It turns out that “greedflation” is not just an American misconception, the same fallacy exists in many other countries. Kürşad Görgen has a blog discussing Turkish monetary policy issues, from a market monetarist perspective. Last year, he did a post discussing some rather unconventional views:
After the 2023 elections, Turkey abandoned its infamous NeoFisherian interest rate policy (which Erdoğan formalized as “interest is the cause, inflation is the result“), and adopted a more conventional policy with a new Central Bank head (who was recently fired). As of February 2024, Turkey’s interest rate is at 45%, and inflation increased 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-of-center economist in Turkey, recently discovered the concepts of greedflation and shrinkflation and decided to use them, claiming that there is a “greedflation problem” in Turkey.
Görgen did a very nice job of explaining the fallacy of greedflation, and included this graph of Turkish nominal GDP growth rates:
In my view, the best way to refute greedflation is to use an indirect approach. When someone insists that greed is the cause of inflation, tell them you’d be glad to discuss the issue, but first you’d like to discuss the role of greed in NGDP growth. After that issue has been addressed, it will be easier to see whether greed might have anything useful to add to the inflation issue.
Let’s think about the 110% growth in Turkish NGDP during 2022. As you know, NGDP is both aggregate nominal income and aggregate nominal spending. Wages and salaries are a big part of aggregate income. Is it plausible 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 firm’s decision to pay higher wages is not generally viewed as “greedy” in the ordinary sense of the term.
Consumption is a big part of aggregate spending. Is it plausible that greed caused Turkish shoppers to spend twice as much as they were spending the year before? Again, I cannot see how the decision to spend much more money on roughly the same quantity of goods can be regarded as “greed”, in the ordinary sense of the term. Greedy people generally prefer not to spend lots of money.
To summarize, it seems inconceivable that greed could provide an explanation for a sharp acceleration in NGDP growth, especially given that we have alternative explanations that don’t rely of the mysterious surge in Turkish greediness between 2021 and 2023:
Tunc Satiroglu points out that there has been a 245% increase in the money supply since the CBRT started interest rate cuts in 2021
Once we have established that greed did not cause the 110% rise in NGDP, we can switch over to the inflation question. We know that NGDP growth is inflation plus real GDP growth (plus a compounding term.) What sort of trend real GDP growth rate seems plausible for Turkey? I don’t know the precise answer, but I suspect that nearly all experts would chose a figure between 0% and 10%. Which means that an NGDP growth rate of 110% made it almost inevitable that the inflation rate in 2022 would be extremely high.
To summarize:
It seems highly implausible that greed can explain very high NGDP growth rates.
Very high NGDP growth rates make high inflation almost inevitable.
Therefore . . .
Seriously, it’s embarrassing that we need to even discuss this issue. Astronomers discovered that the Earth went around the sun way back in the 1500s. Much of economics is still mired in views that are the equivalent of “the Earth is flat” in astronomy.
