A neglected piece of news from Italy

One reason Berlusconi did so well is because of his opposition to a very unpopular property tax from the previous government:

The [Berlusconi] letter was sent to voters in swing regions of Italy.

It vows to scrap the unpopular property tax brought in under ex-Prime Minister Mario Monti and pay voters back.

There is more here.  Why does this matter?  Note that Italy has much more wealth than income, as indeed do all countries I know of.  Rogoff and Rinehart have focused our attention on the debt-gdp ratio, but as a pure accounting matter the debt-wealth ratio is more important.  And debt-wealth ratios rarely if ever look terrifying.  If you wish to get practical about it, imagine Italian homeowners — who have very low levels of debt on their homes — turning over twenty percent of the equity value in their living quarters to German and French banks.  (“Unterschreiben Sie hier, bitte…”)  The crisis is solved and, with apologies to Robert Barro, I am not even sure how much the negative wealth effect would crush consumer spending.  Life would go on and day-to-day taxes on income and consumption do not need to rise.

Yet of course this rarely if ever happens.  Indeed the Italians just took a big step away from such a “solution.”  The real lesson is that debt crises are crises of political will, not problems in the numbers per se.  And I take that to be bad news for the United States.  It also means that neither the debt pessimists nor the debt optimists convince me much with their cited numbers.  Look to the politics and adjust your mood accordingly.


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