I will write about the causes that have been stimulating
the growth of prices since 2008. The prices have been growing over an annual
rate of 10/15% since 2008. Nowadays, it has reached at annual rate of 23%,
which makes Argentina one of the countries with the highest rate of inflation
in the world.
To begin, it’s important to say that, as it is
well known, the economy is a social science that depends on lots of factors,
such as the behavior of people. That’s
why, in difference with other science like physics or medicine, it is difficult
to understand and prove exactly what the causes of some events are. But even
though we are a step below exacts science, we have made a great improvement in
the past decades with the incorporation of economical models. In few words what
we try to do is make some suppositions about the factors that we aren’t able to
manage and try to connect logically the relations between the variables that we
can manage. Then we use econometrics to prove that model with reality. Of
course, there are lots of authors (often called postkeynesians) that are not in
favor of the uses of these mathematical models. But more or less due to that, we
are more advanced than other social sciences.
To explain the inflation I will introduce the quantity
theory which is a simple equation created by the neoclassical school lots of
years ago. What this equation says is basically that if we inject more money in
the economy, it will surely increase prices. That’s because the excess of money will
produce an excess of demand in relation with the offer. This law is quite
simple and logical, but it’s not always true. That’s because at the same time some
other factors of the equation that were supposedly fixed by neoclasicals can vary
in reality (in fact, that’s what Keynes proposed). These factors are: (i) an increase
of the demand of money (growth of GDP), (ii) a decrease of the offer of money (government
policy) (iii) a paralyze of the demand of money for transactions (crisis, liquidity
trap).
In the case of Argentina, the authorities have
been making an expansive fiscal and monetary policy during those years. The incidences
of these factors that can cut off the expansive effect of the monetary policy pulling
down the increment of prices haven’t been present in Argentina’s economy (except
for 2009). That it can be an evidence of the growth of money may be one of the
causes (“shock”) of the inflation in Argentina.
Unfortunately, because economy is a social
science, is difficult to argue that the raises of prices started surely with
the growth of money. But what we can surely
argue is that if the growth of money is not what is producing inflation, at
least is validating the raises of prices. That is a truth and a responsibility
of the government.
