![Fellini celebrated "La Dolce Vita" in his film classic. Today, Italians may feel as though they're living in a Fellini flick. [Credit: theworld.org]](https://i0.wp.com/www.dougsbriefcase.com/blog/wp-content/uploads/2013/07/LaDolceVita-image-credit-to-theworld.org_.jpg)
Fellini celebrated “La Dolce Vita” in his film classic. But a struggling economy, wobbly banks and fractious politics threaten to take the “dolce” out of their vita. [Credit: theworld.org]
Hearty and rustic like the Umbrians who conceived it, strangozzi is best enjoyed with an oil and garlic sauce and shaved truffles that flourish beneath the region’s rich black soil. The pasta course is often preceded by a hearty selection of salumi, which roughly translates as “cold cuts,” but whose character and flavor bear little resemblance to their feeble American derivatives, and followed by meat – veal, beef, poultry and pork are common, as are wild boar, goat, rabbit and pigeon — grilled over a wood fire. All three courses are best savored with a local wine, the ubiquitous Sangiovese or the rarer and more robust Sangrantino, a grape cultivated only near the Umbrian town of Montefalco. There’s always tiramisu or another Italian dolce for the insatiable, topped off by a digestivo, limoncello perhaps or a bracing grappa, made by distilling grape juice instead of fermenting it.
Meals like this are typical, and inexpensive by American standards, in Umbrian trattorie. Unlike many Italian restaurants in the U.S., the recipes are simple and the ingredients few. There’s no need to embellish flavors that speak for themselves. The food is suited to the rhythms of the Umbrian lifestyle, deceptively simple and punctuated by the daily riposo (nap).
Beneath this seeming simplicity lies a healthy suspicion of government and its beneficences. Strangozzi also is sometimes called strozzapreti (strangle priests), a wry reference to the gluttony of their their long-ago clerical overlords (they would consume enough of the pasta to choke themselves) that dates to the centuries when the region was subject to the papacy. Distaste for authority is baked into the Umbrians’ daily bread. They make it without salt, it is said, because Pope Paul III in 1539 levied a tax on salt, prompting a failed uprising in the Umbrian city of Perugia.
But if they chafed under papal rule, Umbrians are no more fond of the succession of unstable governments that the Italian Republic has produced since its founding after World War II.
Those governments have long enjoyed unusually cozy relationships with Italian banks. Their symbiosis now threatens both. Italian government debt stands at 127 percent of GDP, and Italian banks hold a large share of that debt. This precarious arrangement survives only because the European Central Bank (ECB) is determined to sustain it.
A year ago, interest rates on Italian 10-year bonds rose above 6 percent and were headed toward unsustainable levels. The government, which has to borrow constantly to make good on its promises of cradle-to-grave security for its people, could not afford to roll over its debt if rates had risen to 7 or 8 percent. Default loomed as a possibility, something that would have sent the government and banks alike into chaos and potentially precipitated a breakup of the euro.
Enter ECB President Mario Draghi. “The ECB is ready to do whatever it takes to preserve the euro,” Draghi proclaimed. “And believe me, it will be enough.”
The ECB’s decision to take Italian debt onto its balance sheet has been enough to support government borrowing and preserve Italian banks, but it has done little to resuscitate the economy. Italy is in recession. It will remain there at least through the end of this year, according to the Organization for Economic Cooperation and Development (OECD).
Eurostat this week reported that unemployment in May stood at 12.2 percent, a figure that the OECD predicts will climb to 12.5 percent in 2014. Youth unemployment is a national scandal: 38.5 percent for people under 25 according to Eurostat, prompting even university-educated Italian young people to leave the country in search of better prospects.
The ECB-facilitated government access to credit hasn’t benefited Italian businesses either. 160 of its largest corporations have been driven into “special crisis administration,” according to Mediobanca’s lead analyst. Many small businesses are starved for credit, while others struggle to repay existing loans. The street-level reality is that la dolce vita isn’t always so dolce these days.
Modern monetary policy, though great for governments and stock portfolios, never seems to do much to improve living standards at the street-level. So long as governments have access to cheap credit in bond markets and stock prices rise, central bankers congratulate themselves on their successes. Economic stagnation and high jobless rates are not understood as signs of policy failure. Instead they are taken as signals that central bankers should double down on their interventions.
Cheap credit is government heroin. Central banks supply that heroin. CBO projects that our government will need to borrow $640 billion during this fiscal year to meet its obligations. The Fed began purchasing $45 billion per month in US government debt last January, meaning that it would buy a total of $405 billion through the end of the fiscal year (September 30). Fed purchases will thus equal 63 percent of new government borrowing over that period at its current pace.
When the Federal Reserve signaled last month that it might slacken its pace sometime later this year, investors panicked, sending government bond rates soaring and causing a stock market sell-off. The sell-off subsided once Federal Reserve members gave public assurances that its bond purchases would continue and the Commerce Department announced that the economy grew by a feeble 1.8 percent in the first quarter of this year. Such tepid growth augurs the persistence of high unemployment rates. Investors believe that those two negative indicators, which occurred despite (because of?) Federal Reserve policy, will convince the central bank to continue its bond-buying spree.
One wonders how long this self-reinforcing cycle of stagnation can continue. Despite a lower deficit this year due to tax hikes and sequestration, government borrowing remains high. Public debt as a percent of the overall economy is at a post-World War II peak. If government had to borrow at rates more in line with historic averages, both debt and deficit would be higher still.
At some point, it would seem, investor confidence in U.S. government debt would erode, as it did for Italian debt in 2012. But perhaps not. By conjuring credit, central bankers have so far also conjured confidence. Perhaps that can continue forever. For as long as it lasts, political leaders can avoid tough questions about the sustainability of our current fiscal path. Such serious discussions can wait for domani (tomorrow).
And, as Italians well know, domani never comes.
The Italians have it down. Keep it simple: inexpensive food (Italian food should not be expensive), good wine, opera, and of course a good woman. LA DOLCE VITA INDEED!
Well said!
The current US fiscal year federal deficit nearly exactly equals the Defense department budget for the year. Perhaps we should heed the warning of the supreme allied commander and 2 term president and stop funding the military-industrial complex at the current level. They are living la dolce vita Americana.
I agree that Pentagon spending, like spending on national security in general, is anything but efficient. The federal government has a clear constitutional obligation to provide for the national defense. We are living in a period during which the government has a difficult time in deciding what our national defense objectives are, much less how best to achieve them. Congress and the Administration should spell out those objectives. That will facilitate an intelligent discussion about how much we should spend and what we should spend it on.
We have been “at war” in one definition or another nearly continuously since December 7, 1941. Different enemies, hot wars, cold wars, interventions, U.N. proxy wars, secret wars, economic wars, and now even cyber wars. With the exception of WW II, all without formal constitutionally mandated declaration and congressional approval. Perhaps a different approach to the world and using our constitution would help us save some money.
True, but military spending as a percent of GDP has declined precipitously since the 1960s, as has domestic discretionary spending. Transfer payments, largely in the form of entitlement spending, now dominate federal (and state) budgets, and that trend is projected to persist well into the future. Military spending has declined in real terms, even as the national debt has mounted.
Just saw your comment about “beltway wonkism” in my email, although I can’t see it on this board. Transfer payments — in which government gives money to people who haven’t earned it by taking it from people who have or borrowing it — are orders of magnitude larger than defense spending, whether measured in nominal dollars, real dollars, percentage of overall spending or percentage of the federal budget. They are larger still if you add in what states spend. Medicaid, for example, is now the largest item on state budgets.
Spending as a percentage of GDP is inside the beltway policy wonkism. Real world is line item as a percentage of actual revenue. Let’s not punish the old and sick to pay 35+% of revenue for defense and debt service.