Ca' Foscari University of Venice
Department of Economics
In praise of popularization
Lectio magistralis by the Senior Deputy Governor of the Bank of Italy
and President of the Italian Insurance Supervisory Authority (IVASS)
Salvatore Rossi

Introduction
This lecture stems from a reflection on the way in which we - all of us -
form our opinions and make decisions.
The question has many aspects, but here we will deal with one in particular:
the information that we consume and the sources from which we gather it.
This is a crucial aspect. Opinions and decisions are, of course, shaped by
cognitive processes and inspired by religious or political persuasions, but
the information that we use is their main sustenance. Combined with our
pre-conceptions, they lead us to think one thing or another, and to decide
accordingly.
And yet, at this historical juncture, Western democracies appear to have
a problem regarding the quality of the information that is made available
to the public. A lot of this information, it is said, is false or misleading,
either through ignorance, superficiality or malice on the part of those who
produce it. The fake news phenomenon is part of this debate. Of course,
Italy is not exempt from this problem. On the contrary, it is one of its main
laboratories.
The thesis of this lecture is that nowadays serious manufacturers of
information, and scholars in particular, have what has become an impelling
and absolute duty to disseminate their knowledge. This should be their
main concern. In all fields. Before it is too late. Especially here in Italy.
Especially when it comes to economics.
The high priests of knowledge versus democracy
Fantastical stories and tall tales have always circulated widely among
human beings, at all times and in all places. A defining feature of the
modern era was the emergence and diffusion of Galilean science, according
to which all claims must be subjected to careful empirical scrutiny and
there are no absolute dogmas; put simply, we should not believe in fairy
tales.
Modern science, regardless of whether it is engaged in sending a rocket
to the moon or in improving economic welfare, can sometimes be hesitant
and imprecise, but it is the best that humanity can offer to draw closer to
natural truths. It feeds on skills and talents, it seeks first and foremost to
convince the rest of the scientific community of the validity of its findings
(even at a long remove), it assigns no role to religions, political ideologies,
fads or mass enchantments.
For several years now, it has been claimed, in many public debates the
opinions of qualified persons have been rejected, if not derided. An idea has
gained currency that there is no such thing as difficult problems and complex
solutions, and that everything is easy and within everyone's grasp - both in
terms of understanding problems and finding solutions - if only the group
of so-called experts, who are only good at perpetuating their own power, can
be defeated.
The Internet appears to have played an important role in all of this. It lends
a voice to anyone with access to as little as a cheap smartphone, even if they
are typing in a far-flung corner of the globe. Anyone can write, photograph or
film something that will become viral. The traditional intermediation of the
experts, of qualified observers, of professional 'sorters' of information, has
disappeared. It is a grand, liberating bonfire (but so were the book burnings
organized by Nazi students in the spring of 1933)1.
A revolution of this kind spares no branch of public activity. Economics
and economic policy are deeply affected, at a time when these disciplines
are at the centre, either directly or indirectly, of almost all the decisions of
individual citizens and of governments - even ethical ones.
Decade after decade, administrative and technical apparatuses have
taken shape in the economic field alongside governments, building up a
body of knowledge and practices of their own. This includes ministries,
specialized institutes and agencies, independent authorities and central
banks. They have developed an autonomous capacity to process information
and take action. Until a few years ago, the balance between governments
and administrative apparatuses was ensured by a sort of trust in the medium
term on the part of the former towards the latter: governments only checked
intermittently the validity of these apparatuses' action - which at times
was not merely administrative - limiting their role to that of setting broad
political guidelines. But for governments to behave in this way they also
had to be intermittently accountable to voters for their track record, for
example on the occasion of general elections.
Now, as long as voters' judgement in Western democracies was
mediated by the great ideologies that emerged at the turn of the 18th and
19th centuries, this form of intermittent control came naturally. Voters
trusted that the people in government would, at least in the medium
term, act in their interest; they did not seek to judge their performance in
real time because the common ideological bond reassured them. When
the ideologies weakened to the point of almost disappearing and the
electorate morphed into the audience of a continuous and never-ending
show, political marketing became the only language spoken to the masses
by politicians operating in democratic systems, and the only language
understood by those masses. Today, the conversation between the electors
and the elected must be unceasing, uninterrupted and take place through
any means of communication, especially 'instantaneous' ones such as
social media.
It is worth noting that this does not apply only to economic matters in
a narrow sense, but also to other domains of administrative and political
action, for example foreign policy. If a country's international relations
are constantly exposed to changing public preferences and whims; if, to
give an account of the state of national interests and international relations,
storytelling techniques - to be clear, the same as those employed in TV
series - become widespread and are used to stir the public's feelings;
if what counts is the short-term audience share, regardless of the actual
medium to long term reality of the national interest; then, a democratic
country's diplomatic apparatus will find it harder and harder to influence
the action of a governing class interested only in the real-time advertising
of its political stance for the benefit of current and potential voters. Today's
United States of America is a textbook case.2
Does all of this mean that those with technical skills, the high priests
of knowledge, are always right and people's representatives always wrong?
That overthrowing the synod of high priests and restoring to ordinary people
the power to find simple solutions to their problems is always a revolutionary
gesture that must be condemned? Sadly, no. Otherwise, one would not be
able to explain the periodic emergence throughout history of vast shifts in
opinion or political movements that revolt against the establishment.3
It is necessary, I believe, to reflect on this point: science (including
economics) is indeed democratic,4 but only within its own confines. All those
who stand outside of it, that is, the body of citizens as a whole, have to trust
the fact that the scientific community has strict rules designed to ensure that
it can work to the best of its ability in the interests of humanity. If citizens'
overall trust is undermined - as can happen in historical eras, as perhaps the
current one is, marked by social and political crisis - this is to the detriment
of everyone. And it is of no use for researchers to rebel against the mounting
obscurantism by proudly reiterating the established rules. Society as a whole
might trust them even less as a result.
In other words, making discoveries, innovating, and developing theories
and techniques will not suffice. To keep or regain the public's trust the
findings of research must be explained to those outside the field, humbly and
patiently and without the haughtiness sometimes displayed by those who are
proud of their hard-won knowledge. Technical jargon must be meticulously
translated into plain, everyday language, trying to reduce as much as possible
the inevitable loss of accuracy that any translation of this kind implies.
In short, we must popularize. But we must do so without ever losing
touch with rigorous reasoning and cold, hard facts. At the same time, we must
aim for simplicity and clarity in our explanations, no matter how complex the
issues at hand.
The popularization of economics
But what does this mean in practice? Let me give you an example of
an inaccurate and misleading myth about the Italian economy, which
would benefit greatly from a fair account of the facts, that is, from good
popularization.
According to this myth, the Italian economy could be prosperous and
happy if only Europe, out of Teutonic foolishness, and the market, out of
occasional political antipathy, did not impose a financial straitjacket on it. In
this oversimplified narrative, there are grains of truth and mountains of lies.
The issues are much more entangled and complicated, and it is up to those
who have spent a long time studying these problems to make this clearly
understood.
For now, let's clarify one thing: the main problem with the Italian
economy is that, when something is produced (industrial equipment, a legal
opinion, a history lesson), it is not done efficiently enough. In other words,
resources are wasted and it costs more to achieve a given level of quality.5 On
average, of course. The differences between one firm and another, between
one lawyer and another, between one professor and another, are enormous,
but overall the Italian economy suffers from a competitive disadvantage and
growth gap when compared with other economies. And it has done so for at
least the past 20 years. Italy knows how to do all manner of things, but it does
them, overall, less frequently and less well than it could.6
This is another reason for the growing and widespread concern about
inequality in Italy. An economy that grows little over such a long period,
where household income in per capita terms is stuck at late 1980s levels,
is an economy that offers few opportunities to its citizens, and especially
to the young.7 It is not surprising that two thirds of young people aged
between 18 and 34 believe that those who are today setting out to study
or work will never attain the same social or financial level as previous
generations.8
There are a variety of reasons for this situation and we will not discuss
them here. One thing is certain: the problem cannot be solved by encouraging
the State to borrow more. The State can do a great deal in this area by spending
better and establishing regulations that promote efficiency.
If we wanted to tackle the issue from a social equity standpoint (and
we would be making a mistake if we were to separate this from production
efficiency - you have to bake the pie before you think about how to slice
it), once again more debt will not resolve the problem. What we have
to do instead is to redistribute taxes between those who have more and
those who have less and improve the equalization capacity of many public
transfers.
Today, Europe and the markets are first and foremost worried about
Italy's public debt which, as everyone knows by now, has risen to more than
€2,300 billion, or 130 per cent of one year's GDP.
So let's ask ourselves: What does Europe mean? What do the markets
mean?
Europe means all the complicated architecture of institutions (the
Commission, European Parliament, European Council, European Central
Bank, and so on) and legislation (Treaties, Directives, Regulations, etc.)
that limit or influence the sovereignty of the Member States. By their
choice.
Let us linger a bit longer on the markets. Markets mean investors.
Anyone who has set aside even a modest amount of money anywhere
other than in their current accounts and entrusted it to someone else to
invest for them: a bank, a financial agent, a friend. Usually these retail
investors turn to wholesalers (banks frequently have both in-house) who
sell them financial products of various kinds, from the most simple, such as
government bonds, to the most complex, such as derivatives, depending on
the sophistication of the final customer. The wholesalers (agents who work
in the product development departments of banks, or for investment funds
or asset management firms) have no homeland, even if they are Italian,
German or American by passport and residence. They have the whole world
as their playground and they all think more or less in the same way.
How many are there? Let's say, at a very rough estimate, about half a
million worldwide. Their goal is to earn the highest returns possible for
the same amount of risk so as to satisfy their clients - those retailers who,
in turn, must satisfy the investors who have turned to them. They strive
to emerge in a highly competitive environment, but basically they use the
same methods, chasing news about the financial outlooks of companies and
countries one second before their competitors.
And the speculators? They also exist, of course. People who use their own
money or that of a few associates (hedge funds, private equity funds, and so on)
to place bets, even shorting, i.e. betting that a company or country will get into
difficulty and that the securities that it issued to fund itself will lose value. But they
are pilot fish, not sharks (even if sometimes they are the size of whales). They short
(that is, short sell securities that they do not own) when they understand that the
immense school of fish that is right behind them - the investors who act on behalf
of savers throughout the world - is unsure about what direction to take, to sell or
not, and they try to point them toward selling. If they succeed, and the value of the
securities sold collapses, they buy them back at a much lower price and honour
the previous short sale, at a large profit. They come into play when there is already
concern among ordinary investors because of worrying news circulating about this
or that company or State. And in any case they are only motivated by the prospect
of profit. Which is all the more likely when they perceive in advance that the victim
is teetering on the edge and all that is needed is a little push to make them fall.
Political sympathies and antipathies do not even enter their minds, it would cloud
their vision, which must remain focused on making money.
If the market basically means small savers, are domestic savers different from
foreign ones? In other words, would I, as an Italian, be more likely to choose, for
patriotic reasons, to hold a BTP (an Italian government security) in my portfolio
than a French or German saver would? Maybe, but it is highly unlikely. Money
is money, and no one likes to lose it for love of country, except in exceptional
circumstances, like a war. One economic difference could be that if the Italian
State, let us say, were to default, in other words if it were unable to redeem its
bonds on time or could do so only in part, it would have to raise taxes to try to get
back on its feet, thereby hurting its own citizens, but not the French and Germans
as well. Italians might then be more reluctant to rid themselves of domestic
government securities, when there is more bad news about their government's
finances, in an attempt to save the State and avoid further taxation. But this is
more the reasoning of an economist discussing theory than of the average saver;
it is really very unlikely that this can explain the difference in behaviour between
Italian and foreign holders of Italian public debt. Another economic reason for the
relatively greater inclination of Italian savers to hold Italian government bonds
could be this: in the event of a partial default and consequent debt restructuring,
the Italian State could seek to protect its savers, at least the domestic retail ones (so
not banks or insurance companies), but not the foreign savers. This is also a highly
unlikely scenario because it would be counterproductive when thinking of a future
return to the international markets and because, in any event, foreign bondholders
would avail themselves of the collective action clauses that now protect them.
If there is even the remotest possibility of debtor default, that is, the failure to
repay debts on time, savers/creditors will protect themselves as best as they can by
instructing their investment managers to sell a portion of these riskier securities;
it makes little difference whether the savers are Italian, French or German. The
official statistics do not help us discover in time if a given wave of sales of Italian
public securities originated more from domestic or foreign savers without
crossanalyzing various databases and relying on estimates.
The markets - that is, domestic and foreign savers/creditors, plus any
speculators/anticipators - read the papers, watch TV and follow social media,
listen to policy statements and try to understand whether the probability of a State
default is increasing or decreasing.
For a country that is a member of the euro area, like Italy, they also look at
its relationship with the European institutions and EU legislation, because any
deterioration in these relationships is a sign of an approaching expectation of
a default, even a unilateral abandonment of the euro area. Therefore Europe is
important, but only indirectly. It is the markets, as I defined earlier on, that have
their finger on the trigger.
In conclusion, Italy's main problem is the average efficiency of the country's
producers: for many years now this has been improving very little or not at all,
because the technology used is inadequate, the laws and regulations unfriendly,
the public institutions weak, because business owners do not want to expand their
companies too much, because, because...
Italian society remains unequal also because its economy has little capacity
for growth. In any case, the solution is not more government debt.
Why it is difficult to popularize economics
Reaching a large audience is very hard to do and economics is no exception.
Because economic reasoning and facts are never 100 per cent watertight or purely
objective.
The economy studies human behaviour: therefore it is not an exact science.
Even the best economic theories conceived by acclaimed scholars whose good
faith cannot be doubted, can be tarnished by prejudice and distorted by
noneconomic convictions.9
Economic events - both at a micro or individual and a macro or group level -
pose formidable problems of identification and measurement. For example,
measuring firms' investments or those of an entire domestic economy, in a way
that can be compared across firms and countries, first requires setting multiple and
detailed accounting and statistical standards, identifying the right interlocutors in
firms, and formulating the right questions for data collectors: because a productive
investment can have a thousand different implications, from the purchase of a pencil
to new software or an entire skyscraper, from the construction of a warehouse to the
planning and realization of industrial machinery.
It is even more difficult to measure the sentiment and expectations of a local,
national or international community: confidence levels, inflation expectations,
consumption or investment intentions. For example, if the community to be
surveyed is a large one, for obvious cost reasons, it will be necessary to rely on a
sample and sampling techniques are highly complicated if the survey is, in fact, a
serious one.
Official statistical institutions present in all of the countries and international
organizations that publish economic and financial data (including Eurostat, the
International Monetary Fund, the Organisation for Economic Co-operation and
Development) take care of the main knowledge needs in economic matters and
they do it in the best way possible. But the need for precise and comprehensive data
often trumps clear communication. Moreover, the official institutions are far from
being the only sources available. There are also many private statistical centres that
supply the media with data, at times well done, at others not. At times they are no
more than outright statistical scams.
We citizens are not used to paying attention to the sources of the news that
rains down on us every day when we leaf through a newspaper, consult the digital
devices that most of us have, or look at dear old television. The media is full of
tables and charts about various economic facts and almost never indicate sources
and methodologies. Even if they were indicated we would not pay them any heed
as we normally have very little time to devote to one particular news item. But if
the fact is non-existent or measured badly we will receive an incorrect impression
which, however mild and fleeting, can leave traces in our psyche and affect our
behaviour.
It is even worse when we are faced not with non-existent or poorly measured
facts, but with mistaken or misrepresented theories. Any statement about the way
in which economies work, the laws they obey, the ways in which they pursue
the goal of well-being that a society sets itself must correspond to a theory that
has been empirically and robustly validated. Otherwise, especially if emotionally
persuasive, this might induce the recipients to behave in a way that is contrary to
their own interests.
In short, we are all extremely vulnerable, exposed to all manner of error or
manipulation, even when we believe we are sufficiently evolved so as not to run
this risk.
The need for effective popularization
What can be done to stop the rot? How can we defend ourselves against those
who want to manipulate us or who are simply ingenuous or untruthful out of sheer
ignorance but whose opinions risk leading us astray?
We can appeal to three categories to counter distorted or false information:
ordinary citizens, that is, consumers of information; the media, which spreads it;
and the serious architects of information, individual scholars, research centres
and statistical institutions. Let's start with the first category: citizens/consumers
of information. They must raise their guard, there is no doubt about this. They
must become more aware of the need to carefully assess the quality of the
economic information that reaches them, first weighing the reputation of the
various sources and being wary of those that are unknown or of bad repute.
However, this is difficult and takes time; it depends on our individual good will
and is therefore a task that no public authority can carry out on our behalf.
The media should be the first to select sources based on quality. Few do so
nowadays. The media universe has changed greatly with the advent of Internet.
The daily and periodical press, which could be relied on more in the past, has
lost enormous ground and the digital formats with which it has attempted a
comeback have only partly succeeded. Internet-based communication tools,
in particular the social networks, have long passed it out, even if for the time
being they do not threaten the supremacy of television. Italy's Communications
Regulatory Authority (AGCOM) recently10 confirmed this by measuring the four
major categories of media (television, Internet, newspapers, radio) according to
the share of the population that claims to use that medium as its main source of
information: 56.6 per cent said television and radio were their primary source,
26.3 per cent the Internet and 17.1 per cent newspapers.11
Television and radio, precisely because of their general popularity as channels
of information, above all for politics, have, for many years, been particularly
exposed to the influence of political parties and movements, which impair their
ability to filter news on the basis of genuine scientific facts. This problem also
affects the press, which often puts news that is useful for promoting the political
and editorial line of a newspaper before objectivity (which is always relative,
as we well know, but which nonetheless ought to be pursued). The Internet is
inherently anarchic: as we said before, it is a platform that allows everyone to
transmit whatever they want, without intermediation or filters. But it is turning
into a colossal tool of manipulation by occult intermediaries, in the very name of
the democratic struggle against manipulation by the traditional intermediaries of
printed news, television and radio.
In short, one can hardly rely on the capacity and willingness of the media to
start actively distinguishing between good and bad news, with the truth as their
only polestar.
Let's turn to those who try to present theories and facts in the best possible
way, in the sole interest of advancing knowledge: the authors who claim to be
serious. Are they the good guys in our history? Not exactly. Not if they take refuge
in the ivory tower of their knowledge and do not care to earn the understanding
and trust of the public by disseminating their research and that of the scientific
community to which they belong.
Here we need to dispel a basic misconception which is insidious especially in
countries such as Italy, where the official culture is humanistic: that to disseminate
is to make vulgar, in a derogatory sense; so that, in addition to being a waste of
time, it is to dirty the purity of cultured thought. In reality, dissemination should be
the researcher's highest aspiration if it is done in a way that that does not undermine
the strength of the argument and the accuracy of the analysis: to popularize in this
sense means, as was mentioned earlier, to translate but also to prune back, to get
to the heart of the matter. It is a laborious and complex exercise. It requires vision.
In the Anglo-American world which, and this is no accident, has achieved
absolute supremacy in all fields of knowledge over the last century, both specialized
journalists and scholars, even illustrious ones, manage to spread their knowledge
in later years. In their youth they advance knowledge using the techniques and
language typical of their field, without worrying about being understood except
by their peers. Then, later on, they put what they have learnt and discovered at the
service of the wider community.
Today this capacity, which has always been very important, has become
essential to curb the drift towards superficiality, approximation, falsity and
manipulation that threatens to overwhelm us. Those who are in the trenches and
struggle to push out the frontiers of knowledge in their own circumscribed fields
cannot shake their heads and say: it is none of my business, it cannot be up to me
to make myself understood by the lawyer or the plumber next door. And so we
become accomplices of those who make of superficiality or manipulation their
creed. Those who transform economic or foreign policy into instant political
marketing.
In short, what was in the past only desirable - that economists
communicate reliable and proven economic theories and data more, and
more effectively - is imperative and urgent in these times of omnipresent
bad or inaccurate economic information, used for political purposes. It is not
only the good name of the economic profession that is at stake here. It is the
very functioning of our democratic societies.
Grafica e stampa a cura della Divisione Editoria e stampa della Banca d'Italia