It seems that “greedflation” is not only an American false impression, the identical fallacy exists in lots of different international locations. Kürşad Görgen has a weblog discussing Turkish financial coverage points, from a market monetarist perspective. Final yr, he did a submit discussing some fairly unconventional views:
After the 2023 elections, Turkey deserted its notorious NeoFisherian rate of interest coverage (which Erdoğan formalized as “curiosity is the trigger, inflation is the outcome“), and adopted a extra standard coverage with a brand new Central Financial institution head (who was lately fired). As of February 2024, Turkey’s rate of interest is at 45%, and inflation elevated to 64.8% in December. In the meantime, the Turkish lira reached a brand new file low in opposition to the US greenback in early January, buying and selling at over 30. . . .
Mahfi Egilmez, a comparatively fashionable left-of-center economist in Turkey, lately found the ideas of greedflation and shrinkflation and determined to make use of them, claiming that there’s a “greedflation drawback” in Turkey.
Görgen did a really good job of explaining the fallacy of greedflation, and included this graph of Turkish nominal GDP development charges:
In my opinion, one of the simplest ways to refute greedflation is to make use of an oblique method. When somebody insists that greed is the reason for inflation, inform them you’d be glad to debate the problem, however first you’d like to debate the position of greed in NGDP development. After that situation has been addressed, it is going to be simpler to see whether or not greed might need something helpful so as to add to the inflation situation.
Let’s take into consideration the 110% development in Turkish NGDP throughout 2022. As you understand, NGDP is each combination nominal revenue and combination nominal spending. Wages and salaries are a giant a part of combination revenue. Is it believable that greed brought on Turkish corporations to pay dramatically increased wages in 2022 than in 2021? I suppose their choice to pay increased wages was according to revenue maximization, however I feel it’s honest to say {that a} agency’s choice to pay increased wages is just not typically considered as “grasping” within the peculiar sense of the time period.
Consumption is a giant a part of combination spending. Is it believable that greed brought on Turkish consumers to spend twice as a lot as they had been spending the yr earlier than? Once more, I can’t see how the choice to spend rather more cash on roughly the same amount of products might be thought to be “greed”, within the peculiar sense of the time period. Grasping individuals typically favor to not spend a lot of cash.
To summarize, it appears inconceivable that greed might present an evidence for a pointy acceleration in NGDP development, particularly on condition that we’ve got different explanations that don’t rely of the mysterious surge in Turkish greediness between 2021 and 2023:
Tunc Satiroglu factors out that there was a 245% improve within the cash provide for the reason that CBRT began rate of interest cuts in 2021
As soon as we’ve got established that greed didn’t trigger the 110% rise in NGDP, we will change over to the inflation query. We all know that NGDP development is inflation plus actual GDP development (plus a compounding time period.) What kind of development actual GDP development fee appears believable for Turkey? I don’t know the exact reply, however I think that almost all consultants would selected a determine between 0% and 10%. Which signifies that an NGDP development fee of 110% made it nearly inevitable that the inflation fee in 2022 could be extraordinarily excessive.
To summarize:
It appears extremely implausible that greed can clarify very excessive NGDP development charges.
Very excessive NGDP development charges make excessive inflation nearly inevitable.
Subsequently . . .
Significantly, it’s embarrassing that we have to even focus on this situation. Astronomers found that the Earth went across the solar manner again within the 1500s. A lot of economics remains to be mired in views which can be the equal of “the Earth is flat” in astronomy.
