After the invasion of Ukraine, all governments and international organizations have assumed that the rising prices of raw materials of the last year is structural and it will not end this spring as promised just two months ago. The latest has been the IMF, which has revised its forecasts and has radically changed its discourse and recommendations with respect to those it made last fall.
The main economic problem today is the inflation. This radically changes the entire story and the design of economic policies of the last decade in the world, where the problem after the financial and debt crisis of 2008 was deflation. Economists have studied inflation for millennia. Oikonomia, the science of the home, is attributed to Xenophon, a disciple of Aristotle in the sixth century BC. But much earlier in China they had already analyzed inflation.
The market economy needs someone who wants to buy a product, someone who wants to sell that product and they only have to agree on the price. That system has been in operation for millennia and was taken over by Karl Marx in ‘El Capital’, where there was supply, demand and prices. It is an ancient system that human beings have used at least since the Neolithic to allocate scarce goods. Without a shortage, this time of gas, there would be no economic problems and we economists would not exist.
Therefore, prices and inflation or deflation are a gauge of scarcity. Modern economics began, according to Joseph Schumpeter, in my beloved University of Alcalá and in Salamanca in the 16th century and, not coincidentally, the monks were already advising the king on inflation. The arrival of gold and silver caused an increase in money in circulation and inflation.
Inflation is equivalent to a tax that reduces the purchasing power of households, oikos, and impoverishes them. And also of the companies, since it reduces their margins, their investment and the creation of employment. Market economies need price stability to have certainty and that households and companies maintain their investment and job creation.
The Soviet communists, after galloping inflation, chose to impose a price planning system set by the Government. In 1945 the Berlin Wall was built, half of Germany maintained the market economy system and the other half imposed the price planning system. East Germany, 50 years later, at unification, had 70% less per capita income than West Germans. If price planning did not work in the most orderly and disciplined country on the planet, it will never work in any other.
The social pressure of households and companies on governments is enormous. But Neither Pedro Sánchez, nor Núñez Feijoo, nor any ruler on the planet can manage to lower gas prices. But, many governments, from the right and from the left, opt for pricing systems to alleviate the suffering of their people. In 1973 they did Franco and Richard Nixonfor example, and both failed.
Minister Teresa Ribera has sent to Brussels a system for fixing gas prices at 30 euros and proposes putting a tax on the sun and the wind to finance it. Just the opposite of what the IMF has just recommended, that prices reflect the scarcity of gas and that governments favor the development of wind and solar energy to get out of the crisis. So Nadia Calviño has already distanced herself from the Ribera model and opts for an auction where the marginal price does not set the final price and that renewables manage to lower the average price that households and businesses pay.
I read with astonishment that two AFI economists defend the price planning model; it would be a mistake that would have a high cost
Economists have a moral commitment to defend Calviño and the market economy model. That is why I read with astonishment that two economists from International Financial Analysts, AFI, They defended this Sunday in a national media the price planning model. AFI is chaired by emilio ontiveros and it has a reputation and the problem when you have a reputation is that people believe you.
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John Keynes he already warned us in his ‘General Theory’ that people overestimate the influence of vested interests, but the real power is in ideas. The mistake would cost us Spaniards hundreds of thousands of jobs. For the first time since the 18th century, Spain has an abundant primary source that is cheaper than our European partners, the sun. We also have our own technology and engineering in windespecially marine. Iberdrola It is a world leader and is going to invest 150,000 million dollars in the next decade in: the USA, the United Kingdom, Japan, Australia, etc. Its industrial suppliers are Spanish and can create thousands of jobs. wall box announced last week 500 jobs in a new factory in the Barcelona Free Zone. And on Thursday I attended the strategic plan for the port of Avilés and the future of Asturias will come mainly from the wind industry.
An energy price planning system in this energy crisis would put an end to investment in renewables and industrial development and would cost infinitely more than what we are going to save this year due to the cost of gas. Something that could be solved by changing the regulated tariff to electricity futures prices, as all our European partners have, and not in cash, as only Spain has. Fortunately, this crisis, unlike that of 1973, catches us in the European Union and Brussels will support the Calviño model versus the model of Ribera and Ontiveros.