sabato 3 gennaio 2015

The invisible hand

In my opinion, Invisible Hand must be taken for what it is and nothing more. It is the most efficient “mechanism” we know to achieve maximum efficiency and optimal resource allocation in very complex economical dynamics. It is the mechanism that, given a demand curve and an offer curve, we may best rely to bring us at the interception point. And we are not discussing about the very simple pepper and tomato example in our lesson but about the hyper-complex economic environment we are every day submerged with billions of products at shelves; billions of factories that produce them, companies that trade, advertise and move them; billions of workers involved and billions of households that freely decide to buy them. And then we need to speak about financial markets, commodity markets, etc…

We don’t know about any other most effective alternative. Planned Economies, as we know, have failed dramatically. Maybe in the future someone will propose a huge “big brother” computer that has crunching power enough to decide what our economy must produce, when and how in order to satisfy humanity needs in a sustainable way. Sincerely speaking I am horrified by such a perspective (but this is not a scientific statement but a truly personal and emotional one) because I strongly believe in individual freedoms.

Having said that, Invisible Hand has nothing to do with Welfare and with Social Justice. There are various flaws:
- Negative Externalities are very much a problem. See pollution, healthcare costs and many more, ….
- There are winners and losers and this is a huge moral issue.
- In reality information is always asymmetric and incomplete
- There are human behavioral biases
And of course each of these opens new and very interesting threads of discussions

Now, immediate (I would say natural and instinctive) reaction is always to call in for stronger government interventions. And my opinion (again absolutely non-scientific but personal and I would say moral) is that this is necessary to protect environment, health, to punish free riders and all kind of cheaters, to take care of losers and redistribute wealth.
But we must not fall in the opposite mistake. And we need to keep in mind that any top-down intervention has always consequences and I would like to introduce two elements of discussions.

 - We may not like Invisible Hand but let’s never forget how powerful it is. When we fix low prices we always create shortages and black/parallel markets; when we force high prices we end up with warehouses piled up and waste; when we exceed in subsidisies we undermine productivity, etcc.. We need to be cautious… very cautious … and smart !!!
- At the beginning of this thread we have seen the Tobacco Example, but let’s think about Cocaine. We banned it, we fight it, we struggle globally and then result is that, since we are not able to modify the demand curve, we see products of a plant processed at marginal costs that are sold in our cities at margin surplus that goes straight into mafia’s pockets.
My point is that very often the problem is in the Demand Curve and not in the invisible hand.
If people is willing to buy dot-com shares or tulip bulbs at crazy prices, Invisible hand will drive their prices at a crazy “interception point”.

Changing Demand Curves is the real cultural battle of our tomorrow. Let’s not eat meat (or less meat), let’s drive low-consumption cars and take the bike whenever is possible; let’s be conscious of our personal carbon footprint; let’s eat healthy food; in general let’s get more information about products we buy, where and how are manufactured; let’s spend more time with our children; let’s use internet and new media tools in a smart way; let’s fight for gender parity everywhere in the world; etc, etc, etc…

Invisible hand is neutral and may work also at our side. I don’t want a bunch of burocrats to decide for me…

venerdì 12 settembre 2014

Configuring the World - Italy and Saharian Countries

These pages are part of an Assessment for ‘Configuring the World’ course by Leiden University on Coursera Platform, September 2014. 

This is an analysis of North African region with reference to Italy. 
This is an interesting area of study, representing a geographical, cultural, religious and social border between “old”, christian and developed democracies of Europe and “young”, muslim and developing countries of North Africa that, after 2011 “arab spring” revolutions, are slowly building stronger democratical institutions from former military dictatorships.

From one side this region is an area of potential economic development and cooperation; on the other is a crossroads of immigration, future geo-political and demographic tensions.
Italy for its very peculiar geographic position in the Mediterrean Sea is a natural bridge between African and European  continents and should play a very important role during next decades to manage interactions between these two worlds.
North-African countries considered in this analisys are Morocco, Algeria, Tunisia, Lybia and Egypt. They are all arab and muslim countries with homogenous culture but different colonial pasts: Morocco was a spanish colony, Algeria and Tunisia french colonies, Lybia was italian and Egypt a British protectorate. 
Sudan has been aggregated to the region in this analysis even if belonging geographically to the Subsaharian region, culturally and ethinically very different. 
Finally Western Sahara (depicted in orange) is part of the region but will not be considered because  lacking statistically valid data. It is officially a Morroccan protectorate, it is disputed by Polisario Front that declared the SADR – Sahrawi Arab Democratic Republic.. Officially it does not have yet the status of national state.

Egypt has the largest population in the region, being 16th in the World with 82 millions of people, mainly concentrated along river Nile. Other countries in Saharian Africa have lower and similar population with exception of very desertic Lybia. 
On the other side of Mediterranean Sea there is Italy, one of most populated between European countries.

Looking at GDP and Economy some differences emerge. Italy is the 9th World Economy after USA, China, Japan, Germany, France, UK and more recently Brasil and Russia.
There are not official data for Lybia in the CTW Database but other countries lag very much behind with Egypt and Algeria being around one tenth of Italian Economy and Morocco, Sudan and Tunisia even smaller.

GDP per Capita (PPP)
When we average on population and compensate for effect of price dynamics (PPP), the situation changes a lot for Italy that falls at 34th place in the world, while saharian countries are even more similar between each other and in average have a GDP per Capita (PPP) that is around one third of the italian.
Sudan instead is lagging further behind being one of poorest country in the World

It is very interesting to visualize how GDP per capita evolved during XX century. This is possible through very powerful GAPMINDER web site  (
It is possible to visualize how at the beginning of the century we had smaller relative differences between  Italy and Saharian group of countries. At that time Italy was entering industrialization in the North of the country while its South was still very poor and underdeveloped. 
It is only during last 50 years that Italian economy divergenced.


Human Development Index
Italy maintains a position of leadership ranking 25th in the world.

GAPFINDER picture shows saharian countries very much clustered while Sudan has a very poor score and it is confirmed as one of most difficult and troubled country in the world.

Another GAPFINDER simulation illustrates XX century evolution of this group of country: income per person (x) vs life expectancy (y) vs population (bubble)

At the beginning of the XIX century all countries are clustered at bottom corner of low income/low life expectancy. During first half of the XX century Italy improves dramatically life expectancy as a result of progress of social conditions, medicine and literacy. Distance in income per person is still relatively small. In the second half of the century an economical divergence occurs but just while in saharian countries life expectancy and general life conditions start to improve. Only Sudan remains well behind. 

Even if today we are living a different historical period in different circumstances, we may expect Saharian Countries to follow and repeat the Italian trajectory of economical growth via democratical institutions and free market reforms. Potentially this is a great opportunity for Italy that may take advantage from its favorable geographical position in the Mediterranean See. 
On the other hand, in absence of economic growth, the very unfavorable combination of higher life expectancy and low income per person may cause an unsustainable demographic pressure that inevitably will spill out on European Community and especially Italy that is its south natural frontier. 

Economic Gobalization Index

In term of Economic Globalization there is not much difference between Italy (ranking only 49th) and Tunisia that leads the group of african country. This could be due to ineffective and slow italian burocracy that has limited recent foreign investments.   

Italy has a higher score and Ranking when we look at Social  and Political Globalization Indexes. 

When we look at Trade as % of GDP we have a very different picture because of different relative sizes of each economy. 

Foreign Direct Investments (Stock)
Being a member of G10 Italy has obviously a much higher level of FDI, eitheir inward and outward.
As we have already seen for Globalization Index, Saharian Countries have an FDI level generally lower than other developing areas of the world. Political instability and other social factors may be element of concern for foreign investors. 
This may represent a very limiting factor for growth in the context of relentless global competition. 

Foreign Direct Investments (Flow)
Same difference between Italy and Saharian Countries is evident when we analyse current flows. 
In addition we may note a substancial difference for Italy  between outward/inward investments ratio for current flows (3:1) versus historical stocks (less than 2:1). 
This is a clear proof of current structural difficulties of Italian Economy after 2008 crisis. Italian companies are delocalizing assets and low-cost productions abroad much faster than the country is capable of actracting new foreign investments for high-values and advanced productions. 

domenica 16 marzo 2014

Psycology and the Financial Crisis of 2007-2008

During summer 2008 I was working for a large European multinational corporation and it is amazing how  quickly we realized that all our businesses in most different industry segments and all around the world were worryingly slowing. Some months later during an evening dinner I was talking around the table with colleagues from Mexico, US, North and East Europe and we were sorrowfully discussing what we all went though during the Big Global Recession: restructuring, temporary and permanent layoffs, cost reduction programs. And we were not Finance or Real Estate guys... Not at all.
I think that whatever job we had we will remember forever those days.
Therefore it is so important to understand what ultimately caused US house bubble and later the big recession. It is even more important to realize whether this may happen again and how we may eventually avoid it. Especially because, according traditional economics, this could never have happened.
Barberis short and effective summary confirms there is definitely something else to consider.
Personally I am fascinated with this branch of research but before diving into Psychology we should not forget macroeconomics scenario and technical innovations that settled the battleground.
On one hand globalization, free trade agreements and IT innovations challenged and transformed western economies. As explained by Carl Icahn in his beautiful lesson, we lived a kind of new Golden Age.
On one side lots of new services and products (the web, high bandwidth networks, iphones, etc..) on the other hand cheap daily products from low-cost countries.
We did loose lots of traditional jobs but while we were living a very unusual miracle: a “wealthy” low-inflation deindustrialization process.
This was possible because with no risk of inflation governments and central banks injected lots of liquidity into the system. As any over-pressurized pipeline sooner or later fails or explodes, excess liquidity had to blow and burst a bubble somewhere. In the past was gold, bonds or tulips… This time was housing.
Then powerful financial technical innovations in mortgage securities amplified the bubble by dividing, mixing, sharing, reselling and hiding “under the carpet” risks . This was possible only because of absent, distracted and therefore guilty regulators
Having said about macroeconomics context and dangerous innovations, psychology acts as a powerful  “amplifier” during all three phases.
When prices surge we are irrationally blinded by past “patterns” (what happened yesterday and before yesterday will happen tomorrow as well).
When we assess and evaluate risks we are inevitably conditioned by people, bosses, colleagues and our own fears and we easily end up with a nice “internal” story to justify our decisions and actions (I believe same thing happened in Nazi Germany).
Finally when things get nasty and difficult, brain-wired ancestral “fight or fly” strategy takes over. We get scared and we definitely fly … and sell.
After all we are just and simply humans with limited time resources (and not rational microcomputers). How we could possibly evaluate and discount economic impacts of each decision and actions we take ?

venerdì 23 novembre 2012

La mia Sinistra - Perchè scelgo Renzi (2)

A Sinistra possiamo divergere e dissentire nelle analisi storiche ed economiche, negli obiettivi, nelle tattiche e nelle strategie ma c’è qualcosa che davvero ci unisce e ci distingue: noi siamo quelli che NON dicono MAI “ognuno per sé e Dio per tutti”.

Pretendiamo un solido sistema di Welfare;
Crediamo che tutti quelli che cadono devono essere aiutati a rialzarsi; ad esempio, chi rimane senza un  lavoro sia aiutato a trovarlo e supportato nel durante.
Siamo per un sistema universale di Sanità che curi tutti, bene ed allo stesso modo, sia ricchi che poveri.
Vogliamo una Scuola ed una Università di Qualità. E pretendiamo che figli di operai, contadini ed immigrati possano studiare e dare, al pari dei “figli di papà”, il proprio personale contributo alla crescita del nostro paese.
Pretendiamo vera uguaglianza tra generi; ad esempio sostegno ed asili per le donne che lavorano.
In particolare vogliamo regalare una vita vera a chi è sfortunato dalla nascita.
E vogliamo rispetto e supporto per i fratelli emigranti.

Ma non ci basta sognare, gridare e pretendere. Vogliamo farlo per davvero.
Siamo consapevoli che un solido ed efficace sistema di Welfare costa e non possiamo pensare di finanziarlo con altro debito, deficit, inflazione o comunque scaricandolo sulle generazioni future o sui più poveri.

Non basta alzare le tasse se sono sempre i soliti a pagarle.
Possiamo e dobbiamo privatizzare e ridurre il debito pubblico se vogliamo convertire inutile spesa per interessi in utile spesa sociale.
Ma soprattutto per realizzare un Welfare efficace e sostenibile, OGGI e DOMANI, abbiamo bisogno di recuperare Crescita Economica, stimolare gli investimenti privati, semplificare le Burocrazie, modernizzare il paese, eliminare TUTTE le caste, ridurre i costi della POLITICA

Il nostro debito è più caro degli altri perché siamo un paese fermo da almeno vent’anni. E’ ora di cambiare.

L’Italia e la Sinistra hanno davvero urgenza di voltar pagina.
Dopo la parentesi dei Professori, necessaria ad evitare il disastro ma non priva di ombre, errori e compromessi, ad Aprile andremo a votare, scegliendo crescita economica, modernità ed un nuovo patto sociale.

Per questo ho scelto Matteo Renzi.


giovedì 22 novembre 2012

Perchè ho scelto Renzi

Si avvicina il giorno delle Primarie ed è fantastico assistere a questa splendida manifestazione di Democrazia Diretta. Cinque diverse anime della Sinistra si confrontano e discutono sul futuro dell’Italia. E saremo noi cittadini a scegliere.

Ad amici e colleghi che fino a qualche giorno fa mi chiedevano per chi avrei votato, ho spesso risposto: “davvero non so… mi piacerebbe molto un Bersani che dicesse le cose che dice Renzi” ed immediatamente mi rendevo ben conto dell’assurdità di quelle mie pretese, evidentemente negate dalla stessa storia e dalle traiettorie politiche dei contendenti. Ero davvero “in bilico” e fortemente combattuto tra l’enorme stima personale per Pieluigi Bersani e l’energia di Renzi.

Alla fine ho deciso di confrontare idee e programmi e scegliere solo in base ad essi. Invito calorosamente anche Voi a fare lo stesso.

Ed ho scelto Matteo Renzi.

1. Ritrovare la democrazia e ridurre i costi della politica.

2. L’Europa dal basso:

3. Ridurre il debito pubblico.

4. Una Pubblica Amministrazione efficiente e trasparente.

5. Semplificare a 360 gradi:

6. Combattere l’evasione e ridurre la pressione fiscale.

7. Aumentare il potere di acquisto delle famiglie.

8. Investire sugli italiani.

9. Combattere la precarietà.

10. Garantire l’accesso al credito per le PMI.

11. Investire dove serve davvero.

12. Diritti all’altezza dei tempi.

13. Valorizzare il modello italiano: cultura, turismo, bellezza.