It seems that “greedflation” is not only an American false impression, the identical fallacy exists in lots of different nations. Kürşad Görgen has a weblog discussing Turkish financial coverage points, from a market monetarist perspective. Final 12 months, he did a publish discussing some moderately 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 end result“), and adopted a extra typical coverage with a brand new Central Financial institution head (who was just 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 document low towards the US greenback in early January, buying and selling at over 30. . . .
Mahfi Egilmez, a comparatively common left-of-center economist in Turkey, just lately found the ideas of greedflation and shrinkflation and determined to make use of them, claiming that there’s a “greedflation downside” in Turkey.
Görgen did a really good job of explaining the fallacy of greedflation, and included this graph of Turkish nominal GDP development charges:
For my part, one of the best 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 difficulty, however first you’d like to debate the function of greed in NGDP development. After that situation has been addressed, will probably be simpler to see whether or not greed may 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 already know, NGDP is each combination nominal revenue and combination nominal spending. Wages and salaries are an enormous a part of combination revenue. Is it believable that greed triggered Turkish corporations to pay dramatically larger wages in 2022 than in 2021? I suppose their resolution to pay larger wages was in line with revenue maximization, however I believe it’s truthful to say {that a} agency’s resolution to pay larger wages isn’t typically seen as “grasping” within the peculiar sense of the time period.
Consumption is an enormous a part of combination spending. Is it believable that greed triggered Turkish consumers to spend twice as a lot as they had been spending the 12 months earlier than? Once more, I can not see how the choice to spend rather more cash on roughly an identical quantity of products may be considered “greed”, within the peculiar sense of the time period. Grasping individuals typically choose to not spend a number of cash.
To summarize, it appears inconceivable that greed might present an evidence for a pointy acceleration in NGDP development, particularly provided that we’ve got various 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% enhance 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 just about all specialists would selected a determine between 0% and 10%. Which implies that an NGDP development fee of 110% made it nearly inevitable that the inflation fee in 2022 can 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.
Due to this fact . . .
Critically, it’s embarrassing that we have to even focus on this situation. Astronomers found that the Earth went across the solar method 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.
