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Let them pump biodiesel… Or: the French yellow vests are right about prices.

Summary:
There is a lot of ado about the French yellow vests who, somewhat violently and in a tenacious way protest the french government and battle the french police. The protests erupted when the Macron government increased gasoline and diesel prices.  Was this the proverbial drop which made the bucket overflow (”la goutte d’eau qui fait deborder la vase” or, to comply with Anglosaxon culture and to connect with the new nationalism in Anglosaxonia (not to be confused with Niedersachsen)): “the straw which broke the camels back”)? Yes, it was. The statisticians of Eurostat measure consumer price inflation for the Eurozone as a whole but also for the seperate countries. A distinct category is ‘administered prices inflation’. Administered prices are prices which are set (directly or indirectly)

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Let them pump biodiesel… Or: the French yellow vests are right about prices.

There is a lot of ado about the French yellow vests who, somewhat violently and in a tenacious way protest the french government and battle the french police. The protests erupted when the Macron government increased gasoline and diesel prices.  Was this the proverbial drop which made the bucket overflow (”la goutte d’eau qui fait deborder la vase” or, to comply with Anglosaxon culture and to connect with the new nationalism in Anglosaxonia (not to be confused with Niedersachsen)): “the straw which broke the camels back”)? Yes, it was. The statisticians of Eurostat measure consumer price inflation for the Eurozone as a whole but also for the seperate countries. A distinct category is ‘administered prices inflation’. Administered prices are prices which are set (directly or indirectly) by the government. In France, administered prices inflation has been higher than consumer price inflation for quite some time (graph). This is not just the responsibility of the government. Prices of consumer products like clothes, shoes and electronics are still dropping because of low price imports from China (electronics, textiles, soon to be followed by planes), Turkey (textiles), Jordan and Bangla Desh (clothes) and cheap tourism services (Turkey, Egypt), which are part of the consumer price index too. But: the French government is totally responsible for the tax cuts for the 1%.. French people  understood. Extremely smart guy macron didn’t. He will have to roll back those taxes even if this means chasing his friends out the country. Above, I made a bit of a mockery of the national nature of the protests. The rise of administered prices is not just a french phenomenon and highly related to EU austerity policies which tend to directly tax consumption (VAT increases!) and therewith to erode purchasing power. Bad. As long as we have the Euro, we will need EU policies guaranteeing the purchasing power of hard working people but also of pensioners and whatever. Increasing relative prices of polluting products can be part of those policies – but only if this leads to direct decreases in VAT or lower prices of other products. Administered prices have increased too much, already. My take: a much lower VAT on hours of labor.

Note: VAT is of course not a part of labor costs. But in the EU people do have to pay 18 to 23% VAT when, for instance, a garage bills hours of labor used to repair a car. Lower this.

Merijn T. Knibbe
Economic historian, statistician, outdoor guide (coastal mudflats), father, teacher, blogger. Likes De Kift and El Greco. Favorite epoch 1890-1930.

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