Tyler Cowen: belief

Transcript context

…Luigi Zingales, my conversant, is one of the best and best-known economists, both in the United States and in Europe. He’s written three best‑selling books, the most recent of which just came out in Italian. It’s called Europa o no. A Capitalism for the People, from three years ago is, in my view, perhaps the best book on the current American economy, what’s wrong with it, and what should be done. With Raghu Rajan, he has an earlier book, Saving Capitalism from the Capitalists. Luigi’s contributions are far-ranging. He’s been at the Graduate School of Business of University of Chicago for now, I think, 27 years. He is a major contributor to theory of the firm, politics, culture, governance. This is just a small sliver of the papers he has written, in addition to the three books. He is now the director of the Stigler Center at the University of Chicago. Most of all, in recent times, Luigi has been known for his biting critique of what we all sometimes call crony capitalism. There’s more I could say, but let’s get to the dialogue. I think of a lot of your work as bringing the ideas of culture and governance into economics. There’re a few major strands in your thought, and I want to explore a few of them. Since you’re Italian, let’s start with the question of Italy. If you look at the economic performance of Italy, the country is just coming out of a triple‑dip recession. Unemployment is about 12 percent. By some measures I’ve seen, per capita income is not higher than what it was 15 years ago, and they’re over €2 trillion in debt. Some serious problems, and a low birth rate. How do you see this playing itself out, and what is the endgame? How pessimistic or optimistic are you? I think that you said correctly. It’s not just the fact we’re coming out from a triple recession. It’s the fact that Italy did not grow for the last 20 years. There are a lot of things that don’t go well in Italy, but when I left it 27 years ago, a lot of things were not working, and Italy was growing. In fact, in the period 1945 to 1995, Italy grew at a rate that was at least as good, if not better, than Europe and the United States, especially in terms of productivity. Since 1995, Italy stopped growing in terms of productivity. Of course, if you don’t grow in terms of productivity, you don’t grow in terms of income per capita, and so on and so forth. The question of why, I think, is one of the most important questions, not just for the future of Italy, but for the future of Europe, in general. With a coauthor, I have tried to analyze the various theories. One theory, which is very popular, particularly in Italy, is that it’s all the fault of the euro, because it is true that this sudden stop happened roughly at the time Italy joined the euro. I don’t think there is any evidence that’s the case, in spite of the fact that it’s a very strong correlation, temporally. I think that the sad reality is that the institutional deficits present in Italy are particularly severe as you approach the technological frontier. If you have institutions that don’t work and are corrupt, et cetera, you can get by if the only thing you have to do is improve agriculture and produce t‑shirts. We’ve seen in Cambodia, not great institutions, but they produce great t‑shirts, and it works. Once you try to compete in the first league, when you try to be at the frontier of the technology, you need to have a relatively non‑corrupt government, a system where people pay taxes without too much tax evasion, but not too much taxes, because otherwise they don’t produce. Italy has failed, in my view, to do that. I think that the government by Renzi is trying to do this. The jury is still out whether it will succeed.…

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