In economics, sometimes concepts are nuanced as such that reasoning from a price change is a really hard thing to avoid. On the front page of nearly every financial news outlet I’ve visited over the last couple of weeks since the mandate to form a government in Italy fell to the 5-Star and League parties, there have been multiple stories about the “far-right” 5-Star and League coalition that point to the yield on Italian government debt “spiking,” and then proceed to make all manners of claims about the market attitude in Italy that amount to something like a revival of the Greek debt crisis in motion.
And of course, given that the very first article in Reuters I ever read about the “far-right” 5-Star party claimed that they wanted to do things such as adopt a 15% flat-tax and slash regulation, I’m naturally curious about this.
It’s true that when I took my political orientation test, I ended up in the far-right libertarian quadrant on the very tippy-tippy right-bottom outer corner of the square, even more radically libertarian than Milton Friedman could ever claim.
So, I don’t particularly understand the usage of either the label of “far-right” or “populist” in this context. I mean, what would be the opposite of these? Right authoritarian corporatists, or left authoritarian technocrats? Or perhaps it’s global mercantilism? Just imagine a democratic society going for any of these when there really isn’t anything in it for the majority of people, especially after the alternatives have already been tried with disappointing results. Guys, economic freedom works, and I truly fail to see the emergency here; though I may see the emergency here for people who see the world through the lens of the opposite. For them, the last round at the regulatory-capture-at-the-expense-of-everyone-else party has been called.
Enough of my digression already… My point was that it’s really hard to look at only yields on government bonds and know everything there is to tell. Since Italy doesn’t have its own currency, my guess would be to take a look at Italian equities for more context. Just so happens that the FTSE MIP is just a bit off its high, and it would be interesting to think about what sort of explanation the representation of the prior status quo might have for July 2017, or perhaps what explanation there might be for the low ebb earlier this year while Italian centrists had the mandate.
I don’t see a land of lollipops and rainbows waiting to spring forth from Italy here. But the looming Italian doom and gloom everyone is talking about based on a “spike” in government bond yields, if you want to label what is perhaps 30 basis points a spike, is a really hard sell.