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Most economists believe that the economic crisis is due to a structural excess of saving on investment. However, if we admit that production decisions follow the effective demand, it is easy to show that S and I are always equal. We suggest instead that crisis is due to the lack of demand that causes a high degree of unused capacity. The resulting sunk costs could be transferred to wages, further reducing demand. So, increasing investment, without raising wages, would worsen the effect of the crisis.
Austerity policies have been presented as the only paradigm able to solve the current economic crisis. This paper will try to show that neoclassical theories on unemployment are not supported by solid empirical evidence. The case study of Great Britain during the Great Depression to prove that (i) unemployment is not voluntary and (ii) public subsidies do not increase opportunistic behaviours.
The support of domestic demand is a viable strategy for the growth of the Italian economic system. Between 2008 and 2015 the negative investment component is the one that had the worst effect on the Italian GDP dynamics. To lay the foundations for an economic recovery in Italy, new investment incentives and the reform of the political strategies are needed to promote, by using also public resources, private investment. This could lead to leveraging multiplier effects and thus determine an effective relaunch of the national economic system.