Italy, Then and Now

69 Responses

  1. “over 20% of Italian public sector compensation is withheld as pension contributions.”

    That’s huge.

    I like your proposed EU fixes.

    1. @Dan Lynch, I’m really curious to see what will happen in my bella Italia.. After this really clever proposal, where are “the media” going to found the courage to hide what is happening?

      1. @Dario, Under Berlusconi’s myriad mattresses? Doesn’t he even have at least one somewhere in Russia?

        Who says Italy didn’t regain empires.

      2. @roger erickson ahah! Berlusconi is a puppy, the real emperors are Draghi and Monti.

        Ps. thanks Mosler for this paper!

  2. clear and brilliant 🙂

    the only part that I don’t think I understand is on page 33:

    “ECB bond buying is now ‘poison’ for for the remaining bond holders”

    Why is that? I thought ECB bond buying is what guarantees lower rates and value of the bonds?

    If bonds that ECB holds were not “taxed”, then the more bonds are in ECB hands, the less sense there is to introduce the “tax” (private sector involvement) – because it does not change much.

    1. @Gary, Imagine you want to write down EUR100bn of debt, because that would make the debt level ‘sustainable’ again. The more debt is owned by the ecb would mean that the eur100bn needs to be shared among fewer remaining bond holders. So the loss per bondholder increases when the ecb buys.
      The ecb does not take a haircut on the bonds it holds, only the private sector is forced via retro active CACs.

      1. @walter,

        got it, thank you. My mistake was that I thought it was calculated in total, and then only applied selectively.

  3. Great ideas. The ECB distribution idea just requires a shift in perspective from sticks to carrots. I can understand the desire to enforce restructuring, but instead of insisting on:

    “We’ll continue to strangle your economy unless you you restructure”,

    why not move to:

    “If you go forward with restructuring, we will boost your economy with a ton on money!”

    It’s pretty hard to restructure the tax system of a moribund economy anyway. If the economy is dead in the water, you don’t even know who to tax.

    1. @Dan Kervick, Opinion polls seem to suggest that as Warren put it … the populace doesn’t trust its own government to manage the monetary system (at least in some countries). But, you have to wonder if the citizens of a sovereign nation will get sick of the ‘we’ in your two quotes. Maybe the don’t want to restructure, maybe they would rather work 35 hours a week … and have less (at least material stuff). Not everyone might want to live like a German.

    2. @Dan Kervick, Some poster here said the USA is the only nation to tax earnings earned elsewhere, so we already have experience. Our IRS must be the best taxing authority ever to exist, ask wesley snipes and tim geithner. I think like charles hugh smith said about making greece a US state under US currency and US taxation, why not do the same with all the PIIGS, put the IRS over all of them and show them what real taxation management is about. One IRS to rule them all and bind them. We have so many unemployed that could be put to work as IRS collection and enforcement agents worldwide.

      1. @John, I was born in germany, and spent 10 years of my first 20 in europe, and just last year spent another year there to make sure my superiority feeling was justified. (certainly affected and influenced by all the european snobbery I grew up with)

        Who is jesting? I am being serious, white man geithner goes scott free cheating the IRS, the black man wesley snipes goes to jail for 3 years, certainly you europeans can get behind an IRS that is so fair and balanced? 😉

        John, I once met ernest borgnine at an AIRWOLF signing, he said his real name was borgnino, italian, but he didn’t want people to know it in his youth for obvious reasons. Why did his family leave and cost italy such a fun guy? We send amanda knox over to italy and look what happens!

        America took the best from all your cultures, and melted it all together and the sum is greater than all the parts. See we had our blowup back during lincoln but he kept the union and the currency of the 50 states together. Doesn’t look like you guys can succeed, and 2 world wars is enough, sorry but you guys need a big brother as warren says – a guy in the room holding a gun and you can’t get out without his permission, and our IRS is the best there is. Warren says the US even did a lot of unsecured swaps with you guys to try and help the failed experiment, kinda against the law, but we really wanted to help the euro boyz. We are really nice and generous you see, team USA.

        The first western developed country to put a black kenyan in charge to prove to the world we can pass the “global test” why can’t you guys? Your time has come and gone, and it seems ours is too, asia will carry the torch in the future.

        Last year I went all over europe, so much graffitti everywhere, so many youth on alcohol and drugs, why can’t the europe elders impart a sense of caring and culture amongst the youth who are tearing europe apart? Milan Italy I was treated more rudely than anywhere in europe. And costa cruise lines, OMG, the arrogance of the italians on board, unbelievable! No one appreciated Vicenza US Military base from what I could tell, and those US military planes that gave use to all that airspace – lift lines be damned! I am glad ernest borgingo came to the USA.

  4. Completely agreed with using the Job Guarantee as a means to save the Eurozone. Disagree a bit on the implementation though:

    “The ECB makes annual euro payments of 10% of total GDP on a per capita basis to member governments” -> that would be giving more money on, a per capita basis, to Germany, than to Greece. Not very counter cyclical?

    Instead, I like this better:

    An ECB-backed institution would:

    1) Tax all Eurozone nations X% of GDP (where X is the same for all nations)
    2) Fund the job guarantee program, managed by the nations, just like you said
    3) X does not have to be set such that the program’s budget balanced. Program is allowed to run whatever deficit it wants and it can fund that through ECB-guaranteed bonds.
    4) This takes the member nations out of the counter-cyclical spending business which they can no longer be in.
    5) Any nation that does not want to participate in this program is free to leave the Eurozone

    In this case, nations like Germany will be net losers in the program and nations like Greece will net winners. This would give the incentive to Germany to get out of the Eurozone–which is a much better one than their current incentive which is to terrorize every other nation by configuring the Euro exactly how they want it, without any regard for others.

    This leads to either fiscal consolidation, which more productive nations footing the bill for the less productive ones, or to an orderly dismantlement of the Eurozone with productive nations exiting first. Win-win?

  5. Sorry but I cannot go to Rimini, but I am readin you slides.


    In Italy now Inflation because Oil priced in a weak Euro,

    but also becuase Fiscal Budget / Gdp impose increase level of VAT (+1% until now, may be another +2% next years) and other type of Indirect Tax on Gasoline (we call “Accise”) that wev add to the traditional VAT => so Inflation trasmission from Energy into the entire economy is natural.

      1. @jonf,

        Yeah, and a dog has about 320 bones in his body, so there actually will be plenty to go around for the survivors.

  6. HAPPY BOLD ECONOMIC PREDICTION: Italy or Greece, then other PIIGS, avoid destruction via austerity by adopting JG and Mosler Bonds. Lesson learned is not lost here and when the fiscal cliff arrives next year Bernake magically transforms into an MMTer.

  7. Warren, one thing only. I find Peter Cooper’s logic very strong in that “ is incorrect to say that the value of the currency is determined “at the margin”, i.e. in terms of the lowest paid individuals. What matters is the AVERAGE labor time that is worked to obtain a unit of the currency..”

    Any thoughts?

    1. understood. but my sense of logic says it has to be the marginal cost of labor that determines the value of the currency, as that’s what the marginal $ of ‘savings’ can buy at any point in time.

  8. An article in the NY Times after Draghi was named to the ECB said — “Those closest to Mr. Draghi say his economic views have been shaped by his challenges at the Italian finance ministry in the 1990s, when Italy was expelled from the euro zone’s predecessor, the European Exchange Rate Mechanism and, like Greece today, came close to bankruptcy.” Can Super Mario Save the Day for Europe? October 29, 2011

  9. Warren

    Why dont we just lower taxes across the board in Europe ..
    Eur value goes down ,exports up , more money in the pockets of people ,more corporates spending and hiring …no paranoia about government spending ..ECB bridge finances this episode until growth back on track ..

    1. @walid M, Same reason most sane policy doesn’t get executed.

      Policy discussions ALWAYS start out as competition between sub-group interests, with the initial aim to under-fund & overtax competing subgroups.

      Without a Ben Franklin type person at each discussion – to tell zealots to forego small, local gains in return for huge aggregate gains – net policy logic has a greater chance of enlarging rather than shrinking our apparently-infinite Output Gap.

      Life on this planet took 3.4 billion years to come up with humans, and humans have been practicing policy for at least 1 million years. It’s obviously an arduous process, but we study everything else EXCEPT how to accelerate policy negotiations & constantly accelerate net capabilities.

      The future’s so bright we can’t see it. Most turn around & run.

      1. @roger erickson,

        return-on-coordination is a learned concept

        if we don’t teach & practice it in elementary education, it won’t be instilled as a fall-back, reflex habit, and hence won’t show up in policy discussions

        Democracy garbage in … democracy garbage out.

      2. @roger erickson,

        Speaking of Ben Franklin and democracy, I think it was Ben Franklin who said: “Democracy is two wolves and a sheep voting on what to have for dinner.

  10. What do you do about people, who accumulate currency and hoard it, like squirrels do with nuts and pack rats with corn cobs — to satisfy an obsession — but, unlike squirrels, whose memory is poor and whose stashes are therefor available for other squirrels to find, manage to sequester their hoard for as long as their sense of never enough lasts?
    While the issuer of currency can obviously simply issue more to compensate for the drain, the temporary disruption of the flow can become significant in itself, especially as the size of the population of hoarders (monopolists) keeps increasing. While I object to banks charging fees to account holders who don’t transfer money in and out often enough, the issuer taxing currency that’s not being used would strike me as fair–like towing a vehicle that’s been abandoned at the side of the road or causing abandoned commercial properties to be razed. “Use it or lose it” seems reasonable.

      1. @WARREN MOSLER,

        Right. Hoarding real resources is a bad thing. But hoarding digits on an account statement? There are a lot of people on this site that just don’t understand that.

      2. @ESM, “Hoarding real resources is a bad thing”

        If only our middle eastern friends understood this concept, our militaries wouldn’t have to liberate that oil from beneath them.

      3. @ESM, There are nested layers of hoarding. Individuals in an aggregate will ALWAYS display a broad spectrum of hoarding instincts.

        Point I’ve understood from talking with Warren is that the aggregate – by definition – can EASILY afford any laughable form of hoarding that an individual, or even a small subgroup, can imagine. That’s obvious, but we tend to gloss over the obvious in our individual projections, and thereby generate colossal aggregate fallacies of composition, like in orthodox economics.

        The most damaging form of hoarding – by far – is when the aggregate hoards it’s unused response options.

        (Statisticians & system-theorists call this ignoring the return-on-coordination, or foregoing auto-catalysis.)

        This conclusion comes from the simple statistics of networked aggregates. The return-on-coordination in an aggregate is so freaking unbounded that the imagination of individuals never matters … IF … the aggregate will just explore it’s options to scale up aggregate Output.

        That’s the history of evolution, in a nutshell. There’s infinite room to expand options. Apprently we don’t teach it well enough in elementary school, nor let citizens get enough practice at it. If more of HP only knew what HP was capable of, they’d all be a lot less paranoid about individual hoarding.

        The future really is so bright that we can’t see it. A rudimentarily crude calculation, however, concludes that that’s a HUGE source emitting that blinding light. Given the magnitude of the source, logic says to invest in sunglasses & wade in to the smorgasbord, not go back into the dark.

        Ben Franklin also said, in principle, that wolves & sheep were smart enough to explore a mutually beneficial option, where they selectively recycle stragglers in each category back into grass. Surely our wolves & sheep are smart enough to do the same … but I’m beginning to wonder.

      4. @WARREN MOSLER,

        however, this would only apply if government understood what must be done. But they do not. So government spending (or tax cuts) do not replace the money saved by private sector – and unemployment ensues.

      5. @MamMoTh,

        why lowering taxes would encourage private hording?
        I would think hording occurs primarily out of fear of the future. Would hording increase or decrease, if everybody had guaranteed healthcare, education and retirement income?

      6. it’s the promise to lower taxes if you increase hoarding that encourages hoarding.

      7. @MamMoTh,

        I see. You mean only taxes on the hoarded amounts, and not taxes on income, etc?
        In that case – I agree, that reducing taxes on hoarding to 0 – would increase hording somewhat.

      8. @MamMoTh,

        “it’s the promise to lower taxes if you increase hoarding that encourages hoarding.”

        There’s no way the world works that way. Hoarding in the aggregate would lead to lower taxes, but hoarding by any one person would be immaterial, so I don’t believe it would ever enter into any individual’s calculations.

        People only act for a common purpose if they’re properly incentivized, either economically (e.g. conserving energy when energy is expensive) or psychologically (e.g. recycling, or voting, so your neighbors think you’re civic-minded).

      9. they are both about unspent income, both are in lieu of current consumption, but if you and I both earn 1 million, and yours gets taxed away while mine sits as unspent cash in my pocket, we are then both in very different circumstances

      10. @WARREN MOSLER,

        These “hoarders” seem to be interested mainly to use their money in politics. They fund election campaigns, purchase think thanks, economists, lobbyists. And thats a problem undermining democracy.

  11. I think any plan for the EZ should address another fundamental flaw: inflation rates among EZ countries must converge.

  12. Warren,

    First of all lots of success and have a safe flight!

    I do not know exactly for what kind of public the presentation is meant.

    Just a few comments / suggestions:

    Page 5 / 14: ‘As issuer I have first to spend before I can borrow or tax’

    That is true of course and it is valid in any monetary system. Also with the gold standard and its derivatives. It is inherent to being the issuer.

    Many visitors, especially the ones from mainstream, may say that if you consider now the ECB the issuer then, to be consistent, the Bank of Italy was previously the issuer.
    It then boils down to the ‘game of chicken’ between tsy and cb about the sustainability of the deficits.
    In a standard configuration with one cb and one tsy this normally ends in fiscal dominance, the cb gives in.
    In the EA there is one cb and 17 national tsy-s.
    ECB tries to establish monetary dominance.
    At the same time we have seen that ecb already acted as LLR for solvent, but illiquid sovereigns and also for insolvent sovereigns.
    But as you said: this does not happen on a regular basis as sound policy, but only ‘when the plant is about to die’.

    Page 10:
    In the Italian context I think it might be worthwhile to mention that Mario Draghi was Director General of the Italian Treasury from 1991 till 2001.
    Looks like he may have been aware of your MMT meeting with Luigi Spaventa.
    Maybe a good question to Draghi for a financial journalist for next ecb meeting?

    Page 15: ‘currency issuers necessarily set their own interest rates’.
    It’s clear that when they lend they set their own interest rates necessarily.
    But when they borrow?
    Tsy and cb together have the ability to set any rate, but why that is necessarily?

    Page 30:
    You mention Politics and Moral hazard as reasons for the ez set up as it is.
    Could you elaborate a little bit on the Politics that you think are behind this particular set up?

    Page 45: ‘Deficit spending beyond capacity limits’.
    Maybe to add here the point that this can come from both sides.
    e.g. Russia in the early nineties had hyperinflation due to a capacity collapse.

  13. Warren,

    thank you for slides and for your works on MMT. I’ll attend your conferences in Rimini.
    I think the main problem is that very few people understand the situation of Euro currency and how it reflects on economy and society in general. In Italy, almost all economists and politicians ignore the effects and mechanisms of fiat currency and Euro system. I am particularly angry with so-called “popular or main stream economists” in italy nowadays known as a professors who are saying that we must conjugate deficit cutting (austerity) and growth at the same time and don’t take into consideration the possibility to found the state without debt. It is given as normal that state only must borrow the money against the interests payment on the market. I am seek of it!

    The question is: how to diffuse and explain to the large number of people the situation with debts and EURO currency and brake what has been accepted and learned until now and convert it into a political action?

    Could you give some suggestion?

    I remember when I first read your 7dif book. I was shocked about your statements but after study and confronting with other authors I learned and accepted your ideas.
    But if all of that will not enter into a political action and become the part of the common culture everybody will loose

    Have a good flight, see you in Rimini


  14. I was present in Rimini and I want to thank mr. Mosler for his enlightening presentation.

    Some questions about Mosler Bonds:
    But if I can use government bonds to pay taxes ONLY if the state does not pay me, we’re already in a dangerous situation by default?

    Could we use ALWAYS use government bonds to pay taxes and not only when the state fails to repay the bonds?

    What would be the effect on the prices of bonds in circulation with the issuance of bonds backed by taxes?


    1. good to see you too!

      yes but with mosler bonds the odds of getting to that point drop dramatically
      yes, it could be done that way.
      bonds in circulation would do better as the govt would be able to refi them.

  15. Warren,

    I just went through the whole discussion, on livestream You did a wonderful job. I think the anti austerians in Europe will thank you! I am sure the video will go viral.

    1. @Clonal Antibody, @Clonal Antibody, About 16 minutes in, Mosler says that what makes the lira have value is that if you don’t get some, you lose your car and your house as the government takes it away through the TAX MAN. Why would people in the former empire of naples turn this kind of power over to some politicians in another part of italy? Why has greeks turned this over to someone in germany? Why does the spanish speaking people in Miami turn this power over to a kenyan in DC? Or the texans or alaskans? At one time it may have made sense to be part of a larger collective, but now maybe not? Maybe the world was a scary place and being part of a large collective kept the pirates off your back, but those days are gone, like the gold standard days are gone, maybe in the days of pirates and gold it was smart to be part of a big collective with DC the center, but now? I don’t fear any pirates called blackbeard attacking me, or some indian geronimo scalping my head. I dont see the point of giving power to someone in DC to control my fate.

      I maybe want to remarry 5 times to nice chinese ladies and give them a chance at a better life, but DC says NO, I don’t have that freedom anymore like I did until recently, even if they are getting beat and crushed somewhere else, I don’t like the freedoms US politicians are taking from me and others.

      Maybe I am completely wrong though, maybe this is why those silly euro boyz need to integrate under one big government to rule them all, so they too don’t have to fear pirates attacking them for thier gold or tribesmen scalping thier heads and can be told who they can marry and how many times. What say you Colin and others, don’t you want some political body far away to determine who your personal life mate can be? What BS.

      Those that trade security for freedom, hmmm….

      50 minutes in Mosler says congress and the president have power over the central banks, but that is not what I see here in the USA, I see 500 political people totally corrupted by the system and not answerable to the electorate. Even Roger Erickson says everyone in DC is probably a bunch of self serving crooks only caring about number 1, not the rest of the borg, and he should know. 500 politicians is too few to represent 300 million people, it puts way too much power in way too few hands that can be bought off. Mosler says the statues and laws determine what happens. But I remember Citigroup chairman john reed saying the banksters and wallstreet corrupted all the politicians, corrupted the regulators, bill black said they are all corrupted, blogs all over the internet point out new corruptions every day by our bankers and regulators, in the bush administration they defunded and destaffed all the financial regulation offices, ad infinum, lobbyists today get the laws and regulation the BANKERS want, not the laws the people want!

      Come on Warren, people don’t want to listen to you while you keep spouting this nonsense and then they shut off all the good things you say.

      We have to move beyond his model that you are in a room with a guy who has a gun and if you don’t do right you get your head blowed off, can’t humanity do better than this? I remember Greenspan saying with pride how he got everything priced in dollars, the whole system under 1 currency. Why aren’t 50 state currencies a better idea? It decentralizes a lot of power.

      18 minutes in Mosler says there is no capital flight to worry about the way people think in a fiat world, but Warren, the chinese hero’s grandson says like greece people not trusting thier own currency and wanting EURO, that soon all PEOPLE all over the world are going to distrust ALL fiat, and it matters not what one fiat trades against another, if you don’t have armies and oil and gold (I keep trying to convince him with armies and oil you don’t need gold) that you will be in bad place a few years into the future. According to him, the 8 year old kid in Instanbul will soon not take ANY paper currency, because all fiat will not be able to be trusted. As you say in this video, all governments are trying to lower the value of thier currency against each other, causing problems for so many people, perhaps corrupted governments can’t be trusted in a fiat world and need some external regulatory force where greenspan and the bankster lobbyists failed.

      You say it yourself Warren, the financial sector is more trouble than it is worth, but people will starve and die if they lose thier house and car, so the WHOLE currency game is set up in a way that pushes humans into that blackhole of financial abstractions, we have to design a better system then this whole tax and lose your house and car system we have now that causes so much human potential to be wasted on silly abstractions.

      Also Warren, not speaking italian, and these 2 people on the panel with you speaking italian back and forth left you looking confused a few times, see what I mean about one language to rule them all and bind them? Of europe wants to become one and give up thier national identities and join the borg, they have a lot of other problems to fix first.

      1. @Save America,

        The Government already taxes. Warren’s point was that the Government decides how it wants to get paid. That is what will give Lira its value. The need for taxes, and the need to engage in commerce. If Italy shifts to the Lira, or Greece to the Drachma, the Euro will no longer be accepted as a currency for engaging in commerce in Italy or Greece. All transactions will have to be done in the local currency. No different than when you go to London. In the UK you have to pay using the pound, and not the Euro. The Euro is NOT an accepted currency in the UK (and UK is a part of the EU) — you have to have British Pounds before you can buy your dinner at that fancy restaurant in the West End that you like to go to!

      2. @Clonal Antibody,

        If Italy shifts to the Lira, or Greece to the Drachma, the Euro will no longer be accepted as a currency for engaging in commerce in Italy or Greece.

        Not true unless there is a properly enforced ban.

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