Recovery Fund: too many expectations and the specter of waste (always assuming that the funds arrive)
In some time – we hope as soon as possible – the restrictions will drop and we will come out of the current state of freezing of part of our economy. The hopes of a restart that the mainstream media and a large part of the political class place in the disbursement by the European Commission of the now mythological funds of the Recovery Fund are at least exaggerated. On the basis of a vision imbued with statism and dirigisme, this much-desired flow of money is expected to represent an opportunity to reconfigure our economy, making it greener, more digital and efficient. And, while we're at it, feminist (!).
It is difficult to determine to what extent this enthusiasm is supported by economic reasoning or rhetorical shit. How can it be argued, in fact, that a figure that is actually so small, if compared to the size of our GDP, can really trigger an epochal change? To tell the truth, it is argued that it will not be the figure itself that will “stimulate” the transformation of the economy, but the 'conditionalities' that these funds bring with them, as well as some multiplier effect of private investments. It is really difficult to agree with such an approach: some positive effect may perhaps be obtained in terms of short-term aggregate demand, as well as (marginal) productivity growth deriving from a better public technological infrastructure, but there we stop . The risk of waste, on the other hand, is very high.
Let's look at it in perspective. We will arrive at the time of reopening with an important number of companies kept afloat artificially by subsidized credits, aid (however small) and suspension of activity. The same goes for hundreds of thousands of workers formally laid off but in fact unemployed, as they are linked to activities in great difficulty – and that therefore the "free all" must necessarily be resized – or directly to zombie companies, in fact bankrupt . Let's not forget – as many do, even in the economic debate – that production activity was already in a downward phase before the crisis due to the pandemic: this means that the cycle of expansion induced by artificially low interest rates was behind us, and that companies were already being disposed of which remained on the market only by virtue of (dangerously) expansive monetary policies.
At the appointment with the reopening and the relaunch of the economy we will therefore arrive ballasted not only by the many companies that have gone under water because of the pandemic crisis, but also by activities that had no economic prospect even before the crisis, and whose number was inflated by the aforementioned ultra-expansionary monetary policies. In this chaos, one would have us believe that the State will be able to select companies capable of remaining on the market, when instead, beyond the competition, the State does not have any further instrument (indeed it has several less) to know who will actually be successful. Furthermore, let's not forget that beyond the huge potential waste of taxpayers' resources (Italian and European), the Recovery funds, like all public funds, risk feeding mafias or simple clienteles well trained in capturing and using this kind of donations.
Starting from these premises, it would be much more prudent to allocate all available funds to tax cuts (even temporary, with greater immediate effect), both on consumption and on investments. Corporate tax could also be cut, creating tax credits for loss-making companies, which would reinforce their capital. In this way, businesses could finance themselves more easily and, above all, the state would not decide who should survive and who should not. Because, after all, the economic calculation of future profitability can only be done by companies and by a set of market players who, as a result of competition, generate the necessary information.
Unfortunately, a rational approach has little chance of listening in a country, and in public opinion, so steeped in providential statism, at least in those political elites who hold the decision-making power and have every interest in acting in the sense of a distribution of funds that make one's intervention “evident”.
A separate chapter, then, would be that of the legacy that a fiscal maneuver of such an expansive nature will leave to citizens in terms of public debt. Unless the European Central Bank manages to provoke an inflationary blaze that we would all pay in terms of relative impoverishment for the benefit of the state, in its capacity as the largest borrower, it does not seem, frankly, that there are alternatives to an overdraft or disguised default, perhaps. modulated according to imaginative formulas, but nonetheless default. Worthy conclusion of decades of "deficit democracy", fueled by the fatal mix of statist interventionism, rising public debt, anti-business sentiment .
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This is a machine translation from Italian language of a post published on Atlantico Quotidiano at the URL http://www.atlanticoquotidiano.it/quotidiano/recovery-fund-troppe-aspettative-e-lo-spettro-degli-sprechi-sempre-ammesso-che-i-fondi-arrivino/ on Tue, 06 Apr 2021 03:56:00 +0000.