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.
READER COMMENTS
Matthias
Jan 19 2025 at 4:13am
On the topic of greedflation, I usually ask whether somehow companies used to be less greedy earlier.
Greed can perhaps explain high prices, but a constant high level of greed can’t explain rising prices.
Craig
Jan 19 2025 at 8:45am
Of course that’s a great question to ask particularly in US where you have a spike aftrr a long term period of ‘normal’ inflation. Places like Turkey though seem to have persistently high inflation punctuated with much more severe spikes. I have been to Turkey and no, I didn’t discuss the cause of inflation with them, I do recall more than a few references to the government being ‘thieves’ and don’t recall anything resembling a greedflation argument…..naturally I could’ve missed it since I don’t speak Turkish.
MarkW
Jan 20 2025 at 5:34am
They do have an answer for this. Putting on my ‘intellectual Turing test’ hat, it goes something like the following:
Matthias
Jan 23 2025 at 5:42am
Interesting. Thanks for the attempt! Though now it’s not about greed, but about varying restrictions placed on greed.
I’m not completely sure whether any proponent of greedflation would sign up for your Turing test attempt. But it strikes me as a reasonable explanation.
As for the pandemic: much of the inflation came after the pandemic. And interestingly, we had below target inflation for most of the 2010, in the aftermath of the global financial crisis during and after the Great Recession. I wonder if that was caused by insufficient greed (or government really doing its job of keeping greed in line too well?)
Similarly also, did Japanese companies in the 1990s suffer from insufficient greed?
Kenneth Duda
Jan 20 2025 at 2:38am
I remember seeing somewhere this great graph of apartment rents. In the actual data, rents went up, and then they went down, and then they went up again. The graph author plotted this data, and then labeled the up-swings as “landlords get greedier”, and the down-swing as “landlords become more altruistic” (making fun of the idea that landlord greed drives rents).
Travis Allison
Jan 20 2025 at 3:59pm
I love the idea of showing that GDI has increased, which (given the simplistic thinking on this issue) is incompatible with the cause that companies are “greedy”.
Regarding consumption spending, the idea is a bit more subtle. I think the response by people supporting the “greedy” explanation would be, “Of course people had to spend more money. Greedy companies jacked up prices.” They would fail to realize that total spending going up implies that people had more money to spend. They wouldn’t think that total spending should stay the same under their “greedy” explanation.
Scott H.
Jan 23 2025 at 9:54am
Let me know how that NGCP conversation goes with your economist friends — you can post a transcript for us. In the real world, switching the subject to NGDP will just be seen as a complicated copout. Greedflation people tend to be pretty low econ knowledge folk, and they aren’t going to wrap their heads around NGDP analysis (what’s NGDP?) at a cocktail party or with a paragraph or two exchange online.
Even if they did see a glimmer of light at the end of that beatdown, they most certainly will be embarrassed in any future conversation as they’ll find they could never repeat the setup and arguments (or deal with the follow up issues/questions) in a million years.
We now get our understanding of econ (or at least the morality of econ) from our culture rather than as something that emanates logically from taught principles in the classroom. That means this argument needs to be won in the cultural arena. It’s going to take a more simple, straightforward approach to get that done.
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