Italy on the Brink of Instability

For the past decade, Italy has faced a series of economic challenges that have threatened the country’s stability.

Since the economic downturn of 2008, Italy has experienced a triple-dip recession. According to a report from the American Enterprise Institute (AEI), lingering effects of the recession are exacerbated by Italy’s recent transition from the lira to the Euro, as switching currencies has resulted in a failure to achieve long-term growth. Last week, the Italian cabinet revised the estimated 2016 GDP growth forecast from 1.2 percent down to 0.8 percent. Italy’s GDP remains 6 percent below its pre-recession peak and the country’s public debt has reached a staggering 133 percent of GDP; only Greece has a higher debt to GDP ratio in the Eurozone. Comparatively, the United Kingdom has a debt level of 89 percent of GDP, while Germany’s public debt is only about 70 percent of GDP. Italy’s unemployment rate of 11 percent and youth unemployment (15- to 24 year-olds) of nearly 40 percent makes it one of the most ailing economies in the West.

Italy’s demographic crisis also contributes to its relative economic instability. A recent report from Eurostat revealed that it has the highest proportion of elderly people in the European Union. 6.5 percent of Italians are over the age of 80, compared with just 3.1 percent in Ireland. The high number of Italian pensioners has undoubtedly put a strain on its national healthcare service.

Additionally, Italy has a fertility rate of just 1.37, compared to the EU average of 1.6. In 2015, only 488,000 babies were born in Italy, the lowest number of children born since the country’s unification in 1861. This low fertility rate has contributed with the lack of young workers available to contribute to its nearly bankrupt welfare system.

The frail economic conditions in Italy have had enormous political implications. As in the U.S. and UK, an anti-elitist sentiment has been growing in Italy. Many factions of the Italian public feel alienated by politicians, who they see as advocates for the wealthy. Others have blamed the EU’s austerity measures for high youth unemployment and lack of growth. Italy used to be one of the most pro-EU nations in Europe, but the lethargic economy is among the factors that have boosted the recent popularity of anti-EU groups.

In order to increase his power to implement stabilizing economic reforms, Prime Minister Matteo Renzi, a member of the center-left Democratic Party, has called for a constitutional referendum on December 4. A rejection of the referendum would be seen as a rebuke against the EU and could threaten the stability of the Euro. A “no” vote would further legitimize the Euroskeptic, anti-globalist Five Star Movement (Il Movimento Cinque Stelle). Desmond Lachman of AEI argues: “the last thing that a troubled Italian economy now needs is a renewed period of political uncertainty that a ‘no’ vote [the] referendum would about certainly usher in.” If the referendum fails to pass, Renzi has pledged to resign.

Free Trade, Trump-Style

The concept of international free trade has taken a bit of a beating lately: trade deficits and jobs outsourcing have been favorite targets of Donald Trump’s frequent and disjointed lambasting, and Hillary Clinton, once an outspoken proponent of increasing international economic cooperation, can now be found backpedaling on her previous commendable support for the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP).

While Clinton’s recent concessions to the trade isolationism movement can be characterized as an unenthusiastic move to appease former supporters of Senator Bernie Sanders and attract current Trump supporters, the Republican nominee has long made regressive trade rhetoric a cornerstone of his campaign. Although it can be easy to become bogged down in the weeds of Chinese currency manipulation, the Mexican Value Added Tax, NAFTA, and the TPP, three important yet often ignored questions lie below the current web of rhetoric: what is free trade, is modern international trade more or less free than it was in the past, and can trade policy really bring back U.S. manufacturing jobs?

The concept of free trade is much like that of free-market capitalism: simple in principle and grossly complex in practice. The World Trade Organization governs and encourages free trade among the United States and 153 other member states, but the U.S. is also a signatory to dozens of individual free trade agreements, such as NAFTA, the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), and the Israel Free Trade Agreement, which are administered here by the Office of the U.S. Trade Representative. The goal of all of these organizations is, in theory, to reduce barriers to international commerce.

These barriers can include import quotas (which affect U.S. imports ranging from brooms to olives to cotton), subsidies (farm subsidies have always been big, especially for corn and cotton in America), embargoes (for the U.S., this means limited or no trade with Cuba, Iran, and North Korea), and currency devaluation (China is famous for it, but the U.S. Treasury Department has also called out Japan, South Korea, and Germany in the past).

Free trade is an elusive concept which is best considered in terms of degrees: the 2014 World Economic Forum’s Enabling Trade Index rates the world’s most free-trade oriented economy, Singapore, with a score of only 84 percent of all the free-trade indicators a nation can have. The fifteenth-place U.S. slots near Canada, Denmark, Austria, and the United Arab Emirates with a score of 71 percent. China and Mexico, Trump’s preferred targets, rest in the middle of the pack at 54th place (61 percent) and 61st place (59 percent) respectively. So while no nation engages in completely free trade, some do put up fewer trade barriers than others.  

Trump’s grandstanding on “Making America Great Again” in regard to free trade implies that international trade was actually much a freer endeavor at one time, and that the current state of the American economy is a result of the United States entering disadvantageous trade deals and allowing foreign nations to take advantage of American negotiators’ incompetence and naivety. During the first presidential debate, Trump went so far as to charge that “[NAFTA] is the single worst trade deal ever approved in this country … the worst trade deal maybe ever signed anywhere.” Fact checkers unsurprisingly took issue with this characterization, as most economists view NAFTA as neutral in the area of job creation and outsourcing. But Trump seems to be asserting that free trade was once rampant in the international economy, and that recent interference by trade agreements like NAFTA has led to the dissolution of the international free market, to the detriment of the U.S. economy.

This is hardly the case – in fact, American trade barriers are lower now than during any other decade in American history. During the golden age of post-war American manufacturing (presumably Trump’s “Great Again” period), average U.S. tariffs stood at between five and ten percent as a ratio of customs revenue divided by import value, compared with 1 to 2 percent for the prior two decades. Looking back to the height of the American industrial revolution, tariffs almost never averaged below 20 percent and sometimes exceeded 40 percent. So while it’s true that the U.S. currently engages in “freer” international trade than China or Mexico, the glory years were far from an exemplar of an unshackled international free market.

Regardless of whether trade was once freer, Trump’s “Plan to Rebuild the American Economy by Fighting for Free Trade” misses the mark when it comes to the kind of manufacturing job creation that he yearns for. The simple fact is that only significant government intervention to discourage free trade will result in the return of manufacturing jobs to the United States. While it should not require explaining to a supposed free-market capitalist like Trump, free trade and comparative economic advantage will always encourage the movement of jobs to markets with favorable labor-cost to labor-output ratios, as is the case for the manufacturing fields of major U.S. trading partners like Mexico and China. Fortunately, U.S. market forces and international pressure for higher living standards and better working conditions will continue to drive up the cost of labor abroad. However, the U.S. will not be competitive in the realm of manufacturing until U.S. labor costs – and living standards – no longer greatly exceed those of our trading partners.

Reality simply does not conform to Trump’s vision for the American economy in a world of free trade. It’s a classic case of what economists call the triangle of triple constraint: copious domestic manufacturing jobs, a comparatively high living standard, and minimal trade barriers – you can only have two, and must choose which.  

For-Profit College Reform

Earlier this month, ITT Tech, a for-profit college based in Indiana, chose to shut its doors to more than 35,000 students after new federal financial aid regulations revoked federally backed aid for the students. Since 2015, the Obama administration has sought to protect vulnerable students from predatory for-profit colleges targeting out-of-work, poor, or elderly students. ITT Tech is the latest casualty in a series of shutdowns that has left students scrambling to substitute their credits.

For-profit colleges operate more like a business with a fiduciary responsibility to shareholders rather than a university with a responsibility to students. These institutions generally focus education on trade skills or degrees in immediately practical fields, such as nursing or tech. Students operate with flexible schedules, as many are full- or part-time workers or have families. Veterans also take advantage of the immediate educational opportunities after leaving military service. On average, two years at a for-profit institution costs more than four years at a community college, according to the Department of Education (DoE). 80% of students at for-profit colleges must borrow to earn their degree whereas less than half of students must borrow at public institutions. Graduation rates also differ significantly from public institutions. Only 27% of students complete their degree in six years at for-profit schools. That rate is above 60% for all other colleges.

Following the widely publicized failure of Everest College (closed in 2015), the Department of Education is reviewing the accreditation of for-profit colleges. In a 2015 press release, the DoE outlined the criteria for maintaining federal financial aid. For-profit institutions must provide “gainful employment in a recognized occupation” upon completion of the program. Gainful employment is defined as a position in which student loan payments do not exceed 20% of discretionary annual income or 8% of total annual earnings. Recent issues with for-profit colleges focus on the institutions misleading or lying to students about employment opportunities or job placement after graduation. Students do not realize this until they have already amassed a considerable amount of debt, typically leading vulnerable students to default on payments.

The newly established review process for financial aid has been in the works for a number of years. In 2014, the Department of Education attempted to establish similar regulations that would inevitably close hundreds of campuses and leave thousands of students out of school. A set of for-profit colleges sued the department over these regulations and won. The DoE then revised the new regulations before implementing them.

Losing federally funded financial aid is a death sentence for for-profit colleges. Up to 80% of revenue for some institutions came from federally funded financial aid.  With a responsibility to shareholders first, a school like ITT Tech could not operate with such a drastic cut in revenue and had to close its doors, leaving students scrambling for classes at other, less convenient institutions. The Department of Education assures students that federal loans taken out to study at ITT Tech will be forgiven. This, however, is not the foremost concern for most students. Many students must revise life and career goals now that they are forced to delay their degree. Students also fear that their credits from ITT Tech will not transfer to an accredited institution, only delaying their career success further.

The Department of Education regulations for federally funded financial aid force for-profit institutions to operate with more transparency about degree and career opportunities. The regulation of for-profit colleges extends the Obama administration’s legacy of corporation reform to protect consumers. These steps, however, do not address student debt issues at higher levels of education. The Association of Private Sector Colleges asserts that if the same rules were applied to well-known not-for-profit colleges, many prestigious ones would not pass the test.

Crippling student debt and little economic opportunity have extended beyond students at technical or for-profit colleges. Unable to repay large sums of debt for an inapplicable degree, more than 40% of all student borrowers are no longer making payments on loans.

The Obama administration has taken steps to address the rising cost of education, but many students are left with little to show after earning their degrees. The higher education system must adjust to meet the growing needs of students and a developing workforce. For-profit colleges gouging students for tuition, or private not-for-profit universities charging unheard-of amounts for degrees that do not guarantee gainful employment, will not survive in a competitive education system. 

A New York State of Mind

In the ongoing fight against terrorism, fear permeates the West. Attacks can come at any time without warning. Nonetheless, fear should not disrupt our lives. If fear drives our behavior, terrorists revel in knowing that they have disrupted civilian life. After the bombings on September 17th in New York City and nearby New Jersey, New Yorkers reacted ideally to the attacks.

Instead of signaling disarray, New Yorkers went on about their lives. “I heard the explosion, then I went to the deli,” stated a caller to NY1. New Yorker Sarah Peele tweeted that shortly after hearing the bombing from a short distance away, she went out for noodles, much to her mother’s chagrin. This seems to be a typical New York way of behaving: residents push on, despite whatever atrocities may occur around them. Fear did not stop these New Yorkers from living their lives.

For New Yorkers, the nonchalant reaction to violence is “a normal thing.” Americans across the nation should emulate this behavior to deter attacks. While it is far from the only way to prevent attacks, and may or may not actually prevent any, it gives the average American a way in which he or she can assist in the fight against terrorism.

One of the big motivators of terrorism, according to the 2003 CIA National Strategy for Combatting Terrorism, is to “subvert the rule of law and effect change through violence and fear.” By not giving in to fear and continuing to go about our lives as we normally would, we can triumph over those who seek to sabotage Western civilization.

Refusing to live in fear may not only discourage radical extremists from perpetrating attacks, but also sends the message that we are a strong and resilient society—that we will not let these barbaric acts disturb our lives.

While it is important to ensure that fear does not disrupt our lives, it is also important to maintain a healthy level of vigilance. Maintaining vigilance can help prevent further attacks by allowing one to notice something out of the ordinary.

Just this past Wednesday, Lee Parker and Ian White, two homeless men from Elizabeth, New Jersey, notified police that an abandoned backpack they found by a train station garbage can appeared to be a bomb. Their vigilance likely saved lives that day, as the backpack contained five pipe bombs.

While it may seem odd to some that New Yorkers remain so calm in the face of terror, their reaction is the appropriate way for the average person to behave to help deter terrorism. Go about your life as you normally would, and do not let fear keep you from living a normal lifestyle. Adopt a New York state of mind: do not let fear define your entire existence.

“Alexander Hamilton and the Perils of Posterity”

On the evening of Sunday, September 18, AHI Charter Fellow and Hamilton College history professor, Douglas Ambrose spoke on “Alexander Hamilton and the Perils of Posterity.” With incredible eloquence, wit and energy, he delivered a generous assessment of Alexander Hamilton’s brilliance and integrity in public life.

Alexander Hamilton wanted to appear trustworthy to the common people. Statesmen like Hamilton gave no thought to the idea of Heaven or a beatific vision at the end of their lives in which they would meet their maker. The Enlightenment led them to concentrate instead on establishing a system and personal legacy that focused on human fulfillment and happiness. Those in power sought to establish a society where true happiness was attainable for the common people.

From a young age, he was full of ambition and a desire to go beyond the cards Fate had dealt him. He believed Fate could be overcome and should not just be accepted. His station made such a transition difficult: born out of wedlock in the West Indies and then orphaned at a young age, he seemed to have a bleak future. In a letter to his friend Ned, he wrote of his castle in the clouds, which drove him to attempt to transcend his current situation. He wished for a war so he could prove himself on merit alone. He would be named a hero. The most essential part of this letter was not his showing of such intense ambition at a young age, but rather his stating he would never sacrifice his public character for power. Hamilton manifested this Enlightenment ideal of achieving an honorable legacy when just a boy.

This value stayed with him into his adult life. It showed true in his Publius Letters of 1778. One in particular spoke to Hamilton’s view of honor in the life of a public official. Hamilton launched an attack on Samuel Chase of Maryland, whom he saw as the antithesis of everything a member of Congress ought to be. For an honorable official, the trust of the republic was paramount; with such fortune of position, a man must promote human happiness and do good to all people in all circumstances. Personal connections should not divert a man from this course. Union and harmony of conscience were of great importance. Chase’s love of money and power repulsed Hamilton. He cried out for Chase to shed his mask and appear as his true self. However, Hamilton outright stated that others should consider his faults only in a public capacity; he made the distinction between the defects of private character and public character.

This distinction was one Hamilton made especially in his own life. After his affair with Maria Reynolds, he stood between a rock and a hard place. Maria’s husband discovered the affair and demanded money from Hamilton. People began to notice the cash flow and the public asked, ‘Was the Secretary of the Treasury, Hamilton, abusing his power?’ At this point, not only was his public character at risk, but also his private life. Against all advice of close friends, Hamilton released the Reynolds Pamphlet, an account of his sex scandal, to the press. So clever a move couldn't have been predicted. He would not let others “transmit his name with dishonor to posterity.” He admitted his real crime, the affair with Maria Reynolds, and explained that the payments were for her husband’s silence, not graft. At the same time, however, he personally betrayed and publicly humiliated his wife Eliza, who probably had no idea of the affair. Hamilton made a difficult decision, but given his views on the great importance of maintaining a reputation for honorable public conduct, it was the only option.

Hamilton wrote his last epistle to his wife on the eve of his duel with Aaron Burr, a contest that resulted from years of tension between the two men, which boiled over during the 1804 New York gubernatorial race. If he lived, she would never receive it. If he died, it would be his last comfort to her. He writes, “If it had been possible for me to have avoided the [duel], my love for you and my precious children would have been alone a decisive motive. But it was not possible, without sacrifices which would have rendered me unworthy of your esteem.” Eliza stood as “posterity’s conscience.” Hamilton undoubtedly would have thought of her when thinking of his reputation among future generations, even if he didn’t directly mention it. He always considered Eliza’s perspective. She was no passive figure ¾ she was his best defender. She was his flesh and blood, his bone. He was the love of her life. She held him to a high standard, and even if he failed, he always tried to respond with honor. He may have failed in marital fidelity, but she insisted that, as a public man entrusted with great responsibility, he merited posterity's profound and unqualified praise and gratitude. She demanded that posterity forgive him. That is her triumphant legacy and his.