Prospects for Structural Reform in Italy: Evasori, 'ndrine, and the Culture of Non-Compliance

Perhaps its better not to look

In the wake of Silvio Berlusconi’s departure from Italian politics and the ascendancy of Mario Monti’s technocratic government, many commentators have suggested that Italy’s fate now hinges on the achievement of structural reform that will allow it to win its race against rising debt service costs, slow growth, and a rapidly graying populace.  With this in mind, I’d like to review some of the more disconcerting structural features of the Italian economy that should illustrate the magnitude of the problems facing Italian policymakers, many of which have been a part of the Italian economic landscape for decades.   Achieving reform will be a challenging task, demanding policy that is effective on a micro-economic level and capable of altering a deeply ingrained culture of non-compliance.

No Hard Landing for China, Just an Old Fashioned Crash

About a year ago I began compiling a slide deck on the short case against China in an effort to formalize my thought and form an actionable thesis.  This proved to be fairly all-consuming endeavor and led to a substantial amount of highly enjoyable work that I summarized in a rather long-winded, sometimes polemical (and now slightly out of date) PowerPoint presentation.  My focus is towards the most misunderstood elements of the modern Chinese economy and reflects a perspective sharply at odds with the Western consensus.  Of the ‘soft landing’ camp I am not. 

In my first of what will hopefully be many, if irregularly published, pieces I’d like to briefly touch on my perspective of the Chinese slowdown and its prospects for 2012.

To bring readers up to speed, the situation has recently taken a turn for the worse. The Chinese debt cancer has continued to metastasize. Loathe to loosen in the face of vast demand from local government clients for stimulus, the center has been forced into action by the potential of a looming global slowdown; the Chinese economy, and especially the property markets, however, had already been showing signs of strain.  The domestic outlook has been increasingly poor with even the heavily massaged official domestic data looking worse and worse. However, the Chinese policy elite remain trapped between a very real economic (and increasingly pressing social) need to cool inflation driven by unchecked credit growth and the demands of Ponzi growth targets (to be achieved by the aforementioned credit growth).  Absent genuine reform and liberalization, the inherently inflationary tilt of China's managed economy will continue to plague policymakers even as economic activity slows; it is endemic to the model.  Unfortunately, such a fundamental change requires an autocratic oligopoly of the ruling elite to voluntarily relinquish their total control of a massive wealth-generating machine. 


Increasing cognizance of the fact that the $3+ trn of dollars of spoils from mass economic manipulation and top-to-bottom accounting fraud may already be largely spoken for has begun to percolate in the western media. The scale, opacity, and complexity of China's closely held financial system will limit comprehension of the full extent of the problems for most Western observers before it is already well underway.