Something Terrible Is Happening in Italy

Summary

The video script explores the complex economic landscape of Italy, a country grappling with high national debt, an aging population, and a brain drain of skilled youth. Despite its economic decline over the past 15 years, Italy remains a significant player in the EU's economy. The script delves into Italy's historical economic cycles of growth and stagnation, the impact of globalization, and the challenges posed by an informal economy and regional disparities. It raises questions about Italy's ability to overcome these obstacles and adapt to the global economic environment, offering insights for economists and a fascinating study of economic resilience.

Takeaways

• 🌍 Italy's economy is a microcosm of global economic challenges, including high national debt, an aging population, and regional inequality.
• 📉 Italy has experienced a decline in its economy for 15 years, marked by high poverty rates within the European Union.
• 🏭 The country's once-leading industries have been out-competed globally, contributing to its economic stagnation.
• 📈 Italy, along with Germany and France, constitutes over half of the EU's economic output, despite the potential for its economy to be larger due to the black market.
• 🕊️ Italy's economy peaked in 2008 and has been in slow decline since, losing about 20% of its nominal economic output over the past decade.
• 🏙️ Historically, Italy has seen cycles of rapid growth followed by stagnation, a pattern that has been repeating since World War II.
• 🛠️ Post-WWII rebuilding efforts led to a period of growth, but underlying political tensions and economic issues, such as wage indexation, led to subsequent stagnation.
• 🚗 Italy's reputation for high-quality craftsmanship is a significant advantage, allowing it to command higher prices for 'Made in Italy' goods.
• 💶 Economic policies leading to expansion, such as reducing debt and raising taxes, were necessary for Italy to join the Eurozone but also contributed to economic slowdowns.
• 🇪🇺 Membership in the EU has exacerbated Italy's 'brain drain', as young graduates move to other countries for better opportunities.
• 🏡 Italy's small business size and lack of technology adoption have hindered productivity and competitiveness on the global stage.

Q & A

What are some of the major economic challenges that Italy is currently facing?

Italy is facing high levels of national debt, an aging population, a loss of young skilled workers, regional inequality, sluggish growth, unreliable tax revenues, and out-competition of its once-leading industries globally.

How does Italy's economy serve as a case study for other countries?

Italy's economy is a case study for dealing with globalization, reshoring, and restricted trade, which are concerns for countries like the USA, Russia, China, the Gulf states, and Europe.

What is the current state of Italy's economy in terms of growth?

Italy's economy has been in decline for 15 years, with a slow decline and loss of about 20% of its nominal economic output over the past decade.

How significant is Italy's economy in the context of the European Union?

Italy, along with Germany and France, makes up over half of the total economic output of the European Union, which is the second-largest operating economy in the world.

What is the impact of the black market on Italy's economy?

The black market has been responsible for as much as a quarter of Italy's total economic output, affecting the official economic figures and tax revenues.

How has Italy's economy performed since the end of World War II?

Since the end of World War II, Italy's economy has experienced decades of rapid growth followed by decades of stagnation or negative growth, in a recurring pattern.

What role did the Marshall Plan play in Italy's post-war economic development?

The Marshall Plan invested billions of dollars into the reconstruction of Italy, aiding the conversion of wartime industries into domestic industries and contributing to a period of sustained growth.

What economic reforms did Italy undertake during its first stagnation period?

Italy restructured its economy away from infrastructure building towards export-led industrial growth, gave independence to its central bank to combat inflation, and relaxed wage indexation laws to prevent a wage-price spiral.

How did Italy's economy benefit from the adoption of the euro?

Adopting the euro made it easier for Italy to attract foreign investment, workers, and buyers of its goods, and reduced foreign exchange risk for trading partners, leading to a period of rapid economic growth.

What are some of the current challenges that Italy's economy faces in terms of demographics and labor?

Italy has an aging population with a low birth rate and a high rate of young graduates moving to other countries for better opportunities, leading to a potential workforce shortage and brain drain.

How does the size of Italian businesses compare to those in other advanced European economies, and what impact does this have?

Italian businesses are significantly smaller, with an average of 3.6 workers per company compared to 15 in Western Europe, leading to less specialization, lower productivity, and difficulties in competing with larger European rivals.

What is the significance of technology adoption in Italy's economy, and how does it compare to other regions?

Italy has lagged behind in the adoption of technology, which has increased economic value production per worker and has become a significant industry globally. This lag affects efficiency and competitiveness in the global market.

What are the implications of Italy's large informal economy on its tax revenues and social issues?

The large informal economy in Italy leads to significant potential tax revenue loss and contributes to social problems, including high poverty rates, especially in the south of the country.

What policy dilemmas does Italy face in addressing its current economic challenges?

Italy faces a policy dilemma between raising taxes and lowering spending to reduce debt, which could harm struggling industries, borrowing more and risking bankruptcy, or maintaining the status quo, which may lead to worsening conditions.

Outlines

00:00

🌍 Italy's Economic Challenges and Global Impact

The script opens by highlighting Italy's position as a microcosm of global economic struggles, with high national debt, an aging population, and a brain drain of skilled youth. It discusses Italy's historical industrial prowess and current competition with global markets, as well as the country's significant role in the European Union's economy. The black market's contribution to Italy's GDP and the nation's economic decline over the past 15 years are also mentioned, emphasizing the complexity and the learning opportunities that Italy's economy presents.

05:01

📈 Historical Growth and Stagnation of Italy's Economy

This paragraph delves into Italy's economic history, showing a pattern of growth followed by stagnation since World War II. The Marshall Plan's influence on Italy's post-war reconstruction and the subsequent economic boom are discussed, along with the political tensions and domestic issues that emerged. The paragraph also covers Italy's struggle to sustain growth and the economic reforms implemented during periods of stagnation, including restructuring towards exports and battling inflation through central bank independence and wage policy adjustments.

10:01

💼 The Impact of the Euro and Economic Policy on Italy

The script explains how Italy's entry into the eurozone in 1999 provided a boost to its economy, facilitating growth through increased foreign investment and trade stability. However, it also discusses the challenges posed by the global financial crisis and the eurozone crisis, leading to a prolonged period of economic stagnation. The aging population, high youth emigration, and the country's struggle with productivity and competitiveness in the face of larger European economies are highlighted as significant issues.

15:05

🛠️ Italy's Industrial Struggles and Technological Lag

The final paragraph focuses on Italy's industrial challenges, including the small average size of businesses, which hinders specialization and efficiency. The lack of investment in technology is pinpointed as a major factor contributing to Italy's economic difficulties, with the country lagging behind in tech adoption compared to other Western economies. The paragraph also touches on the large informal economy and its implications for tax revenue and social issues, concluding with a broader reflection on the unpredictability of economic growth and the unique pressures faced by Italy in the global market.

Keywords

💡National Debt

National debt refers to the money owed by a country's government. It's a significant economic indicator that reflects a nation's financial health. In the video, Italy is highlighted as having some of the highest levels of national debt in the world, which is a major economic challenge contributing to its economic stagnation and decline.

💡Aging Population

An aging population is a demographic trend characterized by a decrease in the proportion of younger individuals compared to older ones. This concept is crucial in the video as Italy's aging population is identified as a key economic challenge, leading to a potential workforce shortage and increased social security burdens.

💡Skilled Worker Exodus

Skilled worker exodus describes the phenomenon where highly trained professionals leave a country in search of better opportunities elsewhere. The script mentions Italy's struggle with an exodus of its young skilled workers, which impacts its economic growth and competitiveness by depleting its human capital.

💡Regional Inequality

Regional inequality refers to the disparities in economic and social conditions among different regions within a country. The video discusses Italy's struggle with regional inequality, particularly highlighting the wealth gap between the north and the south, which contributes to the country's overall economic challenges.

💡Sluggish Growth

Sluggish growth indicates a period of slow economic expansion. The term is used in the script to describe Italy's economic performance, which has been in decline for 15 years, reflecting the country's inability to sustain robust economic development.

💡Unreliable Tax Revenues

Unreliable tax revenues suggest a situation where a government's income from taxes is inconsistent or insufficient. The video points out that Italy is dealing with unreliable tax revenues, which hampers its fiscal stability and ability to fund public services and economic initiatives.

💡Globalization

Globalization is the process of increased interconnectedness and interdependence among countries for trade, investment, and cultural exchange. The script presents Italy as a case study in dealing with globalization, which brings both opportunities and challenges, such as competition and the need for economic adaptation.

💡Black Market

The black market refers to the trade of goods and services that are illegally sold or distributed outside of government regulation. In the video, Italy's black market is noted as a significant part of its economy, which impacts tax revenue and contributes to economic informality.

💡Economic Output

Economic output measures the total value of goods and services produced by an economy. The script uses this term to discuss Italy's economic performance over time, noting periods of growth and stagnation, and the overall decline in its nominal economic output.

💡Wage Price Spiral

A wage price spiral is an economic phenomenon where wages and prices increase in a continuous cycle, often due to inflation. The video explains how Italy's past policies of wage indexation contributed to this spiral, exacerbating inflation and economic instability.

💡Eurozone

The Eurozone refers to the group of countries within the European Union that have adopted the euro as their currency. The script discusses Italy's membership in the Eurozone and how it initially provided growth opportunities but later contributed to economic challenges during the financial crisis.

Highlights

Italy faces a multitude of economic challenges including high national debt, an aging population, and regional inequality.

Italy's economy is a case study in dealing with globalization, reshoring, and trade restrictions affecting global powers.

The Italian economy has been in decline for 15 years, with high poverty rates in the European Union.

Italy, along with Germany and France, constitutes over half of the EU's economic output.

The black market contributes significantly to Italy's economic output, affecting tax revenues.

Italy's economy peaked in 2008 and has since experienced a slow decline.

Italy's historical economic pattern includes periods of rapid growth followed by stagnation.

Post-WWII reconstruction efforts by the USA through the Marshall Plan significantly impacted Italy's economy.

Political tensions and domestic issues like the 1980 Bologna railway station bombing influenced Italy's economic trajectory.

Italy's economic reforms in the 1980s included restructuring away from infrastructure to focus on exports.

Italy's premium brand reputation allows for higher export markups for 'Made in Italy' products.

Underlying problems in the Italian economy, such as debt and tax avoidance, emerged after periods of growth.

Joining the eurozone provided Italy with opportunities for growth through foreign investment and reduced exchange risk.

Italy has been in a prolonged period of stagnation since the GFC and the eurozone crisis.

Italy's aging population and low birth rate present significant long-term economic challenges.

The exodus of young skilled workers from Italy contributes to a brain drain and impacts economic growth.

Italy's small business size hinders productivity and competitiveness compared to larger European economies.

Italian firms have been slow to adopt technology, impacting efficiency and economic value production.

A large informal economy in Italy contributes to social problems and lost tax revenue.

Italy's economic challenges include high unemployment, low tax revenues, and increasing debt interest payments.

Italy's economic future is uncertain, with new and historical challenges complicating potential growth.

Transcripts

Italy is one of the most fascinating economies in the world because it is facing most if not

all the major economic challenges that other countries around the world are experiencing,

but it is somehow dealing with them all at the same time.

Italy has some of the highest levels of national debt in the world,

it has an aging population, an exodus of what few young skilled workers it still has,

it's also dealing with regional inequality, sluggish growth, unreliable tax revenues

and it's once world-leading industries have been out-competed across the globe.

Italy also serves as an amazing case study as a country that has dealt with problems like

globalisation, French shoring and restricted trade which is causing a lot of concern between

countries such as the USA, Russia, China, the Gulf states and of course Europe itself.

A lot of these unknowns are something that Italy has been dealing with for at least the

past two decades and that's part of the reason why the country has been an economy in decline

for 15 years now. Which sounds bad, but it's strangely something that on one hand the economy

is taking in its stride and on the other hand has made it home to some of the highest rates

of poverty in the European Union, a collection of countries that people normally associate with

relative wealth at least compared to most of the world. Even if the similarities are not perfect,

there is still a lot that economists can learn from these challenges.

Beyond just being a great insight into what the future of our own economies may look like,

Italy just has some truly fascinating economic features that are worth exploring individually

even if for no other reason than they're just really interesting.

Italy together with Germany and France makes up over half of the total economic output of

the European Union, a union which collectively forms the second-largest operating economy in

the world. Despite this already quite impressive scale, Italy's economy might really be much bigger

than its government would like to admit. In recent years the black market has been responsible for as

much as a quarter of Italy's total economic output, and while the logical assumption here

would be to think about the godfather, the reality is even stranger and more interesting.

So to understand all that Italy's economy can teach us, we must as always answer a few simple

questions. How did one of the fastest-growing advanced economies in the world just stop

growing almost instantly? Not once, not twice, but three times? What has the country done right

and wrong when dealing with its long list of challenges? Who was really to blame for

the country's economic stagnation? How has Italy been impacted by a unique form of destructive

inequality? And finally, is the country's economic model just incompatible with the

new global environment it finds itself in? Italy has had its fair share of economic

scandals in the last few years, but you might not know what's actually going on if you only

read a few news sources or rely on social media algorithms to tell you what's going on.

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Italy as an economy peaked in 2008. Since then, it's been mostly stagnant,

with an overall slow decline losing about 20% of its nominal economic output over the past decade.

Looking further back in history reveals, however, that this is not really anything new for Italy,

and its economy today is the continuation of a trend that has been repeating itself

in the country since the end of the second world war.

The country has had decades of rapid growth, broken up by decades of almost complete stagnation,

and in many cases negative growth, before it gets right back to growing again.

Economic output is just one measurement of the health of an economy,

but even a chart as basic as this tells us a really interesting story about how

Italy got into the situation it finds itself in today.

Italy was historically the most powerful industrial economy in all of Europe before

it was overtaken by the Netherlands and England as they became global colonial powers.

Even after that, and despite industrializing slower than other major European powers like

France and Germany, Italy in its various forms has remained within the top 5 European economies

for effectively thousands of years. Its strong geography, protected by mountains in the north,

but with easy access to the Mediterranean for fishing and trade in every other direction,

has meant it naturally became a great place for civilizations to flourish.

And that's as true for its economy today as it was in 500 BC.

The economy of Italy as it exists today really got started during the aftermath of the second

world war. The country was rebuilt, in many cases from the literal rubble, as wartime

industries were converted back into domestic industries with assistance from and under the

watchful eye of the USA. The USA through the Marshall plan was investing billions of dollars

into the reconstruction of western Europe, and this was back in the 1950s when billions of dollars

actually mattered to government budgets. The motivation for this spending was partially

to build out a new customer base that could buy all of the goods that the US industrial sector

could produce, but it was mostly to redevelop strong dependent allies to stop the spread of

communism from the Soviet Union. The USA also carried out similar rebuilding efforts in Korea

and Japan to stop the spread of communist influence coming from the People's Republic of China.

It wasn't starting from a great position, but these rebuilding efforts did lead to a long,

sustained period of growth. However, under the surface there were still political tensions

causing a range of very serious domestic issues like the 1980 bombing of the Bologna railway

station, which still to this day remains one of the deadliest attacks ever carried out in Europe.

These political tensions were in many ways the cause of, and were simultaneously accelerated

by, other economic problems in the country. Just by economic output figures, it looked like Italy

was doing very well, but it's relatively easy to grow an economy by just taking on a lot of

debt to fund major development projects, especially when the major power in the world was more than

willing to loan money to stop the spread of communism. The challenge is taking that development

and using it to sustainably produce value for the domestic economy and export markets,

which Italy was struggling to do. Once construction and rebuilding efforts had

slowed down, or couldn't get any further funding, Italy's economy fell into its first

modern decade of stagnation, although this first one really only lasted about 6 years.

During this time, the Italian government simultaneously had to deal with mass unemployment,

a large debt burden, high inflation, and external challenges like rising energy

costs for the fossil fuels its young industries had become heavily dependent on.

Now, despite not being good things to live through, economic slowdowns do serve as a

good opportunity for a country to change policies and cut down on industries that

caused the problems in the first place. During this first stagnation, that's exactly what happened.

The country restructured away from just building infrastructure, and turned its attention more

towards using that infrastructure to create things that it could sell all around the world.

It also enacted reforms like giving independence to its central bank,

which was then allowed to raise interest rates to fight off inflation.

At the same time, the laws around index wages were relaxed.

Wage indexation is not very common today, mainly because of the market problems it causes,

but it's a rule that means that wages keep up with inflation no matter what,

even if it's not what was agreed to in an employment contract.

On the surface, this sounds fair. If inflation is high, it's perhaps not right that workers

effectively get paid less because they agreed to a salary, when that same amount of money

could buy a lot more. The problem, though, is that automatic wage indexation accelerates

one of the most dangerous processes in economics, a wage price spiral.

If inflation is high, workers will demand higher wages to keep up with the rising cost of goods

and services that they need to buy. If businesses agree to pay these higher wages, they will have to

increase their prices to maintain profitability, and higher prices cause more inflation all over

again. The one thing that saves a lot of economies from this is the lag between inflation happening

and people demanding higher wages. If inflation is low, there are a lot of people that won't

even know that their wages aren't keeping up, which is terrible for them, but does act as a

moderating force in the economy. If wages are automatically kept up with inflation,

like they were in Italy at this time, then it just makes this process known as the wage price

spiral much faster and much harder to correct. The stagnation was undoubtedly painful for Italy,

but by forcing some necessary changes it came back as one of the fastest-growing economies

not only in the world, but in history. In just 7 years between 1985 and 1992,

Italy tripled its economic output in an export-led industrial boom.

The country has a major advantage in this regard that's hard to tell from looking

at economic figures alone. International customers pay a premium for Italian-made goods

because the country had and still has a strong reputation for high-quality craftsmanship

and skill in producing everything from fast cars to luxury handbags and even things like olive oil.

If an exported good has a made in Italy logo on it, the price of that good can be higher than

a competitor good from most other countries in the world and a lot of consumers would still be

willing to pay a premium for it. Some countries have to go to extreme measures to undercut a long

list of international rivals at every possible opportunity to supply the cheapest, and therefore

most competitive goods to the global market. The fact that Italy can add as much value,

if not more, by simply producing stuff within its borders is a huge advantage that is only

really enjoyed by a handful of other countries around the world.

These good times, unfortunately, didn't last forever because the rapid period of growth

yet again led to underlying problems in the Italian economy. Debt started to creep back

up again as both the government and its people began to borrow irresponsibly to bet on even more

future growth. The country also had problems with tax avoidance. The small industries that

formed the backbone of the Italian export miracle were notoriously hard to tax, and taking advantage

of weak government controls and poorly planned loopholes in order to pay little to no tax

almost became a national pastime. Now overall, whether willingly or not, reducing taxation and

government restrictions while increasing spending through debt is a classic expansionary economic

policy. Even if the government doesn't necessarily mean to do it, this is probably what the country

needed to get out of the rut it found itself in in the 1980s. But in order to get into the

eurozone and be allowed to use the European Union's new currency, Italy was forced to clean

up its act. It had to reduce its debt load and do a better job of getting its people to pay their

taxes. Increasing regulation, reducing debt, and raising taxes all works to take money out of the

economy which, even if it was the right thing to do, still put the brakes on economic growth.

For the rest of the 1990s, the economy of Italy once again entered an almost decade-long period

of stagnation. Fortunately for the country, the adoption of the euro in 1999 created something of

a golden opportunity for Italy to start growing again. After a brief lull, the country in what

was becoming a recurring theme more than doubled its economic output in less than a decade,

once again becoming one of the fastest-growing advanced economies in the world.

Entering the eurozone made it easier to attract foreign investment, foreign workers,

and foreign buyers of its goods. Its trading partners also didn't have to worry about

foreign exchange risk of the notoriously unstable era. The advantages of the eurozone

also coincided with the further general development of Italian manufacturing

and the rise of industries like tourism.

Then of course the country was hit by the GFC and the eurozone crisis, and ever since it's fallen

into yet another period of stagnation, only this time, instead of lasting less than a decade,

it's gone on for almost 15 years now.

The reason that we have spent so long exploring the details of Italy's unique economic histories

of booms and plateaus is because it raises an obvious question for the nation, can it do it

again? Obviously no one can predict the future, least of all economists, but if history repeats

itself it looks like Italy is overdue to take another step up in this weird staircase of

economic output. Unfortunately of course, it's not that simple, and there are a range of new

challenges that are combining with some of the old historic challenges that are making a trademark

Italian turnaround unlikely.

The first is simply an aging population. Italy has one of the oldest populations in the world,

and a lot of its workforce is getting close to retirement. This wouldn't be a problem by itself,

except for the fact that it has a low birth rate, so young people are not joining the workforce to

make up for the people leaving the workforce, who will ultimately, and unfortunately there's

no nice way to put this, become a drain on resources. This problem has also been accelerated

by the fact that Italy has one of the highest rates of young graduates moving to other countries

where they can earn more money for their skills. Earlier this year we were lucky enough to talk

to Professor Billeri from the University of Bocconi in Italy. As both a very well-respected

economist and someone who has first-hand experience training some of Italy's brightest

students, he gave us a fantastic insight into this problem.

Actually, Italy is a net sender of graduates rather than a net receiver, and that's

one of the parts that the country is complaining about. So we'd love to attract more people with

a degree rather than letting them leave to other countries. So I think from the country perspective

it is a problem, especially if you are one of the sending countries. However, let me say

two things on this. One is that from the individual level perspective,

having more freedom of movement is certainly giving the right incentive to individuals.

You want to build a good life, you have good ideas, it's fantastic for the world to let

these people move. The second point of view is that we have to understand from the competition

for talent perspective that countries that are losing these individuals, maybe because they

tend to be overeducated for the level of the economy in that country, should think seriously

about the opportunities that in a specific country or region are given to these individuals.

Membership in the EU has only heightened this problem because Italian students who want to go

to work in places like Germany, France, the Netherlands or even Luxembourg don't even need

to apply for a visa thanks to the EU's policy of allowing workers to work anywhere within the

member states. Raising wages could help to stem this exodus of skilled young Italians,

but the country's industries can't afford to compete anymore with their largest European rivals

because they are simply not as productive. The average size of an Italian business is

significantly smaller than the average size of a business in other advanced European economies.

Italy on average has 3.6 workers per company, where the average for Western Europe is 15,

so effectively 4 times as many workers per organisation.

In industrialised economies size does matter and larger companies are able to produce more

specialised and more value-added items. In most highly advanced industries the

marginal advantage of adding an additional worker is positive because it lets workers

in the business focus on one aspect of production and do it really well.

Given that automobiles are one of Italy's biggest industries and also probably the

first thing that people think of when they think of Italian manufacturing,

it makes for a great example. 10 companies that each have one

employee that makes cars from scratch will produce fewer cars in a year than one company

that has 10 employees that each focus on one part of putting a car together.

If one employee just builds the engine they can get really good at doing just that.

A company with 10 employees can also spend 10 times as much on tools for those workers,

which even though it still works out to be exactly the same amount of costs for each

individual employee means that the tools can be more specialised.

The worker who just makes engines can be given tools that are just made for working on engines,

whereas a worker that has to make the entire car will need to spread out their budget for

tools over everything that is needed to make the car making them less specialised

and ultimately less efficient. Now tools to build cars are one thing,

but something that Italian firms have really failed to invest in is technology.

Computers and related technologies have massively increased how much economic

value one worker can produce in a given day. The classic example of this is that

one accountant with something basic like excel can produce the same amount

of financial reports as 10 accountants using abacuses.

Italy's small firms have lagged behind the rest of Europe in the adoption of technology,

and Western Europe itself has lagged behind the USA and a lot of economies in Asia.

Besides making investments into industries more efficient,

technology has become a massive industry in its own right,

with the majority of the largest companies in the world being tech companies.

Italy of course in some ways benefits from these cottage industries,

because it helps them to maintain their reputation as a place where businesses focus

on quality over quantity when producing luxurious goods.

But countries like the UK, France and Germany achieve the same thing without

actually making the trade-off for size.

Mercedes from Germany employs a similar amount of workers to Fiat in Italy,

but Mercedes is far more premium and generates far higher export markups than economy cars.

A large amount of small companies is also harder to tax than a small number of large companies,

which also highlights another problem that the Italian economy has.

The black market in Italy is exceptionally large for an advanced economy,

and despite the reputation, most of that isn't thanks to the mob,

it's just unofficial businesses operating in grey markets to skirt around regulations and avoid tax.

In the past, as much as 25% of the nation's economy was made up of black market industries.

That figure is more like 12% today, which is an improvement, but it's still pretty bad,

and it's not only costing the nation potential tax revenues,

it's also contributing to social problems.

Part of the reason the informal economy remains so large is that people don't have many other

options. Italy is an advanced economy, but it has some of the highest poverty rates in all of Europe,

and that is particularly severe in the south of the country,

which is significantly poorer than the north,

which as we have already explored is still struggling itself.

Unfortunately today, Italy finds itself in a position with high unemployment,

stagnant economic output, an aging population, uncompetitive industries,

low tax revenues, high debt and increasing interest payments on that debt,

all while having less control than it did in the past with its own currency.

If it raises taxes and lowers spending to try and reduce its debt burden,

it will crush its local industries that are already struggling.

If it borrows more, it risks bankrupting itself,

and if it does nothing the situation is probably only going to get worse.

There is the assumption in economics, in most sciences for that matter,

that we are moving towards an idealised version of the future,

because for the last two centuries that's exactly what's been happening.

The world today is thousands of times wealthier than it was at the beginning

of the industrial revolution, but that's been the exception rather than the norm.

Italy is just another in a long list of advanced economies that are finding

it increasingly hard to compete in an increasingly competitive global economy,

and just because we have enjoyed growth for all of living memory,

doesn't guarantee it into the future.

Now one thing we did address in this video briefly is infrastructure and

the role that it plays in economic development,

but Italy has in many ways over-invested into infrastructure,

which is a mistake that we have already made an entire video about,

but as always we didn't want to repeat too much here,

so we will leave a link to that which you should be able to click to on your screen now.

Thanks for watching mate, bye.