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In his Econpubblica short note, Roberto Artoni explores the intellectual roots of the recession we are going through. He writes a critique of the ideology-tinged US economic policies of the recent past

"The overall irresponsibility in US policy also derives from an unrealistic and ideological economic theory which has concomitantly produced the current crisis", Roberto Artoni writes in La cultura economica e la crisi, the latest short note published by Econpubblica, Bocconi's research center on public economics.

Artoni, Full Professor of Public Finance, call into question the theoretical model and the kind of economic policy that has been dominant over the last quarter of a century and the "ruinous trust in the markets' ability for self-regulation" which they are both based. Such model is said to be micro-founded because it aggregates the microeconomic behavior of agents such as consumers, workers, owners, who "maximize their utility function over an infinite horizon of perfectly competitive markets in a context of perfect foresight or rational expectations." Such aggregation, Artoni argues, is technically problematic and economists obtain it under heroic, and far from innocuous, assumptions.

In a theoretical approach that excludes problems in aggregate demand ab origine, "policies to make labor markets flexible find substantial theoretical justification and full legitimacy of implementation," with the consequence of higher concentration in functional and personal distribution of income. "Stagnation in wages," writes Artoni, "is matched by sluggish growth of demand and thus output," especially in countries like Italy, where labor market rigidity has been fought with stubborn determination.

The countries which, like the US, have escaped the demand slowdown are the ones that have compensated for wage stagnation with the massive indebtedness of households. "Between 1980 and 2005", remarks Artoni, "in US households the ratio between consumer credit and median income jumped from 3 to 13%, while mortgage debt skyrocketed from 57 to 156%".

This kind of situation continued went beyond any reasonable limits: "In a neoliberal system the only factor of disequilibrium or turbulence can come from government intervention," so that it's the public budget being under scrutiny and cut, while private health insurance and private education are encouraged, putting an additional burden on financially strained families.

Until recently, American authorities could expand internal demand thanks to a current deficit which reached 5% of GDP, which could be sustained only because of the existence of the "dollar standard" in the international monetary system, according to which dollar have substituted gold reserves in central banks since WWII.

When the excesses of free-market deregulation and fiscal laxity caused the asset bubble to burst, a major crisis ensued, which was financial and American at first, but it soon spread to the real economy and to the whole world.

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