PIIGS Can Fly, Episode #1. Host: Guido Iodice, Keynesblog.com


On the web-radio of Luiss University, Rome, a new radio show is on. The hosts are the founding members of this website (Mattia Achei, Nicolò Fraccaroli) and its title is the unashamedly punny “PIIGS Can Fly“: the main target of the programme, same of this blog’s, is to expose non-mainstream economic theories and to advocate their teaching in universities.

Our first guest was Guido Iodice, founding member of the popular Italian website Keynesblog.

Iodice (1976-), an economics journalist, involved with the democratic-socialist party Democrats of the Left (now merged into the incumbent Democratic Party) in the past, started this website in 2012 together with Daniela Palma, an economist for the governmental agency ENEA, immediately meeting enthusiastic response by the readers and gaining a relevant position in the current Italian debate.

It is noteworthy that, as of now, Keynesblog is the only relevant Italian source to dedicate a whole article to our Post-Crash Economic Society.

Iodice turned up in person at our studio in Viale Romania 32, at the Luiss campus.

“The blog was born in February 2012”, he says. He first came up with the idea as a reaction to a statement by former Prime Minister Mario Monti: “we need to conjugate austerity and growth”. Reminiscent of the Keynesian theory, which regards austerity as a terrible mistake during a recession, Iodice gave birth to a new blog directly inspired, even in the title, by the thought of the late British economist.

Its subtitle reveals the primary nature of the project: “A review of ideas to understand the crisis“. Thus, the main aim was to collect and report a list of articles against the high tide of austerity.

Its first post was a 10-page divulgative essay titled “Get out of the crisis with Keynes“. It was met with overwhelming success, with thousands of downloads in a few days.

As a result, the project grew up and Iodice and Palma kept writing articles which showed some sort of “pedagogical take” on Keynesianism. Today the blog has a significant number of regular contributors, many of whom are formal academics.

The success of his project, argues Iodice, demonstrates that interest in Keynesianism found a real resurgence after the great crisis. Iodice argues that Keynes cannot be dismissed anymore as an “old tool” [it: vecchio arnese]. Even neoliberal economists are now forced to criticize Keynes’ thought, instead of simply ignoring it.

However, academic orientation did not change significantly, not to mention politics – especially in Europe, where politicians are still engaged to the traditional vision of the whole country as a family, that needs to cut spending to overcome crises.

Mattia remembers Mr. Iodice that Keynesblog was the only website to publish an article in Italian on the PCES, in late 2013. He asked him some advice for student movements which aim to “open” economics teaching to non-mainstream theories.

Iodice says that is “great thing” that students themselves are the engine of this renewal. He recalls an episode of three years ago, when students left in protest a lecture by well-known mainstream economist Greg Mankiw. He does not have any confidence in teachers. He points out that in the Italian academic environment publishing exclusively “on heterodox journals” is an explicit cause of rejection to teaching.

“Youth rebellion” was instrumental for the development of Keynesian theory. According to Iodice, The General Theory itself was partly a result of the push by more radical students not fully convinced by the previous Treatise on Money.

“Economy is not a hard science!” Iodice states.  As any social science, it allows many different points of view.

Today, the debate is heavily conditioned by a tool unavailable in the twentieth century, social networks. Iodice was asked on advantages and disadvantages of this phenomenon, including the plethora of popular blogs by academics and opinion leaders, even those who lack any formal training in economics.

Here Iodice refers to Paul Krugman, who compared positively the blogosphere movement to the vitality of old-times literary cafes. Jokingly, he says that economists tend to quote each other much more on their blogs than on formal papers. As for non-economists, he points out that Keynes himself regarded the opinions of some non-academic thinkers as more useful than Marxist thought. Iodice names Warren Mosler as a good example fitting in this category today.

He goes on to say how he holds social networks in sharply different regard. Namely, Facebook is reputed very useful, while Twitter is dismissed as totally unfit to articulate coherent discussions.

After a break, Nicolò has at last the opportunity to expose the joke that gives its title to the whole show: is it more likely that PIIGS will recover, or that actual pigs will start to fly? Iodice pessimistically tends to the second hypothesis.

In the current EU framework there is no room for an effective technical response to the crisis, he argues. Therefore, technique shifts to the background highlighting the need for a political solution. This may imply a more convinced path to a federal superstate, or at least an enlargement of the Union budget, today significantly smaller than any other federal entity in the world.

Here Iodice positively quotes the well-known Italian orthodox Luigi Zingales, who proposed as an effective solution to ease the European crisis the establishment of a common European unemployment subsidy. This would entail that countries with fewer unemployed, such as Germany, would be “forced” to pay for the unemployed in the most plagued countries. However, it is widely held that Germany is making money from the current framework, especially from non-EU exports which keep Germany at large from the worst consequences of the crisis.

Iodice is convinced: a number of technical solutions exists, but they all require a narrow, if not unfeasible political path.

EU is compared to a pressure cooker. Peripheric countries (and their weaker agents) are the main course, what is going to be served to huge capital holders in Central Europe. There are two cooks, Angela Merkel and Mario Draghi, and they have a problem: the pot is not working properly. Nobody knows whether the food is already cooked, the pressure is too high, and even if the pot is going to explode.

This “continuous adjustment” take is exemplified on one hand by the ECB mild monetary expansion and OMT programme, and on the other by the persistent request for now infamous structural reforms. Those reforms have a deflationary effect on wages and prices, and this implies that the burden on borrowers becomes heavier – due to the raise of real interest rates.

Iodice recallsa long “warning” published on the Financial Times by a circle of economists, put together by Italians Emiliano Brancaccio and Riccardo Realfonzo, and featuring a long lists of national and international fellows, mainstream and non-mainstream leaning, which foresaw the “violent collapse” of the Eurozone not just as the worst case scenario, but as the most likely one.

On Keynesblog, one of the solutions hypothesized met a wide consensus, a perspective that many observers would refer to as doomy: a soft break-up. The plan is to revert the monetary union to a system of national currencies, linked to an European unit of account. This new system shall be preserved by an automatic rebalancing mechanism, aimed to force countries which enjoy a surplus to spend in borrowing countries, and at the same time to encourage those “bad countries” to invest in non-deflationary policies aimed to reduce their deficits (such as innovation).

Today this solution does not seem feasible because the main country enjoying a surplus, Germany, is firmly decided to preserve it and is highly skeptical of any measure targeted to a sort of “symmetric adjustment” (in Iodice’s words).

Iodice agrees that an unilateral break-up of the monetary union would be catastrophic, but he thinks that a concerted transition from a Euro-1 to a Euro-2 would have way less consequences. The preservation of a linkage between national currencies discourages policies of continuous devaluations, thus reassuring financial operators.

Iodice regrets that this solution, at the moment, seems unfeasible due to the German opposition. Southern European governments, and now France too, are still flattened on German positions preventing any steps to be taken towards the solution sketched above.
However, he stresses how this proposal may be of a higher political value for Germany itself, if we regard it in comparison to the immediate threat of a sudden break-up of the EZ and of the EU as a whole.
[As Iodice adds off the record, in such a scenario Germany might face a tough choice between the “soft solution” and, eventually, leaving the monetary union themselves]

Let us turn to the very new Italian government, dominated by the charismatic figure of the young Prime Minister Matteo Renzi. Keynesblog discussed widely the so-called “matteonomics” and Iodice does not seem convinced at all.

On one hand, Renzi’s Blairite proclaims sound anachronistic to Iodice. Again, during the introductory speech, PM kept on his seat a book published by a notorious ultra-liberal think-tank, Istituto Bruno Leoni (its title isSudditi, “subjects” – to a tyrant, the State). On the other hand, Renzi publicly committed itself to overcome the infamous 3% deficit/GDP parameter – parameter even enforced and restricted to a “factual 0,5%” by a recent amendment to the Constitution.

In conclusion, he thinks Renzi is pretty confused on economic matters. So he focuses on his new Minister of Finance, Pier Carlo Padoan, former chief-economist for the OECD. Iodice recalls the words by Paul Krugman on the OECD, and on Padoan in particular, described more or less like unrepentant austerity cheerleaders, while even the IMF recognized its mistakes in underestimating recessive effects of austerity measures.

Padoan, who cooperated for a long time with a think-tank (Italianieuropei) created by one of the dominating figures in the Italian centre-left in the last two decades, Massimo D’Alema, is described by Iodice as “the neoliberalism teacher for the left”. All in all, Renzi surely cannot rely on Padoan to fulfill his promises to overcome the 3% ceiling.

The last question by Mattia concerns the environment. He refers to an article dating back to February 2012 dealing with the concept of green growth. Iodice highlights again the role of politics and names Mariana Mazzucato, Italian-American economist, who published in 2013 a book on the role of state regulations and enterpreneurship in shaping markets. Green economy enjoys a huge boost from state regulation and, in more drastic terms, by some elements of planned economy.

Nicolò concludes on the “future of the Left“. Italian left, especially on labour market issues, relies primarily on neoliberal think-tanks and totally abandoned its traditional principles. Iodice tells us that the national labour market debate is still mainly centered on a theoretical issue. The leading position views unemployment substantially as a frictional matter, while Iodice holds that it depends primarily on the goods market, and frictions of any kind are not of primary interest.

An example: the huge unemployment rate currently observed in Spain surely is not to be attributed to strict labour protection rules. According to the OECD, Italy is the country where, in proportion, labour protection regulations were dismantled the most! No significant positive effects are shown, especially in the dramatically low rate of foreign investment in the Italian economy.

Labour market is a follower: employment is primarily determined in other markets. And those other markets have to be reinvigorated in order to reduce it; otherwise, only small, insignificant adjustments can be expected.

The ideological assumption that employment is primarily determined in the labour market is today well established also on the left of the political spectrum. The new government does not seems to make an exception. The leftish version of the flexibility ideology, flexicurity, generally focuses much more on the flex– side and clearly neglects to describe concrete policies for the security side.

Iodice ends his exposition wondering: “Where is the money to do [a generous unemployment subsidy]?” A question still unanswered we will try to explore in the near future.

keynesblog.com is also available on the social networks: facebooktwitter.

Guido Iodice is on twitter: @guiodic

PIIGS Can Fly is on air every Wednesday, 16.00 to 17.00, CET on www.radioluiss.it, the web-radio of LUISS University, Rome.

This report was kindly delivered to you by Roberto Volpe, @afoxinspace.


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