ABSTRACT
As late as 2007, two influential economists, Alesina and Giavazzi, were still arguing that there was a need to substitute the Italian pay-as-you-go pension system with a fully funded, privately managed one, in which workers would directly choose how to invest their pension savings. One of the most serious drawbacks of such a system – the possibility of large losses for workers – was considered secondary to its advantages, especially since, according to the two economists, this possibility could be kept in check by providing them with a ‘brief course in finance’.2 Today such a proposal appears grotesque when one considers that it was made just before one of the worst economic and financial crises in the history of capitalism. Nevertheless, it is still important because of its potential to stimulate debate on the current state of economic theory.
