In recent years, the term “Italian disease” has been used by economists to refer to the economic stagnation, and high levels of public debt in Italy. However, some experts are now starting to draw parallels between the situation in Italy, and that of the United States. The deep fractures in government, denigration of the highest public offices, and attempts to manipulate judicial powers in the US have created a climate of uncertainty, and instability that is damaging to the economy.
- Rising Public Debt According to the International Monetary Fund (IMF), the US government debt may amount to 160% of the GDP by 2030, which is similar to the level of debt in Italy today. Rising public debt can create uncertainty, and risk in the economy, as it can lead to higher interest rates, and higher risk premiums on government bonds. This can make it more difficult for businesses to access capital, and invest in growth.
- Impact on Intangible Investments The uncertainty arising from the state’s institutional framework can also affect “intangible” investments such as those in research, intellectual property, software, and changes, and improvements in labor, and capital organization. These investments are riskier than tangible ones, as they require high capital engagements, and high start-up costs in the face of uncertain outcomes, and returns that are postponed over time. Moreover, labor, and capital reorganization requires associated political reforms. Banks, and financial investors may be less likely to invest in these intangible investments if the stability of a country is questioned, as they will not be able to recover any material collateral in case of failure.
- Hyper-Partisanship, and Lack of Trust The political climate in the US in recent years has been marked by hyper-partisanship, and a lack of trust in government institutions. This can create uncertainty, and impede economic growth. In order to restore trust, and ensure that citizens benefit from the democratic system, governments must demonstrate that they are improving social policies such as upgrading the federal, and state safety nets, and increasing poor families’ access to quality education.
The “Italian disease” is a reflection of the negative impact that politics can have on the economy. The situation in the US is not as dire as it is in Italy, but the similarities are strong. The deep fractures in government, denigration of the highest public offices, and attempts to manipulate judicial powers have created a climate of uncertainty, and instability that is damaging to the economy. It is crucial that the government takes steps to restore trust, improve social policies, and create a stable environment to ensure the growth, and well-being of the country.
Note: It’s significant to point out that the information provided is an opinion, and should be taken as such. The IMF estimates might not be accurate, and the US government debt may not reach 160% of the GDP by 2030. Additionally, the context of the political landscape in Italy, and the US is different, and it’s significant to understand that the US has different institutions, and political systems that may mitigate the effects discussed.
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