It seems that “greedflation” isn’t just 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 put up discussing some somewhat 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 not too long ago 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 widespread left-of-center economist in Turkey, not too long ago found the ideas of greedflation and shrinkflation and determined to make use of them, claiming that there’s a “greedflation problem” 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 problem, however first you’d like to debate the position of greed in NGDP development. After that difficulty has been addressed, it will likely be simpler to see whether or not greed might need something helpful so as to add to the inflation difficulty.
Let’s take into consideration the 110% development in Turkish NGDP throughout 2022. As you understand, 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 brought on Turkish corporations to pay dramatically increased wages in 2022 than in 2021? I suppose their resolution to pay increased wages was in line with revenue maximization, however I feel it’s honest to say {that a} agency’s resolution to pay increased wages will not be typically seen as “greedy” within the odd sense of the time period.
Consumption is an enormous a part of combination spending. Is it believable that greed brought on Turkish buyers 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 way more cash on roughly an identical quantity of products might be thought to be “greed”, within the odd sense of the time period. Grasping individuals typically desire to not spend numerous cash.
To summarize, it appears inconceivable that greed might present a proof for a pointy acceleration in NGDP development, particularly on condition that now we have 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% improve within the cash provide for the reason that CBRT began rate of interest cuts in 2021
As soon as now we have established that greed didn’t trigger the 110% rise in NGDP, we will swap 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 pattern actual GDP development fee appears believable for Turkey? I don’t know the exact reply, however I believe that just about all specialists would selected a determine between 0% and 10%. Which implies that an NGDP development fee of 110% made it virtually 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 virtually inevitable.
Subsequently . . .
Significantly, it’s embarrassing that we have to even focus on this difficulty. Astronomers found that the Earth went across the solar approach again within the 1500s. A lot of economics continues to be mired in views which might be the equal of “the Earth is flat” in astronomy.
