The terrible war that Russia unnecessarily launched against Ukraine is analyzed not only from a political and military perspective, but also from an economic point of view.

One question that many economists grappled with, scarcely after the guns began, was: Would a war-related increase in the price of raw materials, primarily gas, hit the economy of Western Europe?

With good reason, such calculations could be described as not very serious.

On the other hand, accusations should not only be directed at economists who offer such easily questionable forecasts.

The supply is also matched by a demand: because the more uncertain the future appears, the more the public craves forecasts for this uncertain future.

Gerald Braunberger

Editor.

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From the bouquet of simulation calculations, calculations by the Institute of German Economics should be mentioned as examples.

Before the war broke out, gas prices were generally expected to fall from their historically high levels in the fourth quarter of 2021.

The German Economic Institute has now assumed that as a result of the war in the east, the gas price will remain at its level at the end of 2021. According to the institute, an inflation rate of 4.3 percent will then be calculated for Germany this year and 4.5 percent in the rest of the year next year.

Compared to previous inflation estimates by the Deutsche Bundesbank, for example, of 3.6 percent in the current year and 2.2 percent in the coming year, this would be a significant deterioration.

Assuming an even higher gas price instead of an unchanged one,

an inflation rate of a good 6 percent would even be conceivable in Germany this year.

That sounds awesome.

What would be the best course of action against such a rise in the inflation rate?

Left-wing economists in particular, who dream of financing government investment spending at low interest rates through bond purchases by central banks, firmly oppose the idea that in such a case monetary policy should act against inflation by stopping bond purchases and raising key interest rates.

It is true and undisputed among economists: A central bank cannot directly prevent individual goods from becoming more expensive.

If Moscow were to turn off the gas supply to western Europeans, the European Central Bank would be powerless to stop gas prices rising.

That's true.

But it's only part of the story.

State price controls

Before we return to monetary policy, alternative ways of combating inflation should first be discussed.

One option is an old hat that was no good before, but is now being presented again as a particularly ingenious idea, perhaps because left-wing economists in particular have learned that every young generation has to repeat even the most obvious mistakes of their forefathers.

Government price controls are old hat, and it is fair to admit that, almost exactly half a century ago in the United States, for example, there were times when this instrument was not only advocated by left-wing economists.