Olev Raju, doctor of philosophy, doctor of economics, professor
Good reader. I believe you know that Estonia has been on the “black list” with its high inflation for more than 3 years. We will look at two problems below – why there is no hope that price increases will get under control soon and what role government bond issuance will play here. How useful or not it is to a person.
My daughter was five when I found it impossible to answer the question – is there an officer at a higher level than a major. The nature of general concepts became clearer with age. Inflation is also a general term where 5 economic processes with different causes and effects are grouped. There are currently 4 of them in Estonia, but the Minister of Finance is promoting only one of them. Since each type of inflation needs to be dealt with differently, things do not want to progress. I hope that a member of the government will finally understand this and we will have a real anti-inflation policy.
Demand-side inflation is the most well-known. If for some reason there is more money in the country, the bidders can ask for a higher price for the same product. To fight this inflation, money must be taken from the people. In the simplest way – don’t buy. This was exactly the unannounced reason for issuing government bonds. As we will see below, the construction was far from beneficial to the man.
But let’s stick to inflation for now. This money remains in the country even after bonds and figures are bought and sold as part of total demand to this day. In someone else’s hands, but still. In order for such “harvesting” of money with security to work, some textbooks recommend sending this money abroad (which would actually reduce the total demand in the country). At this time, our finance minister may not be willing to make such a proposal either. Another option is to invest this money in one-time projects, especially real estate. After spending, this money no longer appears in demand. But we have concerns especially in the social sphere. Anyway, I have no information about what the government plans to do with this money. Obviously, this issue of securities will not significantly slow down inflation. But there is no way to identify more measures against demand inflation that the government would have offered.
But our underlying concerns about inflation lie elsewhere. For some reason, the bus ticket is no longer 5 kopecks. Production inputs have become very expensive, and such a price may be seen in a dream. Electricity is expensive and there is a risk of further price increases. Due to sales tax, excise tax, car tax, etc., the prices of the product will continue to rise. If production becomes more expensive, companies cannot produce their production at the old price and the price must be increased. Currently, such pressure on companies is strong, largely due to the government’s confusing economic policy. Usually, such price increases reduce turnover. But it is better to sell less and at a profit than the current number at a loss.
Usually, it is difficult to fight this type of inflation, because the increase in the price of inclusion often happens outside Estonia and is not the responsibility of the government . The paradox at this time is that the increase in the input price is largely due to the actions of the Estonian government. By raising sales tax and excise taxes, taxing a car, a desperate attempt to put more taxes somewhere will definitely increase prices. To what extent, their authors may not be able to say. The high price of electricity and its high volatility are particularly painful for the economy. Instead of supporting people and companies here, massive brainwashing takes place: this is the only system that is possible. I remember the saying that, according to mice, the cat is the strongest and weakest animal in the world. Is it still there?
There are other types of inflation
The increase in prices due to structural trends, so-called Structural inflation may exist, but it is on the margins in Estonia at the moment. (I don’t know if anyone has done waterproof calculations of this type in the last 25 years). However, there is an important type of inflation that does not have a good name in Estonian (basic inflation ik). This type of inflation is caused by poor business prospects. If the economic situation is difficult and the future is dark, no long-term plans will be made, no efforts will be made to conquer new markets at a cheap price (if they exist at all in this situation). The declaration of the Estonian Minister of Finance is the cry of some false, to put it mildly, cynical and ignorant characters. It is understood throughout the world that this is an objective phenomenon. The fact that all decisions in economics are mediated by people’s opinions does not make them entirely personal.
Taking it seriously. With such economic policy jumping that does not “share” many aspects of the problem, we will remain at the top of the list of countries with high inflation for years to come. But now back to this national loan. We will calculate with round numbers, so simpler, but correct in content. If you spend 100 euros to buy these promotional bonds, you will get 17.5 euros on them in 5 years. After five years, the state buys this security back for 100 euros. to buy for 100 Euro. But in the meantime, inflation has eroded the value of the currency. If you take into account that inflation has been high for years and that the government is working against collapse with its policies, 100 euros is no longer worth 100 euros. Assuming inflation as a relatively small 4% per year, the value of this money after 5 years will be 73.4 euros. The loss was 26.6 euros, the service was only 17.5 euros… If only that. The value of this money is also eaten away by inflation.
It is not written anywhere that the Estonian government does not create new taxes. The book comes to mind, where taxes were imposed on inhaled air, rain, thunder with thunder, snow, hail, dew, frost, fog. What a treasure trove of ideas for the Estonian government! In addition to the already tried idea of taxing cow flatulence. It is clear that the bonds as they are are not a win for their customers. In such a situation, it is surprising that when they were subscribing bonds, the share of private people was around a quarter, and the share of companies was three quarters. As a general rule in the world, the private sector considers a stable economic environment (where you don’t play table tennis with taxes) and a return of at least 7% necessary when buying securities government. I can only give one explanation for this situation, where businesses were heavily involved in unprofitable Estonian bonds.
There is money in Estonia, but the economic circles do not have normal projects where they would want to invest money in such a confused situation. What happens now? If you were a believer, you would pray – God, save Maarjamaa…
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**What specific policy recommendations does Professor Raju put forth to address Estonia’s inflation crisis, and how do these recommendations address the complexities he highlights throughout the interview?**
## World-Today-News Interview: Taking on Estonian Inflation
Welcome to World-Today-News, where we break down complex issues for you. Today, we’re diving deep into the pressing issue of inflation plaguing Estonia, with our expert guest, professor Olev Raju. Professor Raju, thank you for joining us.
**(Section 1: Understanding the Inflation Puzzle)**
**Interviewer:** Professor Raju, in your article, you describe inflation as more nuanced than it’s often portrayed. Can you elaborate on why viewing it solely as a “demand-side” issue is incomplete and potentially misleading? What other types of inflation need to be considered in Estonia’s context?
**Professor Raju:**
**(Section 2: The Government’s Role: Bonds and Taxation)**
**Interviewer:**
The article raises concerns about the efficacy of government bond issuances in combatting inflation. You mention that while these bonds seem like a solution, they might not be as beneficial as they appear, especially with the erosion of purchasing power due to inflation. Can you elaborate on this, professor, and shed light on why this measure might not be the “silver bullet” some perceive it to be?
Additionally, you criticize certain economic policies, suggesting they contribute to inflationary pressure. Could you give specific examples and explain how these policies exacerbate the problem?
**Professor Raju:**
**(Section 3: The Impact on Businesses and Individuals)**
**Interviewer:**
Your article highlights the struggles faced by businesses amidst this economic climate. How does the “poor business prospects” issue, which you termed “basic inflation,” manifest itself in Estonia? What are the consequences of this phenomenon for both businesses and consumers?
**Professor Raju:**
**Section 4: Looking Ahead: The Road to Stability**
**Interviewer:**
Professor Raju, what are your recommendations for tackling Estonia’s inflation crisis? What specific measures could the government implement to restore economic stability and confidence, considering the complexities you’ve outlined?
**Professor Raju:**
Thank you, Professor Raju, for sharing your insights on this crucial issue. This conversation offers a valuable perspective on the multifaceted challenge of inflation in Estonia. We hope this discussion helps our viewers better understand the complexities involved and encourages a thoughtful dialogue on potential solutions.
