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Price alert / The necessary intervention on the “scam” of price increases

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Economics students, in almost all universities in the world, soon learn that the perfectly competitive market is the most efficient mechanism for allocating resources: it avoids waste, maximizes the well-being of citizens, keeps a large number of companies alive. they cannot exercise any market power. This fundamental result will probably be learned with much greater suspicion by those students who find themselves having to refuel their cars today. Not to mention the general sentiment of an entire population who, in front of the petrol station displays, will have lost all the faith they could have in market forces. All the more so if a minister, Roberto Cingolani, speaks of “colossal scam to the detriment of businesses and consumers” caused by speculation. So has the time come for the state to monitor prices and eventually set a ceiling? Perhaps. But there is no need to come to such radical conclusions too hastily. Indeed, it is always useful to question economic theories; at the same time, it is good to think carefully before dismissing the market economy as a useless science. It pays to calmly reflect on what’s going on. And, above all, about how to get out of it and how to avoid mistakes made in the past.

First of all, it must be remembered that the prices of some goods have been soaring for several months. Already last autumn, when no one thought that a war in Ukraine was possible, we were preparing for much more expensive energy bills. And even then the state was asked to intervene, also because the increase in the prices of energy raw materials would have spilled directly on companies but also, and doubly, on families. The former, in fact, would have seen a reduction in profit margins due to the increase in production costs; the latter, in addition to higher bills, would have suffered the increase in the prices of the goods of those companies which, in order to survive, would have found themselves forced to adjust their price lists. The effect of these dynamics has led to the recording of inflation rates, that is, the growth of the general level of prices, which had not been experienced for decades, not only in our country. The fear that inflation would lead to a slowdown in economic growth has therefore convinced many governments to intervene, mainly by subsidizing the consumption of energy goods, at least for the most needy families.

Secondly, there is no doubt that the situation has changed profoundly since then. If until a few weeks ago the price dynamics could have been almost entirely ascribed to the market, now this is no longer true. Or, at least, that’s not so true anymore. Because today prices are affected by at least two forces. The first is still that of the market: this advises against public intervention to calm prices. The mistake that is often made, sometimes out of simple ignorance but sometimes, more seriously, to get some consensus, is that the State can establish the prices of goods without this having consequences on their distribution. Imposing a maximum selling price on a producer, as so many ask to do, means reducing his willingness to sell, that is, the supply. It means, in other words, that the traded goods will be less. A sort of implicit rationing whereby, in the absence of procurement rules, those goods will be assigned to the fastest consumers, leaving the slowest to dry mouth. That doesn’t seem like an optimal solution to the problem. Furthermore, if the intent is to reduce the speculative component, it should be noted that it is practically impossible to break it down from the price, as there are so many elements that determine it: indicating a number, whether it is 5 or 50%, is therefore devoid of sense.

On the other hand, even in the presence of increases established by the market, ie by the meeting between supply and demand, it is also a mistake to think that the State should refrain from intervening regardless. Because in reality the State is already doing a lot and, in some cases, a lot: it already distorts the prices of goods because it imposes indirect taxes (VAT and excise duties) which, in the exemplary case of petrol, constitute well over 50% of the price for final consumer. In this case, the state could, and indeed should, intervene: not so much by taking a step forward, but by taking a step backwards. That is, giving up part of the revenue to make the market work better. This would make it possible to obtain the double profit of lowering prices and increasing the efficiency of trade.
The same goes for the energy bill: by renouncing taxes, as well as the so-called “accessory charges”, the cost for businesses and consumers will drop. Someone will object that that lower revenue will put the public budget in crisis. It’s true; indeed, it is obvious: but in this moment, with the possibility of borrowing without excessive limits and at rates still under control, it seems a minor problem.

However, as mentioned above, there is a second force that has intervened in the dynamics of prices. And it is the consequence of the contingent situation we are experiencing. It will not yet be a war economy, as the Prime Minister rightly reminds us, but it is undeniable that the price of certain goods, in particular energy and food raw materials, is the effect of sanctions, more or less direct and more or less explicit, which the States are applying and, in many cases, also undergoing. If at least a share of prices no longer responds – or not only – to the reasons of the market, then there would be nothing scandalous, perhaps not even for the most ardent liberalists, in really thinking of a public body that monitors price increases and intervenes where these exceed levels considered reasonable. A body that, however, has greater powers than those currently delegated to “Mister Prices”, the guarantor who operates from the offices of the Mise which, however, limits itself to reporting the suspicious dynamics in the formation of prices to the Antitrust or the Guardia di Finanza, so that they can be exercised actions of moral suasion on market operators. And provided that, it is clear, reasonableness is understood as an economic dimension that aims to dilute excesses and anomalies, and not as a political dimension, which would have the sole consequence of allocating stocks in a completely random way (or, even worse, , electoral) and to impoverish even more a population increasingly at the end of its strength. Economic, but also nervous.

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