Why is Turkey failing the inflation battle?

Everybody knows fundamental economics, the interplay of demand and supply but nobody talks about how centralization stifles both the economy and society. That said, here’s a story about Turkey.

Worst performing currency globally

Every country across the globe braced inflation due to some of the other reasons, supply chain constraints being the common ones. Whenever inflation emanates, every country makes policies to tackle it, because nobody likes inflation. It’s healthy but only to a limited extent.

For starters, when everything starts getting pricey, the central bank increases the interest rates or the cost of money so that things stabilize, this is exactly what the Federal Reserve is doing but what if you think differently?

Erdonomics

The president of Turkey, Recep Tayyip Erdogan has an altogether different policy to deal with inflation. That is to keep the interest rates low, hoping that businesses would take more loans, produce more, employ more people, and things will come back to equilibrium whereas sound economists say that interest rates need to go up!

As a result of Erdonomics (Erdogan’s economics), there has been too much money in the system and all of it’s chasing fewer goods and services, pushing the prices of everything in the society higher. The most common ramification was the inflation that touched 21% coupled with the Turkish currency Lira falling 40% in the last three months against the dollar.

Things don’t just end there

When your workers, employees demand higher wages/salaries to make ends meet, your costs increase, and margins shrink. If you’re able to cover up the costs, well and good, otherwise you have to lay off the workers to prevent any loss, this predicament is panning out in the country as the unemployment rate has touched 25% in November. 

Utmost centralization

What aggravates the situation at hand is the management and policies framed by Erdogan, and the ego to not be wrong made him fire three central bank officers back in July 2019. Now, no one stands against the president’s decisions and the Turkish economy is heading towards a total collapse as we speak. 

Manvinder

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