Indexing

1. as mentioned above, what we know about the dynamics of energy prices tells us that they do not fall as quickly as costs fall (when the barrel falls, the price at the pump does not fall immediately),
2. what we know of price formation in oligopolistic markets tells us that an increase in variable costs is not immediately passed on to prices for the final consumer. Part of the increase in costs (including energy costs) is absorbed by a reduction in margins: entrepreneurs resign themselves to earning less in order not to lose market share.

Transition (ecological)

Here there is no discussion of the fact that it is better to breathe clean air rather than particulate matter and to bathe in clear rather than turbid waters (on this occasion I remind talk show illiterates that "rather than" is a term with aversive, not disjunctive, value). Statements of this type are non-political, for the simple reason that you would not find anyone willing to argue their opposite (the best way to understand if someone is talking without saying anything is to check if the opposite of what they are saying makes sense …) .

Here we limit ourselves to recalling what widely discussed, for example, in Rare Matter , namely the fact that the ecological transition, due to the times and ways in which it was imposed, implies enormous pressure on the demand for a colorful palette of raw materials, mostly metals. There is not only lithium, which everyone remembers: there is also steel (in towers and wind turbines , for example), there is naturally a lot of copper (for obvious reasons, since we are talking about electricity ), there is a lot of silicon (and not just any silicon but that of solar grade , since we are talking about photovoltaics), there are polymers and fibers of various kinds .

In addition to the fact that no one asks where these raw materials can come from and where they can end up (for example: which countries control the market for them? How will it be possible to recycle these materials?), The fact remains that no one seems to care about a given economically obvious: this enormous demand pressure cannot fail to be reflected in prices for many years to come. It is not only because we do not have nuclear power that energy in Italy costs so much: there are also the nice system charges , which are, in fact, the financing of the transition

(on which Italy was already self-defeating ahead of other allegedly "green" European countries, as we have always pointed out here).

Now, it is very difficult that with the increase in the costs of the transition (in terms of increasing the raw materials needed to make it happen) the burdens for citizens and businesses can decrease, don't you think? So also on this side we will have structural pressures on prices.

Reshoring

The pandemic should have taught us a lot. I say "should" because the memory of the citizen / voter is short, even more so than the proclamations of the influencers / politicians are ephemeral. We should have understood that many rights that we took for granted in reality are not, but this was written on the back cover of the Sunset of the euro and now it is useless to go back to it (sorry for the "pinpricks", that certain passages have been lost and judging by how they behave on social networks are destined to become the new "honest").

Above all, we should have understood that the failure of globalization is not just that of the model we have described here :

a model in which financial crises are a management tool via "reforms" and "hurry up" of the social conflict deriving from the compression of the wage share, in turn triggered by relocations and the lengthening of value chains, in turn made possible from an unruly international mobility of capital. Of course, an existential threat for each of us derives from this model (which translates into the progressive decline of our standard of living, the unsatisfactory provision of essential public services such as schools and health care, etc.), but it is useless to go around it: many, especially in the protected groups (public employees with relatively reasonable salaries) of all this have not even noticed and if they have largely beaten the ciolla while those who were involved were other social groups (self-employed workers, private employees) .

But there is another failure of globalization that is difficult to ignore even for the protected (or supposedly protected): if the logic of economies of scale leads you to concentrate all productions in places where the cost of labor is lower, then maybe it happens that when a virus (or vairus if you prefer) leaves China and you need (or think you need) masks, you suddenly realize that these are all made in China, and that this is not a good thing, because the coveted masks cannot arrive from there, either because the departure ports are closed due to vairus, or because all the goods in the world, in homage to this beautiful model of organization of production, to get here go through a 200-meter wide gut where a 400 meter long ship crossed itself …

Now: I don't think many people have understood the lesson of the slide (certainly not the fregnoni of Genoa, or the scum that "I don't vote for you anymore because the infamous green pass"). Let us dwell on the other lesson, that of Ever Given. Has anyone understood this lesson? And are its implications clear?

In other words: someone is wondering about the fact that the pandemic has revolutionized the concept of "strategic good", drawing our attention to the fact that even "low added value" products such as masks (or breathing tubes, or syringes, or whatever), can become strategic, and that therefore the mantra that we should focus on the knowledge economy and high value-added production segments, that mantra, is a solemn nonsense? From wheat to mechanical fans, there are infinite goods for which the illusion of being able to find them immediately at a good price in that large and efficient market that is the globe is very dangerous. In other words: if the lesson of Ever Given had been understood, we would have to prepare ourselves to produce again in our house the things that we thought we could in any case buy around the world thanks to our big money.

But if (I say: if) this lesson has been understood, and consequently we have a period of shortening of the value chains, that is, of reshoring , we must realize that structural pressures on prices derive from this part as well. The mask, the mechanical fan, the syringe, the corkscrew, the grenade launcher, whatever it is, produced in Italy by an Italian has the advantage of not having to travel (polluting) for thousands of kilometers, but the disadvantage (for the consumer ) to be produced by people whose average per capita income is still 2.9 times that of the Chinese (if calculated in nominal dollars), or 2.3 times if calculated at purchasing power parity.

Thus, reshoring, the shortening of value chains, implies that the race to the bottom of globalization (I pay you little, you can buy cheap goods produced in China) is replaced by a race to the top (I produce in Italy, therefore I have to pay you enough otherwise you can't buy the goods produced). Regardless of how you want to manage it, that is, regardless of who will be called to pay the bill, if the reshoring takes place it will also necessarily entail a structural pressure on the final prices of the goods.

Synthesis

Three forces (the adjustment of consumer prices to asymmetric supply shocks, the costs of the energy transaction and the costs of reshoring) suggest that the inflation phenomenon may be persistent. How should we manage it and how will it be managed?

How should we handle structural inflation

"Whoever has the comforts and does not use them, does not find a confessor who absolves him". Let's start with popular wisdom. In understanding what we should do, we benefit from an infallible compass: the Bank of Italy. Let's take advantage of it!

Of course, there is that detail that his needle constantly points to the South: but that's not a problem. Fortunately, in the long sequence of bank failures and reforms thought badly and worse done, we had an important signal. We have been warned, and therefore we know that if we want to go North, it is enough to do the opposite of what this authoritative body of political direction without political responsibility and democratic legitimacy urges us to do. In short: if the Bank of Italy urges us not to index wages:

the correct answer to structural inflation will certainly be some form of wage indexation. This would be enough for me too, but since many of you probably and legitimately do not (especially because by method I refuse to speak to the grillino who is in all of you, pointing out that if you earn half a million a year it is not surprising that the run-up of wages seem futile …), it will be necessary to develop the reasoning, to make it clear why this is the solution that anyone who creates value (be it an employee or an entrepreneur) should carefully consider (and therefore anyone who is a rentier obviously looks with disfavor).

Here too, I would articulate the reasoning in successive steps: why in this historical phase it is crucial to adjust wages, and what can be the most efficient tool to do so.

The reasons for a wage adjustment

On the first point, I reiterate a concept expressed here many and many times: whoever lives on the demand of others (by exporting) exposes himself to the problems of others. Any source of political or economic instability in the "client" countries is inexorably reflected on the exporters (we also recently talked about it here ). In a period that promises to be rather unstable from a geopolitical point of view, fueling domestic demand, that of residents, with adequate salary levels is a strategically prudent move, which is primarily to the benefit of companies. The negative witnesses of this are the companies that are victims of sanctions, those that in addition to the problem of having to face the high costs of imported energy sources, also have the problem of no longer being able to invoice by exporting to countries subject to sanctions. Perhaps now these companies would prefer to be able to address the demand of resident workers: it is a pity that after decades of stagnating wages, the latter do not make it to the end of the month even by purchasing Chinese first-rate products!

The data confirm that our country is increasingly dependent on foreign demand:

whose share of GDP is growing slowly but inexorably (from 26% in 2001 to 33% in 2021), while China has halved its share of exports in GDP from the maximum of 36% reached in 2006 (after joining the WTO in 2001) to 18% in 2020. These are data that should be reflected on.

On the other hand, the position according to which the costs "of the war" (because there are still those who say that the increase in the prices of raw materials is due to the war, which we have shown not to be true ) must be borne by " everyone "(ie from employees) is particularly irrational. At a time when foreign demand is characterized by geopolitical volatility, domestic demand becomes an essential element of growth, and if not supported by adequate wages it can only be financed in debt, opening up to new financial crises, also negative for businesses because sooner or later they translate into more aggressive taxation and credit restrictions.

Then there is another problem, of a more general nature: the trade-off between two European watchwords, sustainability and inclusiveness. As we immediately pointed out here, the ecological transition costs money, because "green" products cost, and therefore requires (and produces) GDP growth, not decrease . It remains to be seen how this growth is distributed between wages and profits. Ecology and reshoring both ultimately result in the same thing: forcing workers to buy more expensive goods. Those who promote these revolutions should be explicit on how they intend to manage the consequences: do we want to bring them on board, the workers, for example by putting them in a position to buy an electric car? Or we want to choose the shortcut according to which "you don't buy cars but mobility", so if for some reason you want to escape somewhere maybe you can't do it because they deactivate the app that buys "mobility" (while obviously the upper class will have his cars and will go wherever he likes)? Do we want to reduce them or exasperate them divides of this kind? Do we want to say that we are "inclusive" while we exclude, or do we want to include (and the first of the inclusions is the economic one)?

Anyone who has an interest in living in a stable society, in which a large number of consumers can easily access durable consumer products, should reflect on this.

The reasons for the indexation of wages

Today, the adjustment of salaries mainly involves the renewal of contracts (here you will find the main statistics on renewals ). The CCNL (national collective bargaining agreements) usually last three years and their renewal is not always easy. This is demonstrated by the statistics on the "average contractual vacation" (the period in which workers remain "uncovered" before the next renewal), which is 17 months, which rise to 30 if calculated only on employees awaiting renewal, which in turn are 55.4%, including 100% of civil servants. It can be understood that it is not easy to agree on how to regulate economic relations for such a long period. The economy is characterized by uncertainty, and nobody particularly wants to be screwed. Of course, with uncertainty, the difficulties in reaching an agreement increase. Imagine, for example, how complex it must be to agree today on salary levels for the next three years! If it was already so at the time of "stability", now that we are faced with inflation potentially directed towards the two digits, very high but above all very variable and therefore very uncertain, thinking about how to close a contract should not be easy. It seems clear to me, therefore, that the conflict will tend to increase, for the simple reason that workers will tend to want to incorporate their inflation expectations into nominal wage levels.

And that is exactly why in such circumstances it would be useful to reintroduce an indexing mechanism!

As Mario Nuti says here : "In times of rapid inflation, especially of accelerating inflation, wage indexation defuses inflationary expectations and allows the negotiation of a lower nominal wage than would have to be fixed if there was no protection from future inflation", that is: "when inflation rises rapidly, and in particular when it accelerates, indexation defuses inflation expectations and allows the contract to be closed at a lower wage level than what would have been agreed if there had not been a protection mechanism from future inflation ".

Let me clarify the point with an example. If at the time of the renewal the salary is 100, and inflation is rapidly increasing towards 10%, the worker will ideally try to close somewhere towards 130, to avoid finding himself in three years with 30% of his salary less in terms of purchasing power, but of course the employer will try to keep himself much lower, to avoid an immediate imbalance of his own economic accounts. However, if somewhere it is written that any inflation is recovered, then you can easily close somewhere between 100 and 110 (I repeat: they are completely fictional data), knowing that then, ex post, the salary can be easily adjust, while preserving the purchasing power of the worker. The advantages for the employer are there and are of two orders: less conflict is guaranteed, and an imbalance of the economic accounts is avoided. The indexing mechanism in fact recovers the price increase only when it occurs. But if there has been an increase in prices, usually and on average there will also have been an increase in revenues, that is, the employer will have the liquidity with which to adjust wages.

For this reason, Nuti always remembers: "when wage indexation was first introduced in Italy in 1947, the President of Confindustria (the Confederation of Italian Industrialists) shipowner Angelo Costa actually greeted it as a major anti-inflationary measure", or: "when the indexation of wages was introduced in Italy for the first time in 1947, the president of Confindustria, the shipowner Angelo Costa, hailed it as a decisive measure against inflation ". A fact that Cassani and Craveri also remind us here :

It was, of course, another Confindustria …

So is indexing a panacea? Obviously not: I started this blog to show you that in economics there are no free lunches , and this also applies to indexing, which has a contraindication: by ratifying the inflation shock (shifting it to wages), it helps to make it persistent (because it allows workers to continue buying goods, supporting demand). The adoption of an indexation mechanism would therefore add to the other forces that are making inflation persistent today. But here too we need to have a balanced vision. Of course, the risk of a "price-wage" spiral exists, but this mechanism is broken by the logic of contract renewals. Always following Nuti: "nominal wages are not fixed forever but are normally re-negotiated periodically. Inflation-proofing through indexation, if triggered by a shock after negotiation, will exhaust its effects completely at the next wage settlement. The new nominal wage will be determined by the relative negotiating strength of employees and employers and other fundamentals prevailing at that later time, regardless of how much the nominal wage might have risen in the intervening period thanks to wage indexation ". but they are normally renegotiated periodically. The mechanism of defense of purchasing power through indexation, if activated by an inflationary shock following the renewal of the contract, will completely exhaust its effects at the next renewal. The new nominal wage will be determined by the negotiating power of employers and employees and other fundamentals prevailing at that time, regardless of qu in the meantime nominal wages have increased thanks to indexation ".

I would add another observation: what in the 1980s might have seemed a problem (the persistence of inflation), today would be an opportunity. Il mancato rispetto da parte della Bce dell'obiettivo di crescita dei prezzi al 2% è stato, per il nostro Paese, come per altri Paesi debitori, una pesante zavorra sul rapporto debito/Pil. Con un banalissimo calcolo si può verificare che se la Bce avesse mantenuto la sua promessa fin dal 1999, assicurando un'inflazione media del 2%, invece dell'1,7% realizzato, oggi il rapporto debito/Pil sarebbe inferiore di 10 punti percentuali. Questo con solo lo 0,3% in più di inflazione. Non è una bufala né una verità scandalosa: è un mero dato di fatto, tant'è che anche il direttore del debito pubblico, Davide Iacovoni, lo ammette al minuto 10:50 di questo podcast (suggerirei di tenerlo da parte).

E allora?

E allora mentre da una parte dobbiamo ammettere che la Bce, col perenne fallimento delle sue promesse e delle sue previsioni ( qui ):

ha di fatto messo a rischio la stabilità finanziaria dell'Eurozona generando un contesto deflattivo assolutamente avverso ai debitori (e quindi anche ai creditori) pubblici e soprattutto privati, d'altra parte quello che sappiamo dei grandi processi storici di rientro dal debito ci suggerisce che l'unica soluzione non traumatica a disposizione è quella di favorire un contesto di crescita stabile e moderatamente inflazionistica: è quello che abbiamo imparato leggendo questo working paper , suggeritomi da uno di voi al tempo in cui questa era una community ( qui ):

Insomma: per assicurare stabilità finanziaria e sociale non abbiamo bisogno di più Europa (e della sua austerità suicida), ma di più inflazione: un'inflazione stabile, che sia favorevole a una gestione ordinata dell'economia ea un rientro graduale del debito, come quello che si verificò dopo la Seconda guerra mondiale:

L'indicizzazione dei salari servirebbe anche a questo: a rendere il processo inflattivo ordinato, evitando strappi e favorendo un rientro ordinato anche dagli squilibri finanziari causati dalla terza globalizzazione. Ve lo dico in un altro modo: senza un'inflazione moderata, attorno al 4%, e quindi una crescita nominale attorno al 5%-6%, rientrare dalla montagna di debito che ci sta franando sotto sarà impossibile. Le altre possibilità sapete quali sono (se avete letto il working paper): iperinflazione o default. Nessuna delle due mi sembra particolarmente attraente. Quindi l'indicizzazione non solo ci dà stabilità finanziaria attraverso un processo inflazionistico meno volatile che facilita il rientro dal debito, ma ci dà anche stabilità macroeconomica assicurando un mercato interno alle nostre PMI. Se vogliamo il reshoring, questo è un pezzo del pacchetto. O pensiamo che gli operai possano comprare beni italiani con gli stessi stipendi con cui a malapena resistevano comprando paccottiglia cinese!?

Ecco, questo è un altro discorso. Per capire come andrà a finire (male) basta leggere i giornali, o seguire certe dinamiche su Twitter. Non appena abbiamo cominciato a toccare questo tema, i vecchi utili idioti, ei loro nuovi volenterosi assistenti (i punturini, quelli che Claudio chiama "stronzi" e io "gentaglia") si sono scatenati. Il nervo scoperto è lì: l'idea di evitare una crisi trovando un punto di equilibrio meno irrazionale fra capitale e lavoro ovviamente infastidisce chi è consapevole che, con un po' di armi di distrazione di massa, potrà far pagare a lavoratori e PMI il costo della prossima crisi!

Si andrà così di luogo comune in luogo comune, cercando l'incidente che consenta ai nostri cari alleati di metterci definitivamente sotto tutela. Quindi, in primo luogo per controllare un'inflazione da offerta si reprimerà la domanda alzando i tassi di interesse. In questo modo si paleserà che il reshoring interessa solo a chiacchiere: ai guardiani di certi equilibri in realtà la globalizzazione va ancora benissimo così com'è, visto che il conto è per voi… Se si volessero veramente riordinare le catene del valore, accorciandole per motivi di sicurezza strategica, occorrerebbe un contesto creditizio espansivo (bassi tassi) non restrittivo (alti tassi), per il semplice motivo che questa operazione richiede una mole massiccia di investimenti. L'innalzamento dei tassi sarà quindi non solo il segno dell'attacco al nostro Paese (incidentalmente), ma soprattutto il segno che mentre ci viene proposta un'immagine del mondo fatta di due blocchi contrapposti, l'imperatore del Bene non ne vuole sapere mezza di smettere di fare affari con quello del Male! Non è una grande novità, ed è sotto i nostri occhi, ma non è inutile ricordarlo.

Naturalmente ricominceranno i discorsi economicamente infondati, riappariranno i pagliacci dell'economia (ei meno brillanti di voi saranno contenti, perché i pagliacci della virologia scompariranno), questa volta sotto forma di spirale prezzi-salari, anziché di spirale svalutazione-inflazione . Nonostante il grande uso di spirali, la madre dei coglioni è sempre incinta, ma anche qui non c'è nulla di nuovo. Se il 2021 è stato un altro 2011 (con molti personaggi in comune), è ovvio che il 2022 sia un nuovo 2012 (e lo si vede dai troll che stanno riapparendo), e così via. Piccolo problema: qui abbiamo sempre giocato in un altro campionato, e ora siamo attrezzati per imbastire un minimo di difesa. Molto dipenderà anche da voi, ma di questo parleremo quando sarà il momento.

Intanto, benvenuti nel prossimo dibattito…