The Turkish Way

by
Doug French
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The Wall Street Journal reported on September 22 that Turkey’s central bank cut that country’s benchmark interest rate to 12 percent from 13 percent, pushing the Turkish lira lower as much as 0.4 percent against the dollar to a new record low after the decision. One US dollar recently bought 18.3866 lira.

The bank of Prime Minister Recep Tyyip Erdoğan made its move the week following Drs. Hans and Gülçin Hoppe’s sixteenth annual Property and Freedom Society salon in booming Bodrum, the port city on the Aegean sea which once hosted a summer population of 170,000 that has since mushroomed to 700,000.

A conference attendee, noting that Bodrum was bustling, queried the panel of Saturday speakers with a question to the effect “Why not go the Turkish way (referring to inflation with an official rate over 80 percent, but a real rate more like 170 percent), there is no rioting in the streets?”

After a couple less than aggressive retorts Thorsten Polleit sternly drove home the point to the questioner, “Inflation ruins the common man.” The government’s printing press will destroy an individual’s lifetime of savings along with decimating a country’s capital.

Like all serial inflators, Turkey’s dictator places the blame elsewhere. Erdoğan blames “online fictional currency plots” for his currency debauchery, and consistently claims high interest rates cause higher price inflation. Interest rates are the “mother and father of all evil,” according to Erdoğan.

It’s questionable whether Erdoğan received any schooling in business or economics. In high school, he “was distinguished by his oratorical skills, developing a penchant for public speaking, and excelling in front of an audience. He won first place in a poetry-reading competition.”

Barber Omar Akar provided this writer an on-the-ground inflation report via master guide and translator Jay Baykal, while providing a must-have Turkish haircut.

Omar’s sparkling clean shop in the harbor district of Bodrum was a one-man operation that Saturday morning. He had none of the usual tools of the trade and product on the counter. Inflation has led to an increase in theft. While he’s been able to double the price of a haircut, his expenses have increased 400 percent. For example, his electricity bill has increased this year by 10 percent to 15 percent each month until a 50 percent jump last month.

A Turkish haircut is pure indulgence for a man and for fifteen dollars I was treated like a Kardashian, even the one now in the private equity business. My ears tingled just seeing the foil-wrapped minicrock pot filled with bubble-gum colored wax that would pull hair from places US barbers refuse to tread.

In the past, Turkish barbers have had an apprentice, sweeping up behind the scissor master, washing hair and doing other duties while learning a trade that will support them for a lifetime. Omar told us no one will take apprentice jobs with the government forcing potential barbers to attend more years of school. He started as an apprentice after dropping out.

Omar has a Belgian truck driver who drives to Bodrum for one of his haircuts. He says he receives offers to go to various European countries to open a shop but prefers to stay in Bodrum. It’s riskier in other parts of Europe with husbands enlisting their wives to cut their hair, an example of inflation destroying the division of labor.

The price of admission to the ruins at Aphrodisias has increased from 24 lira to 70 lira this year, a 192 percent increase, the evidence revealed by peeling back the price sticker. Our guide Mr. Baykal struck up a conversation with a sturdy-looking guard at the entrance to the museum. The guard said he had received raises totaling 68 percent this year, but he is always drowning in debt. He’d like to buy a house but doesn’t see how he’ll ever be able to afford it. As is always the case, wages never keep pace with price inflation.

In his new book The Price of Time: The Real Story of Interest Rates, Edward Chancellor’s story includes modern Turkey starting with the point “when the United States adopts easy money it unleashes a ‘global monetary plague.’”

Chancellor writes that Erdoğan’s empire joined the rest of the world in an easy money real estate bubble. “A leading Istanbul estate agent called [the real estate market] a ‘big Ponzi scheme.’”

In a July piece for Mansion Global, India Stoughton led with “House prices in Turkey have risen sharply since the onset of the pandemic, ‘breaking into the rarefied three-digit threshold’ with nominal growth at 110 percent in the year to March, the highest of any country, according to Knight Frank’s Global House Price Index for the first quarter. Istanbul saw even greater nominal growth at 122 percent.”

But, quickly followed with “Soaring inflation makes the numbers a little more complicated to interpret.”

Yeah, the Turkish way, complicated for the rich, disastrous for the common man.