“Each year the World Economic Forum asks a group of leaders from academia, politics and business to identify the main risks for the following year,” writes the Wall Street Journal. At the beginning of 2020, none of the managers surveyed had indicated an infectious disease. And in 2021, inflation did not appear on the list, which has long begun to create problems for several economies and will continue to do so in 2022.
The case of the World Economic Forum demonstrates how “our perceptions of risk are misleading, especially because they are heavily influenced by the past” and do not take into account threats that no one had imagined, notes the US financial newspaper. Economic forecasts have always worked like this, but in a world of uncertainty like the present one, all this would require “humility and the willingness to review our mental models”. Unfortunately much of the world remains nailed to its beliefs and everyone continues to look at reality with “the old distortions”.
The latest and unexpected economic threat, inflation, all in all confirms this analysis. Just look at the debate sparked by an article by Isabella Weber published on December 29 in the British newspaper The Guardian. In his analysis, the German economist of the University of Massachusetts Amherst, in the United States, argues that “a serious debate is needed on whether to introduce forms of price control, as happened in the United States after World War II”. A crucial but largely overlooked factor behind inflation, writes Weber, is the exploding profits of some companies.
“In 2021, the profit margins of US non-financial companies reached levels seen only in the years following the Second World War. It is not a coincidence. The end of the conflict had forced a sudden restructuring of production, creating bottlenecks similar to those caused by the covid-19 pandemic. At the time, some large companies exploited supply problems to raise prices and make rich profits ”.
The greed of companies
On the one hand today there are those who argue that we should not worry too much, because current inflation is a transitory phenomenon destined to return in the coming months; on the other hand there are experts who call for an increase in the cost of money and a reduction in public spending. In fact, Weber writes, there is a third option: the introduction of price control in specific sectors, a solution that could keep inflation in check and at the same time avert a recession.
At the beginning of the year, the Nobel laureate Paul Krugman intervened in the debate who, regarding Weber’s article, wrote in a tweet: “I am not a fanatic of the free market. But this is really stupid ”. The US economist later deleted the tweet apologizing and arguing that “it is always wrong to use certain tones against someone who is arguing in good faith, regardless of how much you agree with his arguments. Especially knowing that there are too many people in bad faith around ”.
The softer tones assumed by Krugman were also dictated by the reaction of scholars and politicians in favor of Weber’s thesis. Several members of the US Democrats, such as Senator Elisabeth Warren, have long been pointing the finger at “greedy companies” to explain the price increases. There are also economists who refer to the modern monetary theory, a school of thought that sees public spending financed by central bank money as the decisive factor for the development of the economy. For example Stephanie Kelton, who attacked Krugman and also gave him the opinion of a distinguished colleague, James Galbraith.
The New York Magazine notes that Weber in the article should have said on which sectors to act, but stresses that “focusing on areas where there are companies with a de facto monopoly power rather than on scarcity of products” – for example that of drugs. – could have positive effects for consumers. On the other hand, writes the Swiss liberal newspaper Neue Zürcher Zeitung, “there are liberal economists who cannot believe that there are still those who suggest price control as a tool to fight inflation” and recall the unfortunate results recorded by the controls. imposed in the 1970s by the United States government. “In August 1971, President Richard Nixon decided to freeze prices and wages for ninety days, convinced that he could curb inflation. Actually the effect wore off very soon. Inflation continued to run unchecked “.
To know
Turkey in free fall
“In Turkey, inflation has reached its highest point in nearly twenty years,” writes the Financial Times. The country’s rise in consumer prices in December 2021 came in at 36 percent compared to the same month last year. This is confirmed by the data published on January 3 by the national statistical institute. “It is the highest rate since September 2002, when Turkey was overwhelmed by a financial crisis that paved the way for President Recep Tayyip Erdoğan and his Justice and Development Party to rise to power in the following November elections” .
The December figure, which marks a sharp rise from 21 percent a month earlier, comes after Erdoğan repeatedly forced the central bank to cut the cost of money despite runaway inflation. In the past three months, the interest rate in Turkey has been reduced by five percentage points, “causing the flight of investors and rising prices in a country that is heavily dependent on imports.” The government, however, points the finger at the strong powers who want to destroy Turkey and also tries to track down the “enemies” inside the country. At the end of December, the Turkish financial market supervisory authority opened an investigation against 26 people, including some former central bank governors, journalists and an economist, accused of having helped manipulate the exchange rate of the Turkish lira. (in free fall for some time) through articles and posts on social networks critical of the country’s monetary policy.
Runaway inflation continues to aggravate the difficulties of the Turks, especially those of the poorest families, forced to reduce the consumption of essential goods and, when they can, to flee to Europe in search of a better life. A destiny shared by the citizens of many other countries, writes the German newspaper Handelsblatt. In Kazakhstan, for example, protests have broken out in several cities over the rise in the price of gas (the country’s most widely used vehicle fuel), which has doubled in recent weeks. In addition, in neighboring Russia, the market research institute Romir claims that the price of essential goods has increased by 17 percent, against an official inflation rate that is “only” at 8.1 percent.
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