What is an abusive price increase?

Once again, the discourse of confrontation on the subject of prices is used. Indeed, the new Minister of Production, Dante Sica, has just warned that companies that behave abusively with respect to prices will be sanctioned and that they will set up a call center to receive complaints for price increases.

If there is something that has destroyed the Argentine economy, submerging it in a long decline, it’s the discourse by which the economy is a zero-sum game in which if one wins is because the other loses. In 83 years of existence of the Argentina Central Bank, 5 monetary signs were destroyed, we had an average annual inflation of 52% and before such monetary destruction, the result of the permanent fiscal imbalances, always appeals to the same discourse of the concentrated groups, the abuses in the remarks and phrases like that.

As we will see right away, it is a gross economic error to talk about abusive price increases, but before it is important to stress that the function of a government is to contribute to social peace and not generate confrontations between different sectors of society. Moreover, a government should not misinform or de-educate the population by inventing imaginary enemies so as not to show reality. What corresponds is that the government says that the cause of the price increases is in the monetary issue carried out by the BCRA to finance the fiscal deficit and that this deficit exists because the collection is not enough to cover public spending. And that public spending is high because the state is oversized in personnel, it is maintained without time limits to people living from the so-called “social” plans and a pension system that is collapsed by the irresponsibility of the previous government to have included 3, 5 million people without having made contributions throughout their lives.

I insist, what you have to put in your head, is that countries begin profound changes modifying the values that prevail in society, which are the ones that will define the institutions that will govern the lives of the inhabitants, that is, the rules of the game which will be built economic progress. If we do not change the discourse of confrontation that has been destroying us for 70 years, I do not see it possible to end the decline and start a process of long-term growth.

Going to Minister Dante Sica’s statements about price abuses, one must first define what it is to increase prices abusively. What is the parameter they use to define if something is abusive or not? Moreover, before talking about abuse in the price increase, we should talk about the abusive taxes that the state applies to taxpayers. And we should also talk about the abusive monetary expansion carried out by the BCRA. According to the last daily monetary report at the time of drafting these lines, it is observed that the monetary base grew 32.9% annually and the monetary aggregates 35%, I refer to M1, M2, etc.Abusive price increases or unbridled monetary expansion?

Speaking of abuse in price increases when what happens is that the machine is abused to print bills and currency depreciates, is having a bad diagnosis of the economic problem or misinform the population leading to a sterile confrontation.

If someone increases the prices, but there is monetary discipline, what will happen is that the number of units sold will decrease. You will have less sales when you do not validate price increases with monetary expansion. In addition, with the economic instability that we have in Argentina, the absence of currency and legal uncertainty, who can establish what is the rate of return that has to be asked of an investment that is sinking in the country? Or are they going to tell me that the risk of sinking an investment in Argentina is the same   to sink an investment in the Netherlands, Australia or Ireland? On the other hand, it is not production costs that determine prices, but rather the prices that people are willing to pay for each product, which determine the production costs that a company can incur. Simple subjective theory of value that is what regulates the decisions to make exchanges. I only buy a product if I value it more than the weights that I give. If I give it less value, I do not exchange it, and if I give it the same value, neither because I am at a point of indifference.

The famous “remarcan by the doubts”, is not another thing that a form that has the producer to defend his working capital. The producer (whether merchant or manufacturer) knows that after selling he has to replace supplies or the merchandise he sold. Since he does not know what the replacement cost will be given the depreciation of the currency produced by the BCRA, when he has to buy goods or supplies again, he runs the risk that the pesos received will not be enough to pay them and his working capital will end up being consumed.

The other argument is that companies highlight products that do not have imported inputs. In the first place it is a simple statement without empirical verification. What data or historical series is there that demonstrates such behavior? And, in any case, if that were the explanation, it would be that people adopted the dollar as currency. Or is someone going to deny that the Argentine uses the dollar as his real currency?

Affirming that sanctions will be applied to those who “abuse” the price increases implies legal uncertainty. As I said before, what will be the yardstick to mediate the “abuse”? On the other hand, it is not the Executive that declares a company guilty and innocent, but justice. At least that is how a Republic works. The Executive can not be judge and party. And, what would be the law that would be violated to say that there are abusive increases? Where does the law say when an increase is abusive?

More than controlling supposed abuses of price increases, a mechanism that was adopted over 4000 years in the history of humanity (ROBERT L. SCHUETTINGER – EAMONN F. BUTLER), with its repeated failures to curb inflation, and our The last and pathetic version was applied by Guillermo Moreno, the nefarious trade secretary of the Kirchner era. It seems to me that the best thing the government can do for the benefit of consumers is to balance their accounts, lowering public spending, having monetary discipline, restructuring the state and applying a tax system payable by the taxpayer. If the government achieves these objectives, it will prevent the currency from depreciating, the economy will gain competitiveness and real wages will grow due to the higher productivity of the economy. Threats let’s leave them for the old way of doing economic policy, trying to control the wrecks to the shovels. It is a very primitive system that has given finished signs of not working.

Written by Roberto H. Cachanosky