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 yr, he did a submit discussing some slightly 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 consequence“), 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 in opposition to the US greenback in early January, buying and selling at over 30. . . .
Mahfi Egilmez, a comparatively in style 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 drawback” in Turkey.
Görgen did a really good job of explaining the fallacy of greedflation, and included this graph of Turkish nominal GDP progress charges:
For my part, one of the simplest ways to refute greedflation is to make use of an oblique strategy. 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 progress. After that subject has been addressed, will probably be simpler to see whether or not greed might need something helpful so as to add to the inflation subject.
Let’s take into consideration the 110% progress in Turkish NGDP throughout 2022. As you already know, NGDP is each combination nominal earnings and combination nominal spending. Wages and salaries are an enormous a part of combination earnings. Is it believable that greed triggered Turkish firms to pay dramatically larger wages in 2022 than in 2021? I suppose their choice to pay larger wages was in line with revenue maximization, however I feel it’s honest to say {that a} agency’s choice to pay larger wages just isn’t typically seen as “grasping” within the abnormal sense of the time period.
Consumption is an enormous a part of combination spending. Is it believable that greed triggered Turkish customers to spend twice as a lot as they have been spending the yr earlier than? Once more, I can not see how the choice to spend far more cash on roughly an identical quantity of products will be thought to be “greed”, within the abnormal sense of the time period. Grasping folks typically favor to not spend a lot of cash.
To summarize, it appears inconceivable that greed may present a proof for a pointy acceleration in NGDP progress, particularly provided that we now have 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% enhance within the cash provide because the CBRT began rate of interest cuts in 2021
As soon as we now have established that greed didn’t trigger the 110% rise in NGDP, we will change over to the inflation query. We all know that NGDP progress is inflation plus actual GDP progress (plus a compounding time period.) What kind of development actual GDP progress charge appears believable for Turkey? I don’t know the exact reply, however I believe that almost all specialists would selected a determine between 0% and 10%. Which signifies that an NGDP progress charge of 110% made it nearly inevitable that the inflation charge in 2022 can be extraordinarily excessive.
To summarize:
It appears extremely implausible that greed can clarify very excessive NGDP progress charges.
Very excessive NGDP progress charges make excessive inflation nearly inevitable.
Subsequently . . .
Significantly, it’s embarrassing that we have to even focus on this subject. Astronomers found that the Earth went across the solar means again within the 1500s. A lot of economics remains to be mired in views which might be the equal of “the Earth is flat” in astronomy.
