About Covid-19

Against the “front-load” approach
April 30 2020


In this piece written a month ago and published by the Italian daily IL FOGLIO (May 15 2020, Friday, p.VI), I argue against the “front load” approach to the coronavirus crisis. In unusual and infrequent situations “jumping to conclusions” on the basis of limited evidence (fast thinking) becomes very risky, since it is not said, indeed it is very unlikely that “what you see is the only thing there is” (paraphrasing the cognitive bias called WYSIATI -“What You See Is All There Is”). This is an unusual macroeconomic shock, featuring an omnibus of different and heterogeneous supply and demand shocks. This composite collection releases conflicting pressures on price and quantities dynamics and it is not clear what the net effect might be. Disentangling temporary and persistent effects of this composite shock is not obvious. Consequently, it is problematic to identify the predictable adjustment of the economic system to the shock and the possible policies needed to make sustainable this process. The thought effects of CoVid19 crisis on the levers of growth highlighted by the economic theory are scrutinized. What can be derived is a growth-friendly strategy.
Even in adopting targeted stimulus measures, attention should be given to the underlying incentives-scheme so as to make them sustainable (ie, neutral in respect to the government budget). As an example of such short-term measures, I propose a complete temporary tax exemption for all types of domestic expenditure in “tourism services” by Italian citizens. I argue that this kind of measure is expected to be potentially neutral on the government budget. The “front-load cost” of the measure, in terms of the reduced personal income tax receipts, is (or could be) compensated by the overall increase in the government revenues led by the spending stimulus.   Continue reading


A series of posts since 2008 show the interest of this blog on the vexata quaestio of how alternative theories fit the stylized facts of macroeconomy.
Specifically, posts from 1 to 4 are devoted on the comparison between the a priori predictions and the empirical performance of competing macro-models using a set of macro-metrics (the cyclical behavior of key aggregate variables); posts from 5. to 9 are concentrate on a single case, that of labor productivity (post from 10 to 11 are more general).TABLE-2_2020

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Comprehensive Sustainability

Put as a slogan, it sounds like this: the sustainability will be comprehensive or it will not be.
My reasoning about sustainability is simple: any micro-specific meaning and scope of this notion is misleading, cause essentially wrong as arbitrary and useless. Sustainability must be comprehensive as much possible: for example, the capital which enters the sustainable trajectory of well-being/consumption that has to be kept constant over time,   must include any type of capital. Physical reproducible capital used as mean of production (like structures and equipment), natural reproducible and irreproducible capital, human, social, institutional capital and so on.

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Sustainability, Public Debt and Fiscal Policy

I place here some brief notes on the issue of Sustainability and Public Debt.
I will return on the issue about the notion of comprehensive sustainability in a following post. SUSTAIN-DEBT_SOFIA3
For now I start this brief noting that the dynamics of public debt is marked by an inherent instability (represented by the flow of interest payments on a given stock of debt), which may make it unsustainable. Here unsustainability means that a permanently raising debt charges a heavy burden on future generations because taxes will have to rise in the future to pay for it. Unless – as we shall see later – certain conditions were not met. Continue reading

A failure of governance and management

After an experience lasting more of seven years, the American leadership of the football club AS Roma (Roma for short) has produced very poor results in terms of sports achievements. A failure of both governance and management. The only significant achievement has been the Europe Champions League semi-final, reached last season and lost against Liverpool. But the club has not won any title in these seven years.
A football club is a sport organization and an entertainment company, operating in the rich market of the live sport events with high audiences. Tickets proceeds and TV rights are among the main sources of revenue of this performing companies.
From an economic point of view, the output of such a firm is supposed to be the team’s live performance. Titles won are an objective parameter to evaluate this performance. Subjective indirect parameter is the people appreciation, in turn measured by stadium tickets and TV subscriptions.
Mr. Pallotta, owner and president of the company As Roma, of course bears the most Continue reading

The economics of populism

The current irresistible wave of nationalism/populism which took place in Europe and USA has of course an economic dimension, among several other distinctive factors (cultural, historical, geographic, etc.).
Let us call “globalization” this economic dimension. Globalization itself has a long history, as it is well known, but here I refer to the developments occurred in the last 30 years – even if a narrative in terms of courses and re-courses could be applied with some justification to the topic.
I propose here that the AD-AS model, and its elementary geometry consisting of two curves, can be employed to shed some light on the basics of this economic dimension. It is sufficient to add to this popular framework another curve expressing the world supply of tradeable goods & services (WAS) at given price levels and exchange rates. In this integrated framework, the short run aggregate supply curve (SAS) refers to the domestic production (of tradeable goods) of a given country, and the short run aggregate demand curve (SAD) refers to the country expenditure in both domestic and foreign tradeable goods. The long run aggregate supply (LAS) is vertical at the potential level of domestic output. The WAS curve is horizontal because I suppose that foreign producers are ready to offer whatever amount they can at the current equalized world price (I assume the law of one price: equivalent goods sell for equivalent prices on international markets). Continue reading

Supply&Demand and Market Power

The 2018 Spring semester is going to start at the Roma3 University, and thus a new beginning for the courses of Political Economy and Economic Policy is expected.

In the meanwhile, I like to post some remarks regarding two fundamental economic issues: 1) supply and demand; 2) market power.

1 – Consider this sentence:
«Teach a parrot the terms supply and demand and you’ve got an economist».
It may seems a malicious caricature of economists, but his author, Thomas Carlyle, is not completely wrong. Simply, he doesn’t understand the usefulness of a conceptual framework like that of supply & demand (S&D). Continue reading