Economic Indicators

America’s Economy Is Heading Down the Same Road as Italy’s

In 2015, I came to the United States from Italy to study at Indiana University as part of an exchange program. I remember one day I was particularly surprised to discover that the State of Indiana had a AAA credit rating. I then wondered how it was possible that people in nearby Illinois, where the rating was notch above junk at best, kept voting for policies that plunged the country into financial ruin, kept moving to Indiana in droves, and all while having an example of a sustainable economy just right of the border.

Being Italian, I thought I might know the answer. Illinois had entered the vicious cycle of clientelism, taxes, reckless public spending and anti-job unionization push, the same cycle that had wrecked the Italian State since at least the beginning of the seventies. It is a spiral that is difficult to break out of: bottomless public spending assures votes, while negative externalities are pushed to the future and to be dealt with by the next elected public official.

When I came back to the United States to work in 2019, I considered myself a sort of economic refugee. Italian youth unemployment was around 40% at the time (now it is even higher after the Covid lockdowns), and most of my friends were unemployed or severely underpaid. One of my few successful acquaintances managed to open a company in Italy but then gave up because of oppressive taxation (imagine paying an effective tax rate of 60%) and successfully moved out of the EU. The rest of my friends were either unemployed, still studying (at 27 years of age) or just stuck in an endless cycle of internships.

If you ask Italian youth about the reasons behind the dire economic situation of the country, the answer is often something along the lines of “neoliberalism” or “economic inequality” or “capitalism.” 

Is a tax on work that forces employers to pay out twice what an employee takes home liberalism? Is a pension system that literally pays defined benefits pensions to individuals who retired at 40 years of age rampant capitalism? Is a 75% tax on gasoline free market economics? Their answer is often: yes (and “we cannot afford capitalism!”).

Ironically, Italy is the highest ranking non-Anglo Saxon country for its “Individualism Score” (Hofstede Cultural dimensions) but has been governed since at least the beginning of the 1920s as one of the most collectivist-oriented big European countries. We can now see the results. It is no secret that the Golden Age of the Renaissance was born out of economic and cultural competition among city-states (the Medici family de facto created modern finance, banking and an early version of capitalism while another Italian of the period invented double-bookkeeping). But power-centralization has only brought us economic failure, with different actors ranging from the Papal States to the Unified Kingdom of Italy of the 1800s and the Italian invention of Fascism in 1921. Despite the evidence, today historically illiterate Italians are stuck with the status quo, which means a perennial cycle of economic stagnation and ever increasing debt.

The United States, I thought, was the last beacon of real large scale applied free market economics in the World. Despite its evident flaws in education and healthcare (both caused by public meddling, but this is a topic for another time), the United States still signifies(d) a land of opportunities for many young Europeans, often stuck in safer but considerably less socially mobile countries and “yearning” to be free.

True, signs of a “Europization” of the U.S. were already emerging during my stay in Indiana in 2015: the Obama administration had just managed to introduce extremely costly and inefficient expansion of Medicare and Social Security, bailed out morally and financially bankrupt Wall Street banks with public money and fueled income inequality with multiple rounds of QE. But the situation still felt to be under control, with public debt to GDP standing at around 70% of GDP, a far cry from the 120% of financially ruined Italy

Fast forward to the present, a deadly combination of a pandemic and the most leftist U.S. government in history have created long term economic imbalances that will and can not be solved in a couple of years (despite assurance of the “temporary” nature of the interventions by the Government and the Fed). The extremely high level of public spending and government benefits (entitlements) will create huge pockets of the population completely dependent on government support for survival. This can already be observed from the recent difficulty of filling a lot of job vacancies in the U.S. at entry level positions. Why would anybody get a job anyway? People can now make the equivalent of a $25/hr salary by staying at home. (More than that if one is also “informally” employed on the side). In most states you can now make even more than twice your former salary if you were making $10.

It is as if the law of demand and supply does not exist. For sure It does not look like it exists in Washington State, where the breakeven for making more on unemployment benefits is now at $30 an hour, or about $62,000 per year.

You do not need a Nobel prize to see what drives countries to ruin. Argentina was the richest country in the World in 1900, it squandered it all away with subsidies, public spending and taxation. Italy was the fourth country in the World for aggregate GDP in the Sixties and again in the Eighties, but the second time private wealth was built on the back of public deficits (sounds familiar?). Today, social mobility in Italy is so low that the richest families at the top of the economic ladder in 2021 are the same ones that were there as at the times of Lorenzo de Medici some 600 years ago.

In the US instead, we have now disgusting and anti-American individuals serving in Congress, of which the so-called “Squad” is really just the tip of the Iceberg. But the Republican party is almost all lost too. Some Republicans might be slightly less hypocritical than Pelosi, who is the Paladin of the little man but makes $5M trades in call options on Apple. But both parties are complicit in this mess. Where were the Republicans when Trump was running $500B deficits in an expanding economy?

Do people think we haven’t seen our share of Alexandria Ocasio Cortez, Bernie Sanders, Elizabeth Warren, Jay Pritzker in Southern Europe? None of these people are bringing in any “new” or “revolutionary” or even better, “progressive”, ideas. Their ideas are always the same, and have already been tried in multiple countries around the World across centuries, always leading to crushing failure and suffering.

Author’s note: the views and opinions expressed are those of the author and do not necessarily reflect the official policy or position of any of my current and/or past employers.