Let the great economy spin

August 22, 2013

On the way to my holiday in Italy this year, I had an epiphany about the state of the world economy. I stopped for lunch in the truly miraculous Piazza dei Miracoli in Pisa, where Galileo Galilei is said to have dropped cannon-balls from the Leaning Tower to test his theories of motion. A few years later, Galileo invented the telescope to amass the detailed astronomical observations that were needed to prove beyond reasonable doubt the heliocentric theory of the universe — the idea that the earth revolves around the sun and not the other way round, as the Bible implied. Galileo was famously tried by the Inquisition for this heresy and decided to recant, presumably inspired by what happened to his fellow-mathematician Giordano Bruno, who was burnt at the stake for similar ideas. But after mechanically recanting, Galileo muttered under his breath the rebellious phrase for which he is still renowned: eppur si muove — “and yet it moves.”

As I enjoyed my lunch in Pisa, Galileo’s defiantly optimistic words echoed through my mind. “And yet it moves” seemed perfectly to describe what I had felt about the world economy and financial markets since the crisis of 2008.

For the past five years, the media and financial markets have resounded with prophecies of doom. Economists have strained to prove why life would never be the same again; why bankruptcy was inevitable for great nations such as Italy, France, Britain and even the United States, Japan and China, and why the pre-crisis decades of prosperity would have to be followed by an era of repentance — or else a Biblical Day of Reckoning would be upon us.

Yet the world has continued to turn, even as the Last Trumpets were sounding. Since early 2009, economic conditions in most of the world have been steadily improving, employment has rebounded in the United States, Britain and Asia and recently even in parts of Europe. Corporate profits have been expanding everywhere and stock markets have risen almost without interruption.

The gap between dire predictions and reality is particularly striking today in southern Europe — especially in Italy. With unprecedented unemployment, governments falling like bowling pins and the euro project crumbling, for many pundits some kind of social collapse seemed inevitable. Yet there have been no revolutions, no breakdowns of democracy, no serious public revolts, even in countries such as Italy and Spain, with recent histories of terrible political violence. Part of the explanation lies in the big advances in genuine economic prosperity and welfare provision in the pre-crisis decades. As a result, the hardship today is nowhere near as bad as it was in the 1970s and 1980s, except perhaps in Greece. Another part of the answer is that time itself is a great healer and a crisis postponed, as the euro crisis has been, eventually becomes a crisis resolved.

In Italy, it appears that nothing significant has been done to resolve the euro crisis. Businesses are still strangled by credit restrictions and new taxes. Many of the reforms imposed by former Prime Minister Mario Monti are being reversed and the government is, as usual, on the brink of collapsing.

Despite all these problems, eppur si muove, as Galileo said. Italy’s economic statistics are gradually improving and the mood among Italians this summer is palpably better than a year ago. The huge IKEA store just north of Rome was thronging with customers, and the shopping mall it anchors — one of the biggest in Europe — was as busy as any I have seen in Britain or the United States. Even Italy’s notoriously decrepit infrastructure has improved impressively in the past two years, despite all the reported public spending cutbacks. After decades of delays, the Rome and Florence ring-roads have been completed; many miles of highways have been resurfaced with sound-barriers erected, and high-speed trains are racing along impressive new high-speed railways from Venice and Milan to Rome and Naples.

These signs of improvement do not mean that Italy’s era of stagnant living standards and economic underperformance is over. The problems that range from political chaos to the costs of euro membership have by no means been resolved. But it does seem that Italy has stabilized and found a way of living with the Eurozone – and this also seems to be true of Spain, Ireland and Portugal. Maybe even Greece.

Which brings me back to my encounter with Galileo. Despite all the unresolved problems, the world economy keeps revolving because civilized societies have an astonishing capacity to dodge problems, instead of properly solving them. This capacity is often under-estimated by ideologues and experts, who demand clear answers and tough, decisive actions, rather than “muddling through.”

History shows that muddling through is usually a successful solution and the odds are overwhelming against collapse (whatever “collapse” may mean). But should we see this social resilience as reassuring? Most economists and politicians now seem to believe that for countries such as Italy and much of Europe, the only alternative to outright “collapse” or radical reform is long-term decline. This sounds profoundly worrying, but what exactly does it mean?

As I rounded off my Italian holiday this week, I recalled a remark once made to me by Giulio Tremonti, the former Italian finance minister and long-time consigliere to Silvio Berlusconi. “I was often told at G7 meetings and European Councils, that Italy was in decline and that we had to do something about it,” he said. “My answer was that people have been telling Italy that it is in decline for 2,000 years — since the death of Julius Caesar in fact.Maybe they were right. Yet look at Italy today. After 2,000 years of decline, we still enjoy life, maybe more than any other nation!”

But apart from la Dolce Vita, what has Italy got to show for its centuries of decline and under-performance? Well, since the fall of the Roman empire, Italy has created the Catholic church, built the world’s most beautiful cities, developed modern scientific method, as well as painting and music, even invented banking and accounting – and then, of course, there’s cappuccino and pizza.

Crises come and go, but the world keeps moving.

PHOTO: The Leaning Tower of Pisa is seen behind the Cathedral July 19, 2012.  The ‘Torre di Pisa’ is the bell tower of the Cathedral of the Italian city of Pisa, known worldwide for its unintended tilt to one side. REUTERS/Clarissa Cavalheiro


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“With unprecedented unemployment, governments falling like bowling pins and the euro project crumbling, for many pundits some kind of social collapse seemed inevitable.”

“Despite all the unresolved problems, the world economy keeps revolving because civilized societies have an astonishing capacity to dodge problems, instead of properly solving them.”

Please. Massive animals, like massive governments and massive businesses can be fatally wounded and still meet Gallileo’s criteria “…eppur si muove — and yet it moves.”

And so we have the “newly elected” dictator of Zimbabwe now 93 years old; and a dead man walking at the helm in Syria, Assad. Each, though dying, may be utterly and completely in denial or ignorance of reality.

Posted by OneOfTheSheep | Report as abusive

Nobody was talking about “collapse.” Literally, at least.
The question is what the “new” economy is going to look like?
Inequality levels.
Middle class “enter” and “exit.”
Social mobility and education accessibility.
And in a broader context: the “new” economy is the further societal evolution – or is it de-evolution?
What we concluded from these five years (and the years ahead of us): GDP and growth numbers can be completely meaningless without clear social context.
Gosh! I paid so much for the Greenspan’s book in 2006. What a waste!

Posted by OUTPOST2012.NET | Report as abusive

The collective resilience, resoucefulness and enterprise of billions of individuals has proved once again to be a step ahead of the wise experts of government and financial institutions.

Posted by bockers56 | Report as abusive

The economy is doing great. For the 1%. Who no doubt will enjoy this article, reminiscing about their previous time in Pisa while they sip on Martini’s on the Riviera, daydreaming about how their own thought on outsourcing their factory to China were as original and ahead of the time as Galileo’s were. Guess who is not doing so great? The 99%. The peak of the US middle class was somewhere in the 80’s and now there has been another 10% dropoff thanks to governments and central bankers being allowed carte blanche for too long… @Outspan – I also bought the Greenspan book – forget the money, I want those 10 hours of my life back.

Posted by BidnisMan | Report as abusive

How do you measure “palpably better” when you describe the mood of Italians? A lot of “economic prosperity” in Italy is taking place north of Rome, leaving the south of Italy behind. Take a trip to the region of Basilicata like I did a few weeks ago, and you’ll see big differences and the hardships that people who live there have to endure: poor infrastructure, lack of services…sure, people find a way to live because at the end of the day you have to. Carlo Levi wrote that Christ stopped at Eboli, but in my opinion, he seems to have stopped at Rome.

Posted by kitto1975 | Report as abusive

Did you talk to the natives? Asked where they’ll go and how much they’ll spend during Ferragosto?

Posted by satori23 | Report as abusive

Viewing overall global economic growth with such a wide macro lens is a favorite tool of lapdog economists who propagandize for the wealthy class. Good boy Kaletsky, I hope your masters feed you well.

Posted by changeling | Report as abusive

“This capacity is often under-estimated by ideologues and experts, who demand clear answers and tough, decisive actions, rather than “muddling through.””

Ha ha ha, “clear answers and tough decisive actions” demanded by the “experts”. Ha ha ha ho, now I have a side ache. Come on man, these guys are greedy morons trying to gouge out a big chunk of change for themselves. They have no plan or knowledge except the knowledge that if they can get big enough they can join the group that are so big they could destroy the country if they are held legally responsible for anything. Above the law and in charge of any president.

Posted by brotherkenny4 | Report as abusive

fairly elitist op-ed piece…

Posted by edgyinchina | Report as abusive

The only source of knowledge is experience.
– Albert Einstein

Posted by UauS | Report as abusive

I was also in Italy on vacation this summer and enjoyed it thoroughly. I noticed the nominal price level of the entry-level pizza (the Margerita) is back to where it was in 1996 – i.e. around 5.50 – 6.00 Euros. In 1996 prices were 10,000 – 12,000 Liras, which is the same. If I remeber correctly, prices were almost double 5- 6 years ago. So the Bundesbank has won!

This means that after a decade of no real growth, Italy is about to embark on a decade of no nominal growth. That is painful.

Posted by pepijndekorte | Report as abusive

against what economists term global economic downturn,i have only observed global economic stabilisation process-(GESP).This was driven by massive investments-capital,knowhow and iinovation in the BRIC/ASEAN countries.Backfiring,side-effects or normal outcome ,you ask the multinational behemoths of the developed countries.It looks like the GESPis tending towards its final stage with the BRIC/ASEAN emerging to the extent they greet their”assists/hosts”
It looks lie the working of the Devine Providence-more than half the world population benefitting from decades of “catch-up time”in such little time.
hopefully,the GESP leaves the “assists” countries at quite agood standard of living.
“And yet it moves”

Posted by ambhujun | Report as abusive

Italy is in decline. Italians have built up 2 trillion Euros of debt whilst ignoring the decline and continuing to enjoy their life. This is akin to someone saying life is great whilst charging everything to their credit card. It’s great until you get the bill. If the financial crisis taught us anything it was that piling on the debt can’t last forever.

As for Italy’s progress (la Dolce Vita), your list only highlights how little they have achieved during the past 100 years. Italy is incredibly run down once you get outside the areas visited by successful economists, they have very little of sustainable value to show for spending all that money.

Posted by Killerfish | Report as abusive

error correction -please replace word b”hosts” by word foreign investers.thanks.

Posted by ambhujun | Report as abusive

for whatever reason, people enjoy (real or imagined) bad news. the US middle class is actually doing pretty well over the long haul, but it’s more fun to talk about its decline.

Posted by jambrytay | Report as abusive

Based on Mr. Kaletsky’s article, I have to assume lemonade sales are doing quite well in Italy although he did not mention seeing any while on holiday there.

Posted by troublemaker52 | Report as abusive

Crises come and go, but Italy keeps moving!
Not quite a girlfriend in a coma then…at least not yet.

Posted by corallo | Report as abusive