There are different types of bubbles

As I travel and read about events, I put them in a “bubble” context. Let me explain.

I was in Rome to visit my mother and witness the sale of a property she owned. We met at 12:00 pm and left at 2:30 pm. The seller, the buyers, the two lawyers were present. So far nothing unusual. There was another important authority: the notary.

A notary represents the government and makes sure the transaction follows the law. There are only a few thousand notaries in Italy (population: close to 60 million). It is very difficult to become one and the tests are almost impossible to pass. This is how the guild protects itself.

All guilds, I call them power groups, make sure the government passes laws to protect them by making the entry into the guild as difficult as possible. They increase the bureaucratic apparatus by requiring new “regulations”. By doing so, however, the incentive to innovate wanes and the economy stagnates.

The bureaucrats have every incentive to increase rules, regulations, and filing of reports because the more paper they receive the more important they feel. Southern Italy is following closely this script.

Taxes have to be raised to feed an ever-increasing bureaucracy and a new “bubble” takes shape. However, this bubble cannot increase forever. I witnessed a transaction in Italy for 400 Euros “without receipt”, but 800 Euros with receipt. In other words, as the bureaucratic bubble increases, the economy goes underground, and people become discontent.

Outcome? I went to a library to buy some books. I found, to my surprise, many books about Mussolini. Large bubbles create discontent and discontent leads to violence. Bubbles (political, economic, administrative, religious, and financial) create their offsetting forces that will make them implode.

It will be interesting to see what happens to the bubbles “Putin” and “China” now that people begin to realize their lifestyle is at risk. The markets always win.

More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977