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Free to spend. Effectively.

So, this strange thing happens to me everytime I argue in favor of more public spending in this recession. I am told that Italy, with its public debt, will never be allowed by the European Union to run a deficit. When I interject that, no, I am not suggesting to increase the deficit and the debt because I say ”finance this spending with taxes or cuts in waste (see next post)”, I still get a puzzled expression.

Never mind that the greater GDP we obtain by expanding public spending financed by taxes (taxes that are taken from citizens or firms that in this climate hoard and do not demand) allows for debt/GDP and deficit/GDP to fall and NOT rise. However, if I mention the Greek drama of higher taxes and lower spending with a crazy recession in the making and skyrocketing public debt I get my point through more easily.

Today the fear of public spending without deficit was raised one notch higher when I was told by a colleague that in Europe the level of public spending is chosen by the European Union and that Italy would be unable to expand spending even if it were to be proven that it would not impact negatively on the debt and deficit to GDP ratio. Wrong. In the European Union there is a wide degree of different public spending to GDP ratios. You have the scandinavian (British) countries with a much higher (lower) level than the Italians that provide for generous (scarce) and more effective services than Italy.

We as Italians are free to choose the level of public spending we think is best suited for our life. Thank God (but for an opposite opinion, see here a true Repubblican post, thank you Bob). As long, however, as we do not finance it with increasing debt/GDP or deficit/GDP, i.e. as long as we spend effectively and generate growth with it. So now the ball is in my court: how to make good public spending appear on the screen since it has never been that effective before in the past decade? Next posts.

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