The Italy of the liretta, or rather: the troll is like the pig
(… nothing is thrown away!… )
The premise of this post is that the euro will soon be back in fashion.
It will not be up to us to talk about it, neither from an intellectual point of view (we have already done so with arguments that are now mainstream ) nor from a political point of view (the country is now relatively well: if it made sense to denounce certain mechanisms before they were applied, to avoid such useless pain, it makes much less sense to report them later , causing further stress to the survivors: let the Germans of the AfD think about it now, we need less spread and in general less pain in the ass…). Obviously, it's not just me who thinks that the topic will come back into fashion, and in fact the black sewer is full of trolls, but also good people whose good faith is unfortunately much superior to their intelligence, who in any case case they throw it on the "liretta" in a clear attempt to revive a spin that has only apparently had its day, but which instead is and remains of dramatic relevance. The idea that over time, for demographic reasons, the generation of "Euronatives" would have imposed itself, who would have had no incentive to reflect on the opportunities offered by a world they had not known, was and remains correct in itself, but is struggling to be fully realized. Those who have known a normal way still remain the majority, those who have only known the world of internal devaluation mostly go abroad, those who stay here get informed and if they have the intellectual means to understand, they understand. So this new normal struggles to impose itself as such: old and young people perceive it for what it is, for a state of exception invoked by a sovereign without legitimacy, so much so that I wouldn't be surprised if in a year or two, perhaps in the course of of the next financial crisis, the two-faced Giavazzo would come to explain to us that the wage cut (internal devaluation) depends precisely on having inhibited the normal mechanisms of the currency market!
However, in the meantime it may be useful to study the trolls and their arguments: for us it is a bit of a dive into the past, they are nonsense that we have refuted a thousand times, but if, as Claudio says, we have to start explaining everything again, because with Upon entering politics we have expanded our audience to thousands of people who have joined our followers without being part of this community (and therefore there is a lack of #lebbasi), if this is the case, then trolls are welcome! There are things that are so idiotic that I, and probably you too, wouldn't even think of discussing them, but they can strike a chord with minds that are, shall we say, fresher! Prevention is better than cure, and therefore we intervene…
Two days ago Claudio was kind enough to relaunch my previous post , immediately attracting a troll:
The next day I noticed it and expressed a brief consideration :
who unleashed a fool of considerable proportions! I don't want to exhaust it all in a single post, I don't have time to do it and it's not worth it, but I want to share two or three little things with you because I think they are useful.
I would spare you, but since there were many we need to spend some time on them, a particular category of functional illiterates, these:
There would be nothing to reply to similar phenomena, other than what Gatta Skogatt replied with great composure:
In fact, mine was a mockery of the stupidity of a fool who complained about how expensive mortgages were in a world that he described as having negative real rates (i.e. in a world in which the bank pays you to get into debt: moreover , this was the world of the euro until a few years ago)! This evaluation obviously disregarded the truthfulness of such a representation: it was only a verification of its internal coherence, coherence which obviously could not exist! Anyone who stands on the wrong side of history is condemned to live a lie. In fact, in a world of negative real rates it would eventually be the creditor who would have to complain, certainly not the debtor! So good Gianni literally didn't understand what he was saying, and spoke only to spread (as a troll must do) an allusive and tendentious narrative: "with the lyre it was worse!" (even if to do so he presented an argument that abstractly would have favored the opposite thesis: if things had been as he described them, the debtors would have been much better off)!
I open and close a parenthesis on poor Painintheass , who, as you can easily see by scrolling through his profile, has other interests: he may not be completely lucid, carpentry is a tiring hobby…
However, having exhausted the fun of the stupidity of those who speak without knowing what they are saying, perhaps it is also worth doing a real fact checking of such idiocies.
Has there ever been a year when first home mortgages were at 15% and inflation was at 18%?
And, more generally, has inflation always been in double figures with the lira (as the drindrini repeat)?
Let's take a look at the data, starting, in fact, with those on inflation.
In the 39 years from 1960 to 1999 inflation in Italy was in double digits only for the twelve years from 1973 to 1984:
( source ) therefore for less than a third of its history. And here someone will say: "Okay, the lira did not always travel in double digit inflation, on the contrary: it was more often in single than in double digits, but in any case with the euro in double digits we never got there, despite the terrible catastrophe caused by pandemic and war!"
Eh, no, things are not exactly like that, because wars, and the resulting supply shocks, have always been there, but those that the liretta has suffered have been much more serious than those that the euro has suffered. To verify this, I invite you to consult the page on commodity markets on the World Bank website and, if you are interested, to download the " pink sheet ", the Excel sheet with the annual commodity price indices. If we calculate the rate of change of the latter and represent it together with the Italian inflation rate we obtain this graph:
where Italian inflation is represented on the left axis and that of international energy costs on the right axis (which obviously has a much larger scale). Taking into account the proportions, it is immediately clear that the oil shock of 1973, when the price of oil quadrupled, led to an increase in the iENERGY index (energy raw materials price index) of 230%, equal to almost triple the last supply shock, that of 2021, when the prices of energy raw materials increased by 81%. In short: with increases of more than 200% in the prices of energy sources we had an inflation of around 20%, and with increases of 80% in the prices of energy sources we had an inflation of around 8%.
Has anything changed?
I wouldn't say so!
With the euro, as with the lire, approximately one tenth of the supply shocks (measured by the change in the energy raw materials index) are transferred to the internal inflation rate. The idea of the large coin which acts as a shield against the increase in the price of raw materials is therefore confirmed as nonsense: but we have been told that it was nonsense a thousand times, and the reason is simple: as you can see in the graph, the price increases of raw materials can easily be in three figures (above 100%), and it would be idiotic to think that similar stuff can be compensated by revaluing one's currency. Very simply, if the price of oil, or gas, or energy in general doubles, doubling the exchange rate of one's currency by revaluing it by 100% is not a viable strategy, because it would mean making all our goods pay double all our international customers, simply to keep the price of energy constant in national currency! It would mean killing the country, and something like that can only come to the mind of a perfect dridrind! The rational strategy is to slightly compress margins and pass on part of the cost increases to final consumers, obviously. But the relatively surprising thing, which I didn't even expect, is that the pass-through from energy prices to national consumer prices in the event of a supply shock has remained more or less the same, despite the fact that many things have changed in the meantime: the efficiency of technologies, the energy mix, monetary institutions, and the labor market.
This obviously does not exhaust the discussion.
The graph also shows that throughout the 1970s inflation in Italy was quite persistent, remaining in double digits even between 1975 and 1978, when the increase in energy prices had fallen to single digits. We can reason about how much this persistence is due to the presence of institutions that protected the purchasing power of wages, such as wage indexation (the so-called "escalator"), institutions which, it is said, would have triggered a "price-wage spiral ".
The fact is that the years of double-digit inflation were, as you well know, years of real wage growth:
which of course makes Gianni, our troll,'s statement surreal that a family whose salary was growing more than inflation would find itself in difficulty paying a mortgage whose rate was lower than inflation! But does this fact in itself corroborate the assertion that the protection of families' purchasing power with indexation mechanisms made inflation persistent? Perhaps you need to pay attention to the units of measurement. Indeed, the return from the shock of 2021 has been rapid, but not exclusively nor necessarily because there is no longer an escalator! Simply, in 2023 the costs of energy materials decreased by 30% (to be precise: -29.9%) and therefore in 2024 we had inflation around 1.3%. However, this also happened with the lyre! In 1983 there was a "countershock" of -10% (less sharp than that of 2023), followed in 1984 by another countershock of -4%, and in 1985 inflation returned to single digits.
So, in the end, the world has not changed so radically, except for one thing: the monetary institutions and labor market reforms that have not made us less vulnerable to external shocks (as I have documented) have however served to stop the growth of wages (as you see in the last graph and as Draghi complains, poor thing…).
It remains to be fact-checked another statement from our friendly troll: that with inflation at 18% interest rates were at 15%. It must be done immediately, because inflation rates of 18% only occurred in 1981 (17.96%). Just check the International Financial Statistics to see how the rates were in that year:
(therefore one point above, and not three points below inflation), but I remember a slightly different story, which you will still find on the Bank of Italy website for a while:
with lending rates around 25% (therefore seven points above inflation), and deposit rates below (or very slightly above) the inflation rate.
The reason is very simple: in 1981 there had already been the Volcker shock, the tightening of US monetary policy which had changed the direction of real interest rates throughout the world, as part of a general strategy of financial repression. We saw it for example in the working paper by Reinhardt and Sbrancia cited several times:
So Gianni's world is a world in which he would have been very happy, if only he had existed! (I am referring both to the world and to Gianni).
Good: now I'll move on to other things, otherwise I won't be able to publish tonight. As you can see, trolls are not as useless as they seem. But… leave them to me!
(… this year I will post the end-of-year speech at the new year, just after midnight, if I can. Speeches that talk about the future should be made at the beginning, not at the end …)
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/2024/12/litalietta-della-liretta-ovvero-il.html on Tue, 31 Dec 2024 15:37:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.