Naive Interventionism: The Turkish Experiment

Good Morning Everyone,

Turkish Supreme Leader Erdoğan is currently walking a path that history has not been kind to. As discussed, Turkey has been the most recent country to cave to painfully high levels of inflation which have seen a flight from the local currency, the Lira, to just about anything else, as citizens seek to prevent their wealth being siphoned away at a record rate.

While many will attempt to seek safety in other assets, a likely majority of unsuspecting individuals, that are not educated on these topics, and blindly trust their government to save them, will be crushed as prices for basic goods soar.

It’s important to understand for context that Turkey is not nothing. Turkey is a G20 nation with a population of 83m humans, so for the people that live under the delusion that wherever they live is immune to these kinds of happenings, think again. Venezuela was at one point the 4th largest economy in the world!

Now it’s 435 trillion Bolivars to 1 USD.

When sustained levels of inflation exist it acts as a negative flywheel, or feedback loop. As it persists, more and more people lose confidence in the currency, which further amplifies the problem as more and more people look for a way out to preserve their purchasing power.

This leaves government in a very challenging position, having to essentially choose between austerity, whereby they raise rates which is typically very unpopular or redistribution which involves devaluing the currency and can happen in a more stealthy way.

Through these periods the propaganda tends to be strong in an effort to persuade the population into believing in the mission, and the importance of making sacrifices for the greater good. It’s typically a very collectivist type of messaging.

See below supreme leader Erdogan doing just that as he addressed the nation in mid December:

He says:

“ Neither interest and exchange rate speculators nor sworn domestic and foreign enemies of Turkey nor a handful of greedy people can determine the future of our country and nation. Together we will make sacrifices and finally we will reach our goals. While the world, developed and developing nations altogether are struggling, and we continue to grow. It means we are close to our goals.

Likewise, while all these countries falter not knowing what to do, we are advancing, totally locked onto our goals and close to the victory. “

The problem with inflation is the government response doesn’t stop at currency devaluation and redistribution. As you can see in the clip below. The Turkish government have implemented a program for local police to go around to small businesses checking prices, and giving fines if they’re deemed too high.

This is a classic example of naive government intervention in the market, and is highly unlikely to lead to any positive outcomes.

The mechanism of price in the market is so complex. The price or something is the distillation of so much information. Every cost by each different party involved in producing x good or service. Attempting to manage this essentially by force is just madness. If people are over charging, the market will naturally correct for this and competition will enter the market and drive down prices, and/or people will look for alternate suppliers.

If you want to get more deeply acquainted with the history of price controls, check out “Forty Centuries of Wage and Price Controls: How Not to Fight Inflation” here, by Scheuttinger & Butler.

Erdogan has now created an incentive scheme to try and motivate citizens holding gold to convert back to the Lira. While it appears that this initially is an opt-in scheme, it will be interesting to see if it becomes a more forceful push and sees the government outlaw holding gold, as the US did in the 1933 when FDR made it illegal for citizens via Executive Order 6102.

These actions are typical, and well document. They are the classic symptoms of failing political monies and the result of charging humans with the impossible task of managing a monetary policy. The hubris needed to actually believe one firstly understands something as complex as markets in the first place, then also that knows the exact measure to take to correct the issue, is at this point laughable.

How many times will we need to see this story repeated through history to learn the lesson?

It’s not that i don’t trust governments ability to manage this. It is that i know that over time, they have a 0% success rate. The time has come for citizens of the world to wake up to this reality, and opt out of this repetitive silliness.

Ultimately the decision is yours. Will you choose to blindly trust a government of pseudo-elites to manage the money, and all the likely implications or will you trust in a decentralized protocol that is open and public, and has a predictable predetermined monetary policy backed my cryptography and mathematics, that anyone can verify.

In my opinion, it is no longer even a choice. A small select few humans have no place managing the money, and have demonstrated this time and time again. We are emotional animals, and the incentives that exist do not support positive win/win outcomes over time.

It is time for naive interventionism to be removed as an option when it comes to monetary policy. We must stop pretending humans are capable of doing something that we have proven incapable of, and allow the people in government to focus on doing things that they are actually competent in doing, and focussing on adding value to the society, without the distraction of having to pretend they know better than the market.

The disruption of money and state is well under way. It is free to opt in. Anyone can do so. You will not be forced or coerced into making the change - it is completely your choice, and your choice alone. But with everything going on, it is time to pay attention and consider your options.

Hope you have a great start to your week and i will speak to you tomorrow.

AK

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