International Integration and the Balance of Payments Constraint: The Case of Italy
A major feature of economic development since the second world war has been a significant increase in the integration of industrial economies. Exports as a proportion of GDP of industrialised capitalist economies more than doubled from the beginning of the 1950s to the end of the 1960s with the consequent diminution of the scope for independent national economic policies advocated by Keynes in 1933. A particular striking example of this loss of independence may be seen in the current position of the Italian economy. Government policy since the war has led to a rapid integration of Italy into the world economy. The resulting specialisation has been such that the production process, and hence the level of domestic activity, is markedly dependent on imports. The implications of this dependence have been obscured by an economic policy which has not been oriented towards the achievement of high levels of employment. Despite significant net labour emigration (about 100 thousand per year in the period 1960-1969 (1STAT, 1970), the average rate of unemployment in Italy throughout the 1960s was greater than in the other Western European countries (Sorrentino, 1970; Moy and Sorrentino, 1975). More significantly, this high rate of unemployment has continued even though there were very large surpluses on the current account of the balance of payments throughout the 1960s (except 1963) which persisted up to 1972. Further, whenever the overall balance of payments was in deficit the road of deflation was chosen, irrespective of the circumstances underlying the deficit. These policies have resulted in a structure of industry such that a government determined to deal with unemployment would today find itself severely constrained by balance of payments difficulties.
Professor Foley and Classical Policy Analysis
(a) the structure of classical theories and the existence of an analytical ‘core’ in them; (b) whether in the classical approach to distribution and prices the conception of capital is subject to the same critique raised against the notion of a ‘quantity of capital’ in neoclassical theories: this will require some clarification of the critique itself; (c) the implications of the classical approach for policy analysis.
Inflation and the Consumer
THE STUDY BY F. Thomas Juster and Paul Wachtel in an earlier issue of Brookings Papers on Economic Activity' provides a most useful confirmation of considerations about consumers' reactions to inflation presented by this writer over many years. Juster and Wachtel make extensive use of data collected by the Survey Research Center's quarterly surveys of changes in consumer attitudes and expectations. The appendix to the article presents two tables on data used, both of which contain adjusted data. The discussion of the paper indicates that the readers have received a misleading impression about survey findings during the last few years. Therefore, some of the original survey data are reproduced in this communication. Table B-2 (page 112) presents the changes in the center's index of consumer sentiment as "filtered" by Juster, who introduced a considerable lag. The unadjusted index, as presented in Table 1 below and as used by the center for the purpose of predicting discretionary expenditures, shows different movements. This is the case regarding the time when the recession of 1970 was first predicted (May and August 1969, and not November 1969 as indicated in Table B-2) as well as for the winter of 1971-72. In Table B-3 (page 113) Juster and Wachtel present an index of expected price change derived from the center's data on consumers' price expectations. They conclude from the table that "the current inflation is largely