It’s inflation’s turn to be afraid!

The establishment of a Price Stability Committee had already been declared in the economic reform package announced in mid-March. It was officially founded last week. But there are still questions sticking in minds:

– We have a Central Bank that is responsible for ensuring price stability and has this provision in its law. They say this committee won’t interfere with the Central Bank. But what will it do that the Central Bank couldn’t and how does it expect to succeed where the Central Bank failed?

– This committee was supposed to be established in March. However, no step was taken until last week. Why was it late when it was possible to launch the Committee months ago to ensure price stability earlier? Did something happen?

– What about the Economic Coordination Board? Was there a problem in coordination of the economy such that a board was needed?

– Did the need for an Economic Coordination Board and a Price Stability Committee emerge simultaneously so they were founded in the same day?

Economist Mahfi Egilmez wrote an article on his blog on February 9, 2019. He noted when the board and committee were established. Egilmez, who reminded us that Turkey tried to intervene in prices before leading to a series of adverse consequences, gives a simple description about the economy in the introduction of his article:

“Economists seek answers to questions about who makes production, why it is made, how much will be produced, for how many it will be produced and sold. The answer to these questions guides us as to how we should use the limited resource we have, in other words, the ‘problem of allocation’ in economics.”

Egilmez, who pointed out that humankind resolved the problem of allocation by adopting three methods: the tradition method, the market method, and the command method (i.e. central planning).

Egilmez, stated that the market system is considered the best resolution of the allocation problem and that this can be understood from transition efforts of economies from the two other systems to the market system. “Some economies, which implemented the market economy from time to time, showed a tendency to shift to the command system. For example, Turkey adopted such an implementation in 1970s. The government formed a committee called the Price Control Committee. This committee examined, approved, rejected, or approved by changing applications of the private sector institutions intended to raise prices. As this system expanded, the black market emerged across Turkey, notably in big cities. Turkey has returned to the market system since the mid-1980s after abandoning this system.”

The pressure that will be created by the Price Stability Committee is likely to transform into another black market, according to Egilmez.

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