everyone shall contribute to public expenditure according to their ability to pay. The tax system is based on progressive criteria.” Beyond the €75,000 income threshold, which is now the fifth and final income bracket, the income tax rate is stuck at 43 percent.

That failure to generate full employment, and an arbitrary and inequitable distribution of wealth and income, are the most obvious evils of the economic society in which we live, and these evils will continue to worsen if the current deflation process continues. John Maynard Keynes had already figured it out; he suggested a therapy in the concluding notes on the The General Theory of Employment, Interest and Money (1936). The Keynes plan is organized in three theses.

The first one is actually divided into two points: This thesis has been proved false; today against the general consensus, according to which the accumulation of capital would depend on the propensity for individual savings, and therefore largely depends on the accumulation of capital savings of the rich, whose wealth is thus socially legitimized. The General Theory shows instead that, until there is full employment, the accumulation of capital is unaffected by the low propensity to consume, but on the contrary, it affects it.

The marginal propensity of the rich to consume is lower than that of the poor. So a redistribution of income via tax, from the rich to the poor, would increase the average propensity to consume, pushing up the demand for investment, consumption, actual demand, employment and national income.

The second Keynesian thesis focuses on interest rate. The justification usually given for a moderately high interest is the need to encourage savings, with the unfounded hope to create new investments and new jobs. Instead, it is true, with all circumstances being the same, investments are favored by low-interest rates; so it will be appropriate to reduce the rate in such a way as to make investment attractive even with low deferred profitability in the eyes of the accountants, which are typical characteristics of social profitability investment.

Hence the Keynesian hemlock, of extraordinary relevance: “euthanasia of the speculator” and therefore euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital. Interest is not the reward to any genuine sacrifice, and neither is the rent of land, and today interest rates are already low due to the monetary policy pursued by the European Central Bank.

However, this has affected small investors but not the big speculators; and on the other hand, the banks do not transfer businesses the effects of monetary policy, as they prefer the quieter and profitable purchase of government bonds. Here some government actions are possible, while for large financial institutions, a supranational regulation would be necessary — it should be taken into account that both nationally and internationally, these institutions constitute a kind of “virtual senate”; a virtual senate which consists of providers of funds and international investors who continually review the policies of national governments; and that if they judge such policies as “irrational” — because they are contrary to their interests — they vote against them with capital flight, speculative attacks or other measures to the detriment of those countries (and in particular the various forms of welfare state). Italy knows something about that.

The third Keynesian thesis is about the role of the state: “The State will have to exercise a directive influence on the propensity to consume, partly through its scheme of taxation and partly by fixing the interest rate. But it seems unlikely that the influence of monetary policy on the rate of interest will be enough by itself to determine an excellent investment pace: I think, therefore, that a socialization of investment of a certain magnitude will prove the only means to allow us to get closer to full employment.”

In Italy’s case, this thesis should be read as follows: Do not privatize public industries or solicit foreign investment, as these do not constitute an “investment” but a simple transfer of ownership and the associated profits and imply the shameful belief that private investors, with any passport, are better entrepreneurs than Italians: This is, however, a problem of our ruling class.

Proposing these three solutions (redistribution of wealth and income, euthanasia of the speculator, and some socialization of investment) as instruments to combat unemployment and inequality may sound like a sermon. They are actually possible reforms, theoretically well-founded and socially desirable, unlike the “passive reforms” in the agenda of this government (these could be defined by analogy with the “passive revolution” of Cuoco and Gramsci).

Beneath all economic policy decisions, there is some economic theory and therefore some social philosophy. The economic theory and social philosophy that inspire our government are not clear, but it seems it still believes in the old neoclassical theory, founded in the late 19th and early 20th century, the theory that an increase in employment necessarily leads to a reduction of labor costs; this is linked to the “Laissez faire” social philosophy, a motto that goes back to a meeting between Minister Colbert and a merchant named Legendre around 1680. Colbert asked: “What can I do for you?” and Legendre’s response was, “Leave it to us merchants!”