“It would be extra unfair to use money that increases inflation.” That’s what the Labor Party’s Frode Jacobsen said to people with bad advice in the Debate last week. Finance Minister Trygve Slagsvold Vedum also says he has restrained spending due to interest and price growth. The explanation was repeated this winter about why the government has no more to give than NOK 333 extra a month to single minimum pensioners, or that disabled people on the minimum rate get NOK 3,000 in an extra payment. But the government’s message that interest rates will rise if the poor get more help, several economists news has spoken to believe is a hoax: – Such claims are at best misunderstood, says economics professor Magne Mogstad at the University of Chicago. – The reason why the government has not given money to the poor is that they have not prioritized it, says postdoctoral fellow in economics, Martin Blomhoff Holm, at the University of Oslo. State Secretary in the Ministry of Finance, Lars Erik Bartnes (Sp), reacts to that claim. – It is completely wrong that the government does not prioritize those who are now struggling financially. We use the money we spend in the state budget well. Lars Erik Bartnes (Sp), State Secretary in the Ministry of Finance, believes the government has prioritized those who are struggling financially. Photo: Magnus Brenna-Lund / news Bartnes refers to a number of measures the government has introduced. – Those who have at least increased housing allowance, single parents with a low income get a boost, tax relief is given to ordinary people and minimum pensioners are lifted. In addition, we have an electricity subsidy that covers much of the increased electricity costs. – Can use much more than today Holm’s field of expertise is about what affects prices and interest rates in society. He emphasizes that what the government spends on money affects the economy in Norway and eventually prices, but that you have to spend a lot of money for it to have a noticeable effect. – Roughly speaking, approximately 30 billion in extra public consumption will lead to less than a 0.1 percentage point increase in prices in the short term, says Holm. By comparison, annual inflation is 7.5 per cent, and Norges Bank’s aim is to raise the interest rate so that the economy cools down and price inflation falls to 2 per cent. – So the government can spend money on the poor without triggering an interest rate shock? – They can, yes. They can both spend more and they can reprioritize. Economics professor Magne Mogstad. Photo: Chicago University Mogstad also agrees that even a significant increase in spending will hardly mean anything for inflation and the setting of interest rates. – That is also the answer if you use the models that the Ministry of Finance uses to estimate these effects. Vedum knows this, or at least he should know it. – The overly rigid Holm is supported by chief economist Marius Gonsholt Hov at Handelsbanken, who says he is annoyed by what the politicians tell Norwegians in the debate. – Firstly, the effect on inflation is vanishingly small. One is far too rigid in the current situation with high price growth and rising interest rates. People are extremely afraid of increasing inflation and interest rates any further. Then you have to see the negative effect it has against the positive effect for those sitting at the bottom of the table, he says to news. Chief economist Marius Gonsholt Hov at Handelsbanken. Photo: Handelsbanken Holm and Hov agree that people who can’t afford it really have it tough when prices haven’t risen any more since the 80s. Extra help would – I quickly believe that it could be a big gain for those who are most exposed, and the price for the rest of us might be slightly higher inflation and slightly higher interest rates, and it is a given that Norges Bank will respond. My criticism is that this becomes far too rigid rhetoric in the current situation, says Gonsholt Hov. Renting a home If the government is right that the interest rate can rise, it will in any case affect people who have loans or money in savings accounts. The majority of low-income earners in Norway rent housing, according to Statistics Norway. – The cost of higher interest rates falls on people with high interest expenses. It is another segment of the population. Those with the highest loans in Norway are, on average, younger households with a high level of education, says Holm. The government, for its part, has argued that more spending will lead to increased inflation, and that higher prices affect people who can’t afford it the most. – The most important thing in the budget is to create as much security as possible for people’s finances and jobs, by helping to control the sharp increase in prices. Then we have to put a stop to the use of oil money. If we do not get the high price inflation under control, those with the lowest incomes will be hit the hardest, says State Secretary Bartnes in the Ministry of Finance. This is not true, according to Mogstad. – The argument becomes even more ridiculous when Vedum claims that transfers to the poor will make the poor worse off because inflation rises. The direct effect on their purchasing power of increased transfers is naturally far greater than any effects on inflation and interest rate setting, he says. Holm believes that slightly increased prices have almost no effect for people who can’t afford it. – Firstly, increased spending will not cause prices to rise much. Secondly, they have few loans so that the interest rate is less important. For these households, the money they could receive in extra transfers is very valuable, says Holm.
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Economists believe politicians are bluffing about interest rates to the poor – news Norway – Overview of news from different parts of the country
