Economy is a science of altervatives…

“Economy is the right allocation of scarce resources in order to gain maximum profit”. So, our choices and preferences either make us prosperous or get us into trouble. That’s what I thought about when I was listening to the inflation data released yesterday and post-release comments.

I wonder what wrong choice we made which caused inflation to go higher?
What steps did we take and they led inflation to an unprecedented decline in November?

Answering the first question is relatively easy. Almost 150 years ago, economic philosophers have established a clear fact: “Governments should invest in order to reduce production costs” I visited almost every corner of this country. But I’ve never come across with any individual who agreed with me on this regardless of their political tendency. However, I’ve seen a lot of people who violently support Government measures to make their competitors’ products more expensive by levying higher import taxes, which shows that we made some very poor choices in competition methods let alone wise of allocation of scarce resources.

Finding an answer to the second question however is not an easy task to do. If, one day, I can find the right answer, I promise I will share it with you all.

Yesterday, I took a look at Professor Mahfi Eğilmez’s article. As always, he made some very accurate and spot-on points. Here’s what everyone should understand from his article: the price of a total of 407 different goods and services included in the CPI has lowered or gone up in November. But ultimately the index reflected a -1.44% decline. All these items included in the index obviously have different properties and features. Although there are a lot of goods and services whose price went drastically up, it looks like a price decline in items that stand out the most in the index has eventually led to this outcome.

I can almost hear some of you say, “This inflation has got nothing to do with me! I’m exposed to something way worse!” First of all, inflation and high cost of living are not the same. Cost of Living Index and CPI are two very different things. I think Professor Eğilmez has particularly pointed out this very fact.

“Cannot tame a wild horse…”

I posted this comment on social media the moment when the CPI was released: “USD falls, taxes are reduced, fuel oil declines. This is more like a cooling time rather than a Downtrend Trend. We would need at least a couple of months to call this a trend. Let’s not forget about the recent growth slowdown either.”

Ankara keeps delivering its famously brave statements. I can understand that because this slowdown in deterioration of economic parameters is making the leaders happy as local elections are approaching. However, I would like to remind them of the fact that there is a major difference between “expectation management” and “giving hope”.

In conclusion, I can possibly say that lack of demand will help inflation fall further while a number of parameters, which have been deteriorated due to growth slowdown, will continue to improve. It’s very much like putting a patient under anaesthesia. When the patient is put under, the cancer should be operated. You just cannot say, “S/he’s sleeping so peacefully. We better let him/her sleep”

The most efficient and useful thing that should be done during economic slowdown is to implement the long-time neglected “structural reforms”.

After all, you cannot tame a wild horse.