As the elections draw near, the deadline for the approval of a highly insidious budget law approaches. Pecunia not oletindeed it smells intensely for any political subject that perceives in its essence the plot that binds conflict, economy and power. Starting with Adam Smith, the economists who have conceptualized conflict management have been diverse; It is no coincidence that Game Theory, applied to nuclear deterrence, falls within the uses of economic models dedicated to strategic analysis, despite the fact that economistic rationality tends to clash with passions and emotions that Clausewitz couples by chance and reason.
From wherever you look at it, the economic aspect is pervasive: the Financial Times case1 with speculation on Italian debt and the attack on BTPs, motivated by an electoral campaign that reverberates the image of a country exposed to the risk of a rise in ECB rates. While the hedge funds speculate the ability to repay the pending is called into question, which makes Italian bonds more expensive due to both inflation and the vacant understandings of the sides about cutting the debt2.
In short, in the face of an economy that a few weeks ago celebrated a growing GDP, the funds are betting on the political uncertainty that dominates the energy price increases, on the dependence on Gazprom, on the insufficiency of North African energy alternatives, on the lack of intervention of the anti ECB spread, on the impossibility of issuing new debt; meanwhile, investors are betting on the trouble to repay the debt, which will determine the decline in demand for securities3.
The role of rating agencies is fundamental, as they exert a geopolitical and geo-economic influence on internal and foreign relations. The excess of financialization of the last twenty years, so of debt, public or private, it has depressed investment, stimulated speculation and made civil societies fragile; the credit growth rate has exceeded that of the real economy, allowing the various executives to take out loans to finance the deficit by involving families and businesses: it is the market that decides the value of currencies, while global economic power looks to an inflexible China as for debt restructuring and interest payments.
In this variegated and changing context, by December, the forthcoming Italian Parliament will have to approve budgetary provisions framed in an overexposed and vulnerable financial system in terms of repayment capacity, with the perfect storm hitting the developing countries in the background. development4, with capital flight, inflation, interest rates and debt on the rise.
The picture is completed with the now certain arrival of a global recession, difficult to estimate in terms of duration. It certainly won't be short; after all, stigmatizing a recession would cause embarrassment in Beijing, where the crisis induces workers to accumulate savings and undertake a sensational mortgage strike5: Xi has turned off the credit taps hoping to contain a discontent herald of unpopular and drastic measures that would defeat the expansionary monetary policy adopted so far, while the transition from an exporting country to an economic power with internal focus is considered.
The sanctions following the invasion of Ukraine are leading Russia to a long and deep recession that offers three scenarios: an accelerated contraction next year, with the return to pre-war economic levels only (and perhaps) by the end of the decade ; a framework inertial with the economy at the bottom (-8,3%) next year; a panorama stress for 2024 with 12% less than 2021 levels.
Whatever they say, the Russian economic system is moving towards paralysis, with financial and technological limits that increase the pressure, highlighting the non-existence of expansive economic policies together with a lack of differentiation of energy production activities. The ruble, the currency of a de facto marginal economy, needs time (and more) before it can aspire to become a truly stable currency resistant to exogenous shocks and structural problems attributable to persistent stagnation6 with a decline in income and an increase in military spending.
The US economy is also in a technical recession7, with a second consecutive quarter in contraction and characterized by inflation and (again!) severe bad debts in the real estate sector with too expensive mortgages; in the Indo Pacific there is the decrease to 4,2% caused by the increase in American interest rates and a slowdown in Chinese investments. It is useful to remember as commercial political uncertainty, weakening of the supply chain leaders, tightening of fiscal policies and inflation will delay the economic recovery of the Asian continent still grappling with the pandemic.
But it is war, with its economic implications, that calls for more stringent attention. The Western sanctioning apparatus determined the Russian strategic response on gas and oil supplies; each country will have to adapt its policies according to the accumulation of shocks caused by the uncertainty affecting producers and consumers, including limited exports, higher stocks, support for increased domestic production, rationing; in short, increased expenses, where the evaluation of the possible adoption of theonshoring or of restoring, with increased inflation8, facing the strategy of a country, Russia, which self-deprived itself of its own small prosperity is played with missiles and nuclear weapons.
Let's face it: the West, with its delays and its undeniable and (or) political horrors, is only now guilty of lending credit to an energy taxonomy that has rehabilitated nuclear power, and which gives the EU the unenviable chance to choose which slap to take first, if that of the next wave of Covid, or that of an epic energy bludgeon that, in Italy alone, will bring no less than 120.000 companies to their knees9.
It would be interesting to know when Confindustria and the Italian executive had real knowledge of how and how much gas prices were out of control at the Dutch Market (gas) in Amsterdam. A little late now, ce n'est pas vrai?
Reality has entered the Palace, we will have to deal with it. Be comfortable though; it's not over: let's go back to the budget law with all its articulations, including Defense. Please, don't forget what you've read so far: it's part of the game.
Everything has a cost, of course, even the production of security, the exclusive prerogative of the state. The acceptability (bitter pill) of an expense derives from utility and convenience (sweet gilding of the bitter pill) of the good or service to be acquired; a long-held legend has it that military spending, Keynesian, produce economic growth. Which is highly debatable, given that the first victim of the trend is the development and that the relationship between the two factors is inconsistent except for some sporadic cases. That military consumption and investments converge in the calculation of GDP, or in the military burdenIt is true, but it is equally true that taxes and public debt could have fueled other sectors, such as human capital training from primary school to university (where the country lags behind), and health care.
By attributing intentions to Keynes which he never expressed10, has creatively assumed the idea that, by means of his multiplier, due to the increase in military spending, positive repercussions could be generated on the entire economy thanks to an expansive fiscal policy capable of increasing national income: the evidence has disavowed that this expenditure facilitates economic development, given that the factors to be considered they are many11, and not limited to GDP12 moreover composed of interacting elements.
An economy characterized by significant military spending risks not being sustainable from a fiscal point of view in the long run, given the need to resort to high debt. In terms of research, a conceivable military advantage is reduced where the value of the assets is qualitatively lower than those which, developed in the private sector, benefit from a more extensive demand.
In summary, productive activities increase well-being by generating wealth, unproductive ones only burn resources. The military keynesianism, therefore, it does not trigger multiplicative effects of income growth: il warfare is one thing, the welfare another one, just as the value of health and education remains incomparable, especially in the long term.
For example, military R&D does not allow the identification of the economic fallout of the acquired knowledge, given the limited competition to a few companies aimed at a single buyer who manages the competitive forces. In fact, the products sold rarely find use in an unmodified form in the civil sector, thus not contributing to productivity improvements; all this unless you move on to the actual (and hitherto lacking) understanding of spin off13 addressed to a dual use that produces technologies with applications for both civil and military uses. Sneaking from Dante, it can be said that R&D requires a lot virtues and a lot knowledge, a loose and triggered mine.
The problem in America has been felt for some time, so much so that for the military field the specific expression of military industrial complex, amplified in 1961 by the farewell speech of President Eisenhower who, while highlighting the risks inherent in the expansion of this complex, could not avoid the system of revolving door between industry and governmental bodies14.
Whether the company is private or publicly owned is of little importance: profits must be maximized both at home and with exports; the problem arises where the strategic-political interests of the State and the entrepreneurial financial ones conflict. But is it so relevant that, as in Italy, the public ownership of arms companies remains? It seems so, when you consider the golden power recently invoked by the government to protect national technological interests that have risen to the role of obscure objects of Chinese desires.
The problem should perhaps be put in other terms, namely: Is the same weapon system produced by A more or less cost-effective than the one produced by B in-house? If so, perhaps funds useful for other functions purely would be cleared welfare.
Given, however, that security is essential, and that recent studies confirm the negative effect of military spending on growth, the task of each state should consist in balancing the expenditure itself by providing for the investments of the welfare; taking it to the extreme, the usual refrains that impose or the choice between salted butter (civil productive goods) and cannons (unproductive resources), or the option between the behavior from free riding, which uses the increase in allied spending as a covered profit for its otherwise unpaid needs, and the leader / follower dynamic.
Just to be clear: failure to participate in the payment of NATO quotas equal to 2% of GDP brings to mind the technique of rigatino15 in My friends. According to the 5th Corollary of Murphy's Law, left to themselves things tend to go from bad to worse, and it is in this perspective that, looking at the budget law still in mind legislatoris, we cannot fail to take into account various elements; the first concerns in 2020, the dramatic jump back in the level of GDP, indicative of both the most severe peacetime contraction since 1861, both of the attestation of a crisis that has dragged on since the 90s.
Given that economic policy is that set of precepts and action plans on the basis of which the government seeks to achieve its main objectives, namely: efficiency, equity, stability, growth, it seems clear that something has gone wrong.
The second element concerns the fact that growth theories and policies refer both to strictly economic factors (observable and analysable), and to extra-economic and institutional elements (often difficult to understand logically and rationally); it is inevitable that Italy has to pay the price of being behind the main countries in terms of innovation capacity, human capital and fragmentation of the production system. Then the problem is here, given that the extent of defense spending is limited by the conditions of national finance associated with more or less rooted and negative cultural perceptions. That the Ukrainian conflict has made the need for deterrence understandable is not certain, given the ongoing diatribes; there is no doubt that it is necessary in common sense, bearing in mind, however, that the increase in military spending, in the presence of such a large debt, can only be gradual.
However, the problem is still political, given the dysphoria that in recent months has led the Defense Commission to present an agenda to the DL Ukraine aimed at committing the government to honor NATO commitments in paying the 2% share (famous last words), only to succumb as a result of internal controversies within the Commission itself, furthermore promoted by representatives of the majority.
Let's be honest, under these conditions talking about Keynes is surreal. After all, according to Edward Aloysius Murphy, if there are two or more ways of doing something, and one of those ways can lead to a catastrophe, then someone will do it that way.
We think positive. Considering that Keynesian thought should be contextualized about a century ago, the political and non-economic problem concerns current productivity and organization not referring to a post-war or post-earthquake characterized by intense reconstructive activities.
Since the political gain comes from the electorate, the basic solution would lie (the conditional is a must) in spending better, with greater logic, and taking into account the fact that the economy, while growing, does not always develop by presenting widespread inequalities.
After all, Flaiano said that in Italy the political situation is very serious, however it is not serious. If he said so ...
1 The FT published data collected by S&P Market Intelligence, according to which in August the funds borrowed Italian debt for no less than 39 billion euros.
2 About 2.756 billion euros
3 The forecast of an increase in yields will raise prices, inversely proportional to the decline, and hedge funds will be able to buy securities to be returned at a lower price, collecting the difference.
4 See Sri Lanka
5 Citizens refuse to pay the mortgage payments on housing that are not delivered to them
6 Russia has an economy equivalent to that of Spain, with a per capita income equal to one third of that of Germany
7 Limiting ourselves to the analysis of GDP could be reductive; other indicators such as employment, industrial production and wholesale and retail sales also need to be considered.
8 Offshoring, is the transfer by a company of a business process from one country to another; onshoring involves the internalisation of activities; Reshoring is the opposite of offshoring and is an economic phenomenon that consists in the return of companies that had previously relocated their activities.
9 Confindustria
10 As for the war, in How to pay for the war, Keynes in 1940 argued that to finance military expenses it was possible to resort to both taxation and a specific system of deferral of pay.
11 human capital, technology, productivity, valuable skills and institutional functions
12 GDP is the sum of consumption, investments, public purchases and net exports; the production of a country must therefore be equal to the expenditure incurred for its purchase.
13 Derivative-derivative field
14 managers who alternately obtain contracts in the public administration and in the military industry
15 The Count Mascetti in Amici Mieis wearing a waiter's jacket and pretending to run away from the hotel, avoiding paying the bill.
Photo: web
