Last autumn, the government claimed that people with poor means could not get more help, because then prices would rise and the bill would go worst to the poor. But economists told news that prices would barely rise: Economists Martin Blomhoff Holm and Marius Gonsholt Hov believe prices would increase by around 0.1 percentage points in the short term if, for example, 30 billion extra were used. In an article in DN, they threw down the gauntlet and asked Finance Minister Trygve Slagsvold Vedum (Sp) to present his calculations. Thanks to a question from SV in the Storting, the answer has come: Price growth would increase by 0.15-0.45 percentage points over two to three years if the government spent 30 billion more in the state budget from 2023 onwards. In comparison, price growth was 5.8 per cent last year, while Norges Bank is trying to raise interest rates to reduce price growth to 2 per cent. I think the numbers are the same Postdoctoral fellow Martin Blomhoff Holm at UiO did not count on the effect over two to three years, like Vedum, but checked the effect of spending 30 billion in the short term. Therefore, the figures for Vedum must be divided by the number of years, and adjusted so that they look at a lasting increase in public consumption, according to Holm, who states that the estimate of around 0.1 percentage points is correct. Holm has argued throughout that the government blames the danger of price jumps for failing to help the poor. – The figures they refer to are equivalent to our figures, he says to news. CRITICAL OF VEDUM: Martin Blomhoff Hov is a postdoctoral fellow in economics at the University of Oslo, and researches, among other things, what happens to prices if the state spends more money. Photo: UiO SV’s fiscal policy spokesperson Cato Brundsvald Ellingsen praises Vedum for giving a thorough answer that can move the debate forward. But the figures show that the economists’ arguments are just as relevant now, he believes: – We don’t want to throw a lot of money into the economy or make major changes. What we strongly believe is that we can spend more money on those who have the least. The government can use other arguments for not wanting to spend more on benefits, but it is unlikely that the spending would send inflation skyrocketing, he says to news. WANT MORE MONEY FOR THE POOR: SV’s fiscal policy spokesman, Cato Brundsvald Ellingsen, believes that Vedum’s argument shows that the government uses discretion, and does not rely on figures when they say that prices may increase. Photo: Stian Lysberg Solum / NTB Unsettled that the market is going bananas And Vedum has several arguments. Unlike the economists, Vedum does not use his own calculation for good fish in the current situation of war, inflation, interest rate jumps and financial markets with nerves on edge. The Minister of Finance warns against believing that the calculation gives a summary of reality: Firstly, he believes that the effect on prices may be stronger than the model shows. Secondly, he refers to the earthquake in the financial markets when the UK last autumn introduced tax cuts, including for the rich, without being clear about how the budget would go up. Then the market went bananas, and thought the effect would be at least double the interest rate. “With such uncertainty and risk, it is not the time to take the chance that it might just as well go well.” writes Vedum to SV in the reply. RESIGNED AFTER THE TAX LEAVE: Britain’s former prime minister Liz Truss wanted to pump more money into the economy, and believed the central bank should be less independent. Investors then became nervous, and Truss withdrew. Photo: JESSICA TAYLOR / AFP Economist: Stronger inflation from giving to the poor Chief Economist Harald Magnus Andreassen at Sparebank 1 believes Vedum is right to look to the UK, even if politicians there would spend far more money. He praises the government for using the calculation models carefully. – The argument is sparklingly clear. We are not in a normal situation. We are in a boom with high price growth. Then all experience and theory indicate that the results will be greater, he says to news. – In Britain, there was talk of tax breaks for the rich, while here it is about helping people who can’t afford it. How transferable is the argument? – Unfortunately, that makes the argument worse. It gives more money from the state to give the money to the poor who want to use the money, because the rich will save the money to a greater extent. The effect on the stability of the economy is stronger when you give to people with poor advice, he says. Andreassen points out that people with poor means may need, for example, new clothes or white goods, and therefore give a stronger pull in the economy than rich people who already have “everything”. SUPPORTS VEDUM: Chief economist Harald Magnus Andreassen believes that several of the estimates of price growth from economists have been wrong, and that Vedum is right that prices may rise more than expected if spending increases. Photo: Ole Berg-Rusten / NTB Holm, on the other hand, believes that Vedum draws the parallel to former Prime Minister Liz Truss far too far. – They refer to Liz Truss, who is nonsense. And they refer to estimates in their models where the economy is under pressure, where the effect is barely stronger. They have nothing tangible to show, he says, and continues: – That’s an argument based on fear. Because it could have major effects on inflation, we should do nothing. Economic policy should not be based on fear. Also for the chief economist at Handelsbanken, Marius Gonsholt Hov, Great Britain seems like a distant comparison. – This will be a bit of a straw, as I consider it, he says to news. – No need to be as stingy Holm and Hov remind that there is talk of spending an extra 30 billion in a country with around 900 billion in extraordinary income in 2022, and an oil fund of over 13,000 billion. By comparison, Great Britain’s national debt is as large as the annual value creation in the country. – Then you have to ask yourself if the same thing could have happened in Norway if you were a little more generous towards those who have at least a large oil fund behind them. The starting point for the discussion is to what extent the economy here will tolerate extra financial support for those who have the least, says Hov. Chief economist Marius Gonsholt Hov at Handelsbanken. Photo: Lise Åserud / NTB Over 300,000 Norwegians live on a low income. Hov believes Vedum can safely place more trust in the calculation. – You don’t have to be as stingy as you have been with regard to interest rates and inflation. What really lies behind this is the consideration of state finances in the long term, says Hov.
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