The salary question (my 1st of May)
(… as anyone knows, we often celebrated May 1st here.
In 2013, placing the theme of labor productivity in its correct scientific terms [abstain "-ini"], which would later become a paper: " Italy's decline and the balance-of-payments constraint ".
In 2014, to quarrel with someone who later became a friend, and to affirm a principle that was disputed to me, and now everyone recognizes, even the British salmon: the euro has not established itself as an international reserve currency :
[ here ], as I wrote in 2012:
and of course the reasons for this failure I fear closely resemble those we told each other at the time. There was a sequel to the 2014 post, originating from your observation .
In 2015, when, having already taken the measures of the enormous, insurmountable cultural problem that the Debate posed, I wanted to highlight your comment on our class enemies, the semi-cultivated, whose Halbbildung was stigmatized by this Pinocchio [who knows if it is still here? He understood, he was not of the "pinprick" generation, so maybe he could be around …]. Pinocchio's frustration is the one in which we still recognize ourselves today:
now that history is repeating itself, without immediately appearing evident which is the turn: that of tragedy, or that of farce? As in 2014 there was a sequel, so in 2015 there was a prequel, in which I argued not to be a "politician" by posing a political question that is and always remains current , this:
[which, if you like, is linked to the theme of "puncture" as a non-instrument for awakening consciences, but also quite linked to the theme raised yesterday by Claudio in his direct, the one on babà …].
In 2016, when we talked about the third globalization , pulling the strings of the first five years of the journey made together, and we described that spiral of twisting downwards:
objectively difficult to stem, in the general unawareness, of which we soon risk going through another ring.
In 2017, to celebrate the beauty of creation .
In 2018 I was late .
In 2019 I was a technician .
Much of what there was to say, moreover, had been said, and not everything could be said or repeated [and therefore very sorry for those who had not been here immediately]. Yes, because of course I too am wrong, even if less than average, and among my perspective errors there had been a crucial one: not having understood that my political role, even if it would have formally protected my freedom of expression of thought, freedom whose inevitable restrictions I had amply announced , on the other hand would have substantially limited it, because a necessary condition for the effectiveness of any political action, in general of any strategic game, is that one's moves are not disclosed to the opponent, and also because the credibility and mutual trust in political relationships is built, as in many business relationships, on mutual confidentiality [would you trust a lawyer who tells you the stories of other clients? I would understand only that he tells others about mine …]. So, since the period was difficult, with Conte holding delegations to European affairs to negotiate his separate peace on the ESM, etc., I obviously preferred to shut up, thinking that whoever could understand would understand.
Then the world changed, obviously remaining the same as before.
But in 2020 and 2021, gripped by a thousand quarrels, I didn't have time to dedicate to you.
However, we must return to celebrate it together, on May 1st, and to do it, as we have always done here, with the full legitimacy that comes from having started this project in defense of democracy, that is, of the humble (because the proud defend themselves in any regime), in defense of their Orwellian common decency , and in response to their question: why are we getting worse?
The answer to this, as to other questions, was already written, but no one read the pages to which it was delivered for you.
This is what I limited myself to doing, and so much so that economics is a science, that the mere affirmation of its inexorable laws – even if not deterministic – has allowed me, has allowed us to anticipate events many times. If nothing else, this has helped us to learn that being foresight is not a sufficient condition for effective political action: the foreseen lightning bolt comes slower, but it arrives, and in life the important thing is to arrive at the right time – like everyone else. you will find it by remembering how he met the man or woman of his life. Quite simply, as precious as time is, often sooner is simply the wrong time, as much as later . We have had to learn to live with this painful awareness and we have come to terms with it, for the simple reason that, right or wrong, time is still on our side, as I believe I have explained to you many times, and I have no difficulty in repeat … ).
Today our future proud and faithful allies of the center-right, currently (in Rome) proud and loyal opponents of the right (but elsewhere there are other things, because the levels of government are many, and each has its own political geography), have concluded – or started, I don't know – a keynote conference. As you will have understood from the introduction, if as a scientist I had made a method of doubt, as a politician I was forced to do something more: a survival tool! So, I have no certainties, but of one thing I am sure: in that, as in other programmatic conferences, everything will have been discussed except the road we have in front of us. The reason is simple: that road is difficult to glimpse without the necessary cultural categories, and even when it is glimpsed, one tends to look away, because it leads to a place that outside of here you do not have the tools to manage, nor in terms of substance, nor in terms of communication.
To you, who have been here for a long time, it will be enough to summarize it in a tweet, this :
… and we could even close it here, since they are things we have talked about a thousand and one times.
However, it is worthwhile to do it, some emphasis, for the benefit of latecomers .
The wage issue obviously pre-existed the outbreak of supply inflation (which in turn pre-existed the war). Here you see some recent data:
and here one of the first posts on the subject .
Retracing this chain of events on the contrary, the war allows the Democratic Party to talk about inflation without admitting the responsibilities of the dysfunctional European construction in feeding it (I am referring, in particular, to the improvised choices in terms of energy supply that I have illustrated here ). In turn, inflation allows the PD to touch on the issue of wages without admitting its responsibilities: in particular, that of having advocated a system in which external equilibrium (that of external accounts) can only be achieved through (wage) deflation, that is, only through the devaluation of wages (as the nominal exchange rate adjustment is no longer available), as I have illustrated many times, the last of which here (but if you want to deepen the subject, and you should want it, because it concerns you, you will find so much to read or reread here ).
To put it simply: the war allows the PD to pose with some credibility as a defender of the workers, to the extent that it allows the PD to tell the workers that if they are ill, the fault lies with the war, not the PD! ( Rectius : of the political system represented and defended by the PD).
And so, driven by the inexorable logic of things, and aided by an unfortunate (for others) chain of circumstances, despite the fact that in February their political body had warned them to " avoid the futile chase between prices and wages " ( we had commented on it here ), the politicians of the PD discover, all of a sudden, that it is necessary to increase wages that have been stuck for thirty years in terms of purchasing power (as shown in the graph above)! And why are they discovering it right now, not twenty (as in Dumas), but even thirty years later? It is not strange? No it's not: it's completely simple and natural! Because before the immense smokescreen raised by the war, they, who are those of the jobs act , who had had the austerity program written by the ECB , would have laughed in their faces to make a similar speech! Now, under the hauberk of a decisive and irrefutable #hastatoPutin, there is no pirouette that fails to seem credible to the eye of a distracted reader, including, I must say, many readers or former readers of this blog.
And then Misiani arrives, Orlando arrives, Sala arrives …
In the name of "everything has changed" (passepartout phrase of particular efficacy, because it exempts from saying what has changed: "but how what has changed: everything, don't you see it?"), Reconstituting themselves as defenders of the widow and the orphan our "leftist" friends provide us with their solution, to adjust wages, which would also be right (if only because we can assume that the indications coming from Bankit are wrong!), but to be convincing it should be matched by answer to two other questions: hadn't the problem of defending purchasing power been solved by adopting the euro? And if we adjust wages, how do we solve the problem of competitiveness?
I will not dwell on the first point. Archeology of the Debate . Only people completely lacking in economics have been able to tell on the one hand, and believe on the other, that one could defend oneself by re-evaluating the exchange rate from the increases in the price of raw materials, which often travel in the double or triple digits! Today, so to speak, with an increase in the price index of energy sources equal to over 350% compared to two years ago
revaluing the euro by 300% would certainly largely offset these increases, but it would also mean quadrupling the price tag of our goods for buyers outside the eurozone. Are we sure it would be a good idea? I'd say it's pretty easy to understand that it wouldn't be.
Then there is the other problem, that of competitiveness. The trade-off (alternative, dilemma) is this: if you don't adjust wage levels, you offload all the cost of imported inflation on the workers' shoulders (Dr. Visco's preferred solution), but you manage to at least contain the cost of labor (since that of raw materials does not depend on you). This means that on the one hand you kill your internal demand (because workers, as prices rise, have to reduce their purchases), but on the other hand you maintain market share abroad. If, on the other hand, you adjust the level of wages, the cost of imported inflation is distributed between wages and profits, domestic demand holds, but of course you risk losing market share abroad and reducing your surplus, or increasing your deficit. of balance of payments.
An economist would say that we are faced with the choice between an export-led growth model (I do not adjust wages because I give up internal demand and pursue a mercantilist model of growth guided by exports, that is, by the demand of others, in the German style), and a wage-led growth model (I support domestic demand so as not to make my growth dependent on foreign demand).
In the Bagnai-Rieber model (this one ) we have given a formal form that is complicated enough to satisfy the discerning palate to a couple of truths that are simple enough to be appreciated by anyone. In a monetary union, if the least competitive country adopts wage moderation policies, it finds itself in an equilibrium in which the growth rate is lower and unemployment higher than before. The little drawing, if you are interested, is this:
(but obviously without paper you don't do anything with it: I put it here in memory of when these things seemed difficult to me: now I face other levels of difficulty), while the explanation is relatively obvious. Wage moderation increases the share of profits and stimulates investment, but on the other hand it depresses the demand for consumer goods, and the second effect generally prevails over the first.
So, how to say: a strategy of this type is excellent for our competitors, but not particularly excellent for us (who would depend even more on them).
Obviously, to see things like this one must be willing to admit what Adam Smith thought was obvious, namely that productivity also and above all depends on the conditions of demand (which stimulates supply). If, on the other hand, you are in the fairy world where supply creates demand, then best wishes! … In this sense, therefore, Visco is not right and Sala is not wrong: wages must be adjusted.
However, there remains one problem, indeed, at least three remain: at a microeconomic level, doesn't the increase in labor costs risk putting companies out of the market? And at the macroeconomic level, does it not risk deteriorating competitiveness? And the greater domestic demand (the money in the pockets of families) is not likely to turn to goods produced abroad (increasing imports and contributing to a further deterioration of foreign accounts)?
Anyone who wants to propose a wage-led growth policy must be able to answer these three questions, and for this reason I believe it is useless to address those who cannot understand them. If, on the other hand, you stay here for a moment, I will give you some elements to build an answer together.
Starting from the end: at the moment Italy is a country with a strong foreign surplus. You certainly remember that I made this point at a particularly difficult time . Since we have a strong surplus, and we have rebalanced the external financial position :
we have margin for expansionary policies. Do we want to let the PD take advantage of it tactically, presenting itself as the savior of that homeland that with so much alacrity has contributed to burying, and forcing the other parties into the role of defenders of the bosses or bosses? I do not think it would be a good idea to have the PD privatize the political profit of the immense cost incurred by the country, by all of you, due to the deflationary (austerity) policies of the last ten years.
The microeconomic level remains.
Undoubtedly, an increase in wage costs does not please anyone. But on the other hand, the balance of a company is made up of many things. For example, if we believe the economic texts, the entrepreneurs who around Italy we have seen granting wage supplements to workers (from Siro Della Flora to Andrea Beri , but the phenomenon has been quite extensive ) have not made an irrational gesture , have not been overwhelmed by a romantic surge of philanthropy, but have acted, perhaps without being aware of it, in a perfectly rational way, applying the theory of efficiency wages , according to which the productivity of a worker is positively correlated to the level of his remuneration. Yep: because productivity is also part of the economic equilibrium of a company, not losing a worker on whom one has invested in terms of human capital also falls, many things are included, not attributable to mere discourse (which also has its own logic) according to which "if after raw materials also wages increase, here we take down the clèr". This is certainly one aspect of the problem, but only one of many, as evidenced by the fact that if so many companies have rewarded their workers in difficult years like these, and have done so without failing, it was not only because they felt they had to. to do, but also why they could do it.
This does not mean that entrepreneurs do not ask for help, nor that the consequences of what is happening must be passed on to their shoulders! Nobody thinks this (first of all I think their employees don't) and nobody wants it.
What many of them are asking for is that we intervene more decisively, with an intervention at the height of the circumstances, on energy costs. I have been told by many that if we could intervene by calming the increase in energy costs as in France , then an adjustment of wages to inflation would be sustainable. And if you want a progressive fiscal intervention, then the proposal to recover purchasing power to the less well-off classes by abolishing the VAT on basic necessities (another thing that when we asked for it was welcomed with raspberries, but which then met with general approval when Germany did it two years ago ).
Of course, we cannot make a generalized discourse: but for this very reason we cannot and must not even react to the provocations (intellectual and political) of our pro tempore allies with frontally opposing arguments. More can be done. It would be a grave mistake to leave economic rationality in the hands of the left that for so many years has been raging against it. It would be a serious mistake to let those who have created a wage question in Italy be free to pose as its solver, and it would be especially so because we here know that within a certain camp, the "progressive" one, there is not yet, and you will never be willing to deal with the objective constraints that prevent us from progressing from an export-led growth model towards a wage-led model.
Yet this is needed, and not only for reasons of social equity, but also, trivially, for reasons of national security.
Everyone sees today that it is a problem to depend on other people's exports: importing gas from Russia can be objectively embarrassing if, for whatever reason, it no longer wants to export it to us (and go around the world to look for resource suppliers that respect the ESG fees is an arduous undertaking, given that around the world almost all resource-rich countries have been or are the object of colonial or neo-colonial attention, which is generally expressed in the exogenous imposition of governments not exactly at the highest standards of democracy. .). Few people see (even if we have been saying it for a while), that it is a problem to also depend on the imports of others: because when you live exporting products to a country (I go back to taking Russia for example), it can happen for various reasons (political instability of others, sanctions, etc.) that at some point that flow of demand is interrupted.
Here the theme is of a more general nature: the PD is not culturally equipped to prevent the victims of globalization (which it manages here in Italy) from being further crushed by deglobalization. The strategic security of a country requires, for one thing, that objects such as the humble (and hated by you) surgical mask are no longer produced in a single country (the one from which viruses originate, to understand), but are also produced at home. But this, however, means that they cost more, and the economic balance will therefore require that it be possible to pay them more, by workers who are better paid. The race to the bottom of globalization must be reversed, for reasons of national security first of all, but it can only be truly reversed if we all clarify one point: for this reversal to be sustainable, we must all equip ourselves to think in terms of a race. upwards, to demand the quality (also of our life), to bear the cost, and to demand the remuneration.
I do not think we can ask for this effort to the prophets of the world without borders, nor, in other respects, to those of degrowth.
(… I would have to add two little words for the benefit of those friends of ours, peelings of men that Goofynomics spat, to whom Claudio spoke yesterday with liberating frankness. But I have to take care of something else. There will be no opportunity and you will not lose anything in the wait …)
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/2022/05/la-questione-salariale-il-mio-primo.html on Sun, 01 May 2022 18:07:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.