Destroying domestic demand: the drawing
I think everyone here remembers Monti's words: "We are actually destroying domestic demand…" (for those who have forgotten them or have never heard them , they are here ), the shameless confession of the fact that pro-cyclical policies, fiscal consolidation, in short, austerity, had been a deliberate policy aimed at recovering competitiveness, as Draghi himself admits today :
(for those who are not able to connect the dots: in other words, the recovery of the public accounts was only a pretext to carry out redistributive policies by claiming a state of necessity, and in fact we have not recovered the public accounts and we never could have done so for the reasons stated above ).
For some reason I felt like drawing this beautiful masterpiece, not so much that of Italy (by now you know it), but that of the European Union:
Here you see the OECD data. Note that the United States is running on levels of domestic demand (defined as the sum of consumption, including public consumption, and investment, including changes in inventories) above 100% of GDP: this is consistent with their position as net importers. You will also note that from the mid-90s, essentially at the beginning of the subprime crisis, this percentage has been growing, until the 2008 crash has somewhat reduced domestic demand (via the credit collapse).
The European path is very different. For sixteen years the weight of domestic demand remained substantially constant. Then, after 2011, it decreased sharply, falling by more than two percentage points, and then remained on a lower path.
This can also be seen with the AMECO data:
and also with Eurostat data:
Bottom line: it's in the data.
In the data, of course, there is also what we have called the "ethnic substitution" of one consumer group with another:
It looks good, doesn't it?
Here the last three years are forecast, and the forecast is that this structure will soon remain unchanged, despite the pressing and heartfelt appeals to reinvigorate domestic demand (but also competitiveness, i.e. foreign demand) of the Eurozone. The graph is divided exactly in two: in the first half, the domestic market works (the Germans sell and the PIGS buy), and therefore the foreign accounts are in balance. In the second half the domestic market does not work: the Germans want to sell but the PIGS can no longer buy ( their domestic demand, i.e. their incomes, having been destroyed ), so the production surplus is discharged abroad, generating the imbalances that we know and to which the United States has reacted as we know.
He says: "Well, how pissed off the Americans are! What do you think three points of GDP surplus are!? Just look at the GDP in the egg…"
Well, as I explained to you on March 5th in Rome , three points of GDP are 400 billion euros, and history teaches us that Americans have killed (figuratively, and not only) for much less:
I know, these are things you know, we know, especially here (we have known them since 2011, before Monti explained them to us, to whom we explained his failure in advance : Draghi, with all due respect, is not even in the game!…).
However, I thought this little drawing:
might interest you.
Hoping that I have done something pleasant, I therefore take the liberty of sending you my warmest regards (and I'm off to make another drawing).
Yours truly,
Guru.
This is a machine translation of a post (in Italian) written by Alberto Bagnai and published on Goofynomics at the URL https://goofynomics.blogspot.com/2025/06/destroying-domestic-demand-il-disegnino.html on Fri, 06 Jun 2025 12:27:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.