It turns out that “greed inflation” isn’t just an American fallacy; the same misconception exists in many other countries. Kurşad Gorgen has a blog discussing Turkish monetary policy issues from a market monetary perspective. Last year he made a post discussing some rather unconventional views:
After the 2023 elections, Turkey abandoned its infamous neo-Visserian interest rate policy (which Erdoğan formalized as “interest is the cause, inflation is the effect“), and pursued a more conventional policy with a new head of the Central Bank (who was recently dismissed). From February 2024Turkish interest rates are at 45% and inflation rose to 64.8% in December. Meanwhile, the Turkish lira reached a new record low against the US dollar in early January, trading at over 30. . . .
Mahfi Egilmez, a relatively popular left-wing economist in Turkey, recently discovered the concepts of greed inflation and contraction inflation and decided to use them, claiming that there is a “greed inflation problem” in Turkey.
Görgen explained the greed inflation fallacy very well, and included this graph of Turkey’s nominal GDP growth rates:
In my opinion, the best way to refute greed inflation is to use an indirect approach. If someone insists that greed is the cause of inflation, tell them that you would like to discuss the issue, but first discuss the role of greed in NGDP growth. After this issue is addressed, it will become easier to see whether greed can add anything useful to the inflation problem.
Let’s think about the 110% growth in the Turkish NGDP in 2022. As you know, the NGDP includes both total nominal income and total nominal expenditure. Wages and salaries make up a large part of total income. Is it likely that greed caused Turkish companies to pay dramatically higher wages in 2022 than in 2021? I suppose their decision to pay higher wages was consistent with profit maximization, but I think it’s fair to say that a company’s decision to pay higher wages is generally not considered “greedy” in the ordinary sense of the word is considered.
Consumption makes up a large part of total expenditure. Is it likely that greed caused Turkish consumers to spend twice as much as the year before? Again, I don’t understand how the decision to spend much more money on approximately the same amount of goods can be considered “greed” in the ordinary sense of the word. Greedy people generally prefer not to spend a lot of money.
In summary, it seems inconceivable that greed could explain a sharp acceleration in NGDP growth, especially given that we have alternative explanations that do not rely on the mysterious rise in Turkish greed between 2021 and 2023:
Tunc Satiroglu points out that the money supply has increased by 245% since the CBRT started cutting interest rates in 2021.
Once we have established that greed is not the cause of the 110% increase in NGDP, we can move on to the issue of inflation. We know that NGDP growth is inflation plus real GDP growth (plus a compound term). What kind of trend real GDP growth seems plausible for Turkey? I don’t know the exact answer, but I suspect almost all experts would choose a figure between 0% and 10%. That means that a NGDP growth rate of 110% made it virtually inevitable that the inflation rate in 2022 extremely high.
In summary:
It seems highly unlikely that greed can explain the very high growth rates of the NGDP.
Very high NGDP growth rates make high inflation virtually inevitable.
That’s why. . .
Seriously, it’s embarrassing that we even have to discuss this issue. Astronomers discovered as early as the 16th century that the Earth revolved around the sun. Much of economics is still mired in beliefs that are the equivalent of “the Earth is flat” in astronomy.