“An insightful journey through politics and economics, addressing why the former might mismanage the latter. Lorenzo Forni describes in depth the causes and consequences of many policy 'mistakes', all characterized by a common error: forgetting the economic constraints.” – Francesco Giavazzi, economic adviser to the Italian prime minister
"Forni’s main target is the politicians who, in targeting their short-term advantage, undermine the medium and long-term prospects for their countries ... SPE members who need to find support for economic rationality in dealing with their clients, masters, or even the friends in the pub will find useful material in here." – Society of Professional Economists Reading Room
"This book is about magic. Yet, the magic tricks work and are exciting only when the audience does not know what to expect. With magical economic policy-making, the audience have been conned before. This book shows that harsh economic truths are much less exciting than magic but are inescapable." – Aleh Tsyvinski, Arthur M. Okun Professor of Economics, Yale University
“Live by the printing press, die by the printing press. This is the no-free-fiscal-lunch message of Lorenzo Forni, a premier economic advisor to countries across the globe. The Money Magic Tree is a sobering wake-up call for the United States and other advanced economies who think they can live well beyond their means.” – Larry Kotlikoff, Boston University
“A most enjoyable and instructive read with many fascinating country examples. As fiscal deficits explode and central banks remain big buyers of government bonds, Forni's lucid warnings about unsustainable macroeconomic policies could not be better timed.” – Philip Turner, University of Basel, and former Senior Manager, Bank for International Settlements
“This book aptly distills lessons about sound macroeconomic policies from theory and international experiences in a non-technical and user-friendly way. It will be especially useful to non-economists who want to form well-informed opinions about important current debates on the appropriate stance of fiscal and monetary policies. I especially like its key message that prolonged expansionary policies cannot raise potential GDP growth rates. Doing so requires structural fiscal, financial, and regulatory reforms. The book highlights the political economy challenges that such reforms face.” – Teresa Ter-Minassian, former Director, Fiscal Affairs Department, International Monetary Fund
This lively and provocative look at the tension between economics and politics examines why so many mistakes in economic policy-making are made for political reasons and ignore the economic truths.
Using short-term economic gains to ensure electoral success, argues Lorenzo Forni, inevitably spells macroeconomic disaster. Using the state budget, trade policy and monetary policy to prop up labour markets and the wider economy in order to boost voter approval ratings, while ignoring budget constraints can only result in longer recessions and economic downturns. Which then can incur the painful austerity measures needed to bring the economy back into balance.
Forni looks at many unsustainable economic policies that have been implemented in parts of the world when the economic realities – there is no magic money tree! – would recommend a different and more prudent economic course.
Introduction: pandemic economics 1. The clash between politicians and economists 2. The magic potion of credit 3. The multiplication of loaves and fishes 4. Something for nothing? 5. Are the advanced economies different? 6. Italy: the sick man of Europe Epilogue: economists and the magic money tree Appendix: budget constraints
Lorenzo Forni is Professor of Economic Policy at the University of Padua and Head of Prometeia Associazione. He has worked at the International Monetary Fund in Washington and at the Central Bank of Italy in Rome.