Bryan Caplan  

How Overvalued is Italy?

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Whenever economists ask, "Where is the gap between official per capita GDP and actual living standards the greatest?," I don't pause.  My instant answer is always: Italy.  Official stats put its GDP per capita around $30,000.  But virtually every part of Italy I've seen - North and South, Genoa, Naples, Catania, Como, Milan - seemed not just dilapidated, but backwards.  Pit toilets?  Verona and the German parts of Tyrolia have been the only exceptions to the rule that I've seen with my own eyes.  If official stats put per capita GDP at $15,000, that would sound about right.

The main objection I've heard to my fault-finding comes from a random Italian American, who told me that Italian homes look vastly better on the inside.  I guess it's possible, but I have to be skeptical.

Nevertheless, I'm returning to Italy next week for a ten-day trip.  For all its faults, Italy's got historical treasures second to none.  This time I'll be in Rome, Umbria, Siena, Florence, Bologna, Padua, and Venice.  Will my broader sample make me revise my estimates?


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COMMENTS (22 to date)
SB7 writes:

The S.O.P., especially in the southern half of the country, is to start building and hope to get permits and approvals later, often involving graft. Or hope the building is done before the inspectors notice. The expectation is that a good portion of the time you won't be able to pull it off and you'll be stuck with a half-finished project. That's a risk built into the decision making from the get-go.

The result is that the area is scattered with husks of buildings, making it seem much more dilapidated than it really is. Don't interpret them the way you would a disused building in the States.

I can't comment on pit toilets; I've been up and down the country and never seen one.

It would not surprise to me find Italy has juked its economics stats at least as much any other European nation. On the whole I do not find it nearly as backwards as you, however.

PS I would not be bullish on doing business in any country with social norms governing parking as anarchic as I have seen in Italy.

Usems writes:

I've actually heard from quite a few economists that the opposite is true. "The underground economy is so large in Itay..." But, I guess if you can't see it, it's hard to believe it's real.

John V writes:

you need to get inside some places, Bryan. Take it from this random Italian-American:

The random Italian-American who told you to see inside some places in right.

My Aunt's house in a small town outside Palermo is a perfect example. Old on the side, pristine and laden with tile with modern appliances and furnishings on the inside.

Italy has an issue that the U.S. doesn't: It's very old. Modern and ancient blend together in odd ways.

David N. Welton writes:

As the others have said, Italian houses tend to be a bit grimy on the outside, and beautiful on the inside.

Pit toilets are used in some bars and restaurants; I'm not entirely sure why, but it's not because of abject poverty or anything of that nature, it's just the done thing in some places.

Here's a counter example: US houses often only have "venetian blinds", which are flimsy little things that barely keep out light, whereas Italian houses almost universally have real shutters, and often fancy roll-up ones that are capable of completely darkening a room even on a summer day (and also reasonably effective at keeping out intruders). It's not because Americans are poorer, it's just not 'the done thing'.

Italy certainly has its problems, nowadays more than ever, but it's an interesting and complex place, and I think you need to understand some of the subtleties of it before judging it.

Here's an offer: I'm from Oregon, but have lived in Padua (Padova) on and off since the first time I came to live here in 1995. I'd be happy to show you around a bit, or at least discuss some of the more interesting things to see. I have a few books on Venice I could loan you as well if you don't feel like dragging them around your entire trip.

Mike Rappaport writes:

The main objection I've heard to my fault-finding comes from a random Italian American, who told me that Italian homes look vastly better on the inside. I guess it's possible, but I have to be skeptical.

Based on my limited experience, this is true. I was invited to a friend's apartment in Rome. The building dated back many hundred years (maybe back to Columbus) and walking up the stairs to the fifth floor, it seemed very dingy. But inside the apartment, it was unbelieveable -- new and beautiful. Just amazing. I will never forget it.

MichaelM writes:

It's also important to keep in mind, besides the inside-outside distinction people are bringing up, that where you are in Italy really, really matters. Southern Italy is, in places, only a few steps above a third-world country, and then mostly because of the extensive Italian welfare state. Northern Italy, however, is one of the wealthiest regions in Europe. Northern Italy has per capita incomes comparable to the US, let alone the rest of the EU.

Interestingly, Southern Italy has a long history of being a unitary, single state (or, at least, province) while Northern Italy has a long history of being very divisive and independent on an extremely local level (the last place in the West where city-states were the dominant form of polity). Tells you something about the relative efficacy of multi-polar, distributed political systems vis-a-vis unipolar, concentrated political systems.

Francis writes:

Pit toilets?

I have been to Italy for the first time in 1989, lived in Youth Hostels, bottom-of-the-range hotels and family pensions, etc., and I have never seen a single one.

Our respective sampling of Italian toilets is singularly strange, Mr. Caplan.

Matt C writes:

This is interesting, because Theodore Dalrymple has written claiming exactly the opposite--Italy is a much more livable place than its econ statistics seem to say (and Britain less so). I can't find the exact reference I was thinking of, but:

http://www.city-journal.org/html/11_3_oh_to_be.html

gives you the idea.

John V writes:

Another point on the idea of Italy's age:

Anyone who has been to an older, "first-adopter" type city like Manhattan (or the boroughs) sees the strange lack of "modernity" in some basic infrastructure elements in light of the incredible wealth of the city:

Very old, "charming" elevators, ugly cramp stair cases, old floors, dingy, oddly shaped and located bathrooms in some restaurants that were obviously grand-fathered in.

Compare this to areas that were built up in more recent years (decades) with infrastructure where the actual wealth is lower than NYC.

And in NYC, we're only talking about subpar from usually the 19th and early 20th century! Sometimes, people just "wing it" in established areas where space and top-flight resources are at a premium

mbk writes:

As others have said I have the opposite experience, although I've mostly been to Northern Italy. I've been to Genoa many times in the 90's (I lived in Southern France at that time) and while it's old and sometimes grimey in the public spaces it is also very solidly built. And there is a lot of quality of life in all aspects, from any interiors (private homes, restaurants, stores) to shopping, eating, you name it. In fact right after spending time there I moved to Los Angeles and was shocked to find how shabby the whole of California appeared to me. Everything plastic and outwardly beautiful looking houses built like shacks, plastered over with some fake stucco. The desolation of a Lincoln Boulevard right before it reaches Santa Monica, is hard to beat. Or the sullen poverty of East LA. Never mind Compton, which definitely would qualify for the third world. I mean, unpaved back alleys with car wrecks?

So here we go - a few short impressions do not an accurate picture make, and what we find shocking depends on our specific expectations in cultural paraphernalia. I for instance was also shocked to find all public toilets in the US having inch wide see through gaps at the doors, and in bars, never any doors at all, apparently anywhere in the US I've been to (short list, CA, AZ, NM, UT, LA, TX, HI, WA, GA, NH and a few I may have forgotten). Every time vacationing in Europe I was relieved to find solid toilet doors I could actually lock.

Re: top discrepancy between official GDP and actual living standard. I live in Singapore now. The average Singaporean has a decent life but the GDP/capita suggests Luxembourg levels. That leaves me scratching my head. OK I've never been to Luxembourg. So let's take places I know somewhat. In addition to the above US states, Northern Italy, Switzerland, Southern France, Austria, Germany, should all have lower living standards than Singapore if going by GDP/capita. It still leaves me scratching my head.

The fundamental problem with GDP is of course that it's a flow not a stock. So it measures turnover, not wealth, and in turnover it measures monetary input/output, not quality of life effect.

David Friedman writes:

At a slight tangent, my reaction to New Zealand was the opposite of yours to Italy. I happened to have looked at the economic statistics and they showed, if I remember correctly, per capita income at about half the U.S. level. But when I spent a week or so there, my impression was that the standard of living was similar to that in the U.S.

Doc Merlin writes:

"The main objection I've heard to my fault-finding comes from a random Italian American, who told me that Italian homes look vastly better on the inside."

Italian law is a bit strange, in that if someone sees someone you have in your home that you have allowed them to see it, you are partially at fault for them stealing it. Someone causing covetousness is seen as justification for stealing, so you end up with very ugly externals and gorgeous internals.

Francis writes:

I once got suspended, and my post deleted, because of an uncivil statement I wrote against Paul Krugman.

Where is the moderator now, to delete the obscene and racist talk of Monica?

[Thanks so much, Francis. You are exactly right, and I have now removed the offensive comment and also some helpful followups that would be meaningless without the original comment. So sorry for the delay. I was still doing my morning pass through last night's comments when you posted your comment. Contrary to popular belief, I sometimes do sleep at night! When I wake up, I usually have to go through hundreds of comments, which sometimes takes a little time. N.B. For the quickest response regarding truly offensive material, it may get my attention the most quickly if you email me at webmaster@econlib.org. Though I can't promise to be at my computer 24 hours a day, I sometimes do a quick pass checking webmaster email before wading into the accumulated comments. I admit that it depends on my mood and how deterring the comment pass looks like it will be relative to the email pass for the morning.--Econlib Ed.]

kiwi dave writes:

Bryan: general question -- are you referring to per capita GDP or modified for PPP? Because the nature of the issues is different. Prior to the recent interal devaluation, Italy had per capita GDP at exchange rates of over 40,000 USD, almost 90% of the US level. I think most people would agree that is unrealistic. But even at PPP, Italian GDP at c. 30k USD seems a little high, although I may be wrong (unlike some of the commenters here, I haven't been inside a lot of private homes in Italy).

More to the point, I do second David Friedman's observation. Having lived in NZ and the US, and having traveled a fair bit in Spain, Italy and France (and to a lesser extent the UK), the per capita GDP numbers don't make sense to me: according to the IMF, NZ's per capita GDP at PPP for 2010 is 58% of the USA level, 80% of the French, and moderately lower than Italy, Spain and Greece. My impression based on external, visible factors (number and types of cars on the road, size of homes, quality and price of goods available in stores and supermarkets etc.) suggest to me that economic living standards in NZ are higher than in France or Spain, and although lower than the US, a 40% differential seems way too much. My (anecdotal) impression is that NZ living standards would be comparable to some of the “heartland” US states, while lower than the coastal states.

Of course, it could just be wounded national pride, or things that I’m not seeing. Or else something is wrong with the calculation of GDP. I don’t think the size of the black market is the explanatory factor (all the evidence I’ve heard suggests the informal economy is much bigger in Mediterranean Europe than in NZ).
Explanations?

I don't think this is necessarily wounded national amour propre, but I think the numbers are off.

John V writes:

kiwi dave,

I think the difference in impressions of NZ and European countries has something to do with age.

NZ, like the US, arose from the colonial period and the general physical appearance resembles that of the US while European countries...especially in the Mediterranean have layers of visible infrastructure from past eras. It doesn't explain everything but it does explain part of it.

johnleemk writes:

I've studied in the US for four years and just recently officially emigrated to the US; before moving here, my family lived in New Zealand for two years. My family consciously chose to move to the US because they felt the New Zealand economy was too sluggish, and they also felt they were experiencing discrimination as Asians.

I can't compare the NZ heartland to the US heartland, but I can compare the NZ big city (Auckland) to my experience in major US metropolitan areas. My family definitely complained that they didn't have access to as many consumer goods and services as they wanted to; living in the suburbs, they had to drive 45 minutes to the Auckland CBD to find a half-decent bookstore. Good restaurants were few and far between.

New Zealand and Mississippi actually have comparable GDP per capita. Not having been to Mississippi, I don't know, but might it make sense to say the two are comparable?

Stefano writes:

The real GDP number is probably lower than the official one: this latter includes a large public sector whose productivity is probably lower than reported, and the weight of underground economy is only guessed at. Note that EU norms incentive the overstating of one country's GDP.

There are also some factors that could make Italians appear less wealthy that expected from GDP.

1. regulations and lack of space make houses much more expensive than in more sparsely inhabited countries. That leaves less income to be used for other goods.

2. fuels are heavily taxes, to levels 2x the US, so there's a preference for smaller cars (limited park space in cities is also a factor).

3. Italians tend to save a larger fraction of their income (about 10%, even during the current recession).

4. there's much less conspicuous consumption, getting in debt just to show off is almost unheard

5. comparatively larger resources are used for less visible quality of life: better food and drink, stays in spas (a recent fad here) and "bella vita" in general.

geckonomist writes:

Of all the countries I've lived in or visited, I never looked up their "GDP" numbers,
because such information is totally irrelevant for my visit or stay.

To ponder whether such a number is right or wrong, is thus irrelevant to the second degree.

And considering you are even relying on fantasy PPP numbers,... OMG!

If you find Italy a nice, charming place to visit: go there.
If you don't like it because it feels overvalued: stay away.

As a regular tourist in Italy I can tell you that accommodation tends to be pricey for what you get.
They have to earn their GDP numbers (hard euros, you might notice) somehow, don't they...



Francis writes:

To admin: Thank you! I thought, indeed, that I should give you some slack in your response time. Yet I was quite impatient of seeing the comment disappear. Sorry if I sounded critical.

[No problem, Francis. Critical problems trump critical reactions. --Econlib Ed.]

A dude writes:

[Comment removed for supplying false email address and for using crude language. Email the webmaster@econlib.org to request restoring your comment privileges. A valid email address is required to post comments on EconLog.--Econlib Ed.]

aldo fantin writes:

The premise that the appearance of the restrooms is an indication of gdp is just wrong.
It is expensive to live in Italy, there are code restrictions that prevent people from tearing down old houses. The size of an economy is more related to the number and size of its industries rather than the distribution of gdp or the bath amenities. Go to Brazil if you want to discuss a country with a big economy and bad living conditions

In every country people learn to live within the constraints, limitations, taxes, etc. The italians are particularly effective in doing the best they can with what is offered to them.

Mirko writes:

Pit toilets? And this is the element that would scientifically prove your theory? Caplan, get real and admit that preserving in perfect state a country-monument would be hard for anybody. But if you see any Pit toilets, please send me a picture. I've been living there 35 years and never saw one...

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