We live in an interesting time. In the world, things don’t go the way we’re used to. First, a war broke out between the world of viruses and the world of humans. We were confused about what to do. We have never seen such a state of war in a hundred years.
Before we fully understand the workings of the new world defined by this war, we are now faced with a second war. Russia’s attack on Ukraine, which is a candidate to be the biggest loser of the Green Deal process, brought the war we forgot in the twentieth century back to Europe.
These two wars back to back economy It brought back the necessities of the war economy when it comes to This week, I have two discussions in my mind. The first was an article that discussed the benefits of reading more science fiction novels in order for economists to adjust to an environment of uncertainty where anything could happen at any moment. In this way, it would be possible both to be prepared for extraordinary development possibilities and to design the uncertain future without being influenced by the past. According to Peter Coy, writing in the American New York Times. Don’t just say that economics is not science, but science-fiction here. I think an important point has been underlined.
The second was a discussion just like the headline in the British Financial Times: “Why do we need a wealth tax now?” Martin Sandbu, one of the editors of the newspaper, who made a video on the subject (Why we need a wealth tax?), previously said, “Why do we need citizenship income? He was discussing the subject. Tongue goes to the aching tooth, if you ask me, the newspaper, which takes care to be the voice of global capitalism like the Financial Times, is positioned in accordance with the war economy period we are in. In wartimes, resource allocation decisions in the economy are not made based on markets. After all, if the need is for weapons and ammunition, alternative costs are not considered. In times of war, of course, the requirements of war take priority.
Von der Leyen talked about price controls and rationing in the European energy market last week
It was February 24, 2022, when Russian tanks suddenly crossed the Ukrainian border. But Russian tanks could not advance like a knife through butter on Ukrainian soil. Remember the second war was not like this. The Russo-Ukrainian war is now in its seventh month and is unlikely to end anytime soon. Counterattacking Ukrainian forces seem to have pushed the Russians back beyond the river for now. It seems that “Mr. Putin” is in a difficult situation.
According to the news, the Russians first turned to Iran and then to North Korea for the supply of missiles and ammunition. What does it mean? First of all, Russia suffered from ammunition shortages due to the prolongation of the war and the Western embargo. logistics means having difficulty. That’s why big Russia needs North Korea’s “advanced” technology. Second, Ukraine is on the defensive with cutting-edge weapons, thanks to the endless support of the West, while the Russians are trying to move forward with weapons and ammunition from the last century. Even if the first one does not aim at the target, it hits its target every time, the other makes inaccurate shots. Again, it seems that “Mr. Putin” is in trouble in Ukraine.
In my opinion, “Mr. Putin” wouldn’t have played the card to completely cut off the natural gas flow to Europe this winter, if he hadn’t felt the pressure of the sanctions on his defense industry and Russian consumers. Why? It’s his last card because this is, after all. From now on, it is no longer a “reliable” seller for its customers, and there is no chance to fix this situation in the future. With this step, he also mortgages the future of his own country.
This step will only accelerate the Twin Transformation Process, green and digital transformation. No one wants to be dependent on Russia for something that can be compensated from now on, even if it is not necessary. Why? Because it is not clear how Russia will treat its customers. This is also valid for Turkey, let me note that, keep in mind.
“Mr. Putin” is in trouble, but are European countries very comfortable? No. European Commission President Ursula von der Leyen, who listed the extraordinary character of the war economy conditions and what should be done against Europe’s energy crisis last week, emphasized the need for extraordinary measures in extraordinary circumstances. These are the taxation of high profits due to rising electricity prices, price control and, finally, quantitative restrictions such as rationing, that is, the allocation of a certain amount of electricity per household or facility. The discussion, which started as energy saving, will go there.
In addition, electricity is not only produced from natural gas in Europe. But while electricity prices go up due to the natural gas shortage caused by Putin, the price of electricity increases regardless of its source. That’s what famine is like. What’s happening? The price of some electricity producers is increasing even though the cost remains the same. What’s happening? Profitability is increasing. Here are some energy This is where the discussion of price control or additional tax for manufacturers comes out. It is said that the market mechanism cannot allocate resources correctly under the conditions of war economy.
There are also contracts that include the amount of electricity that the electricity generating companies sell short in the forward electricity market. The firm sold a forward contract at a certain positive price in order to protect itself from possible price decreases in the future. Now, because of Putin, electricity prices have risen, and the value of such short selling contracts has increased even more. Why? After all, this is the contract that gives the holder the right to purchase electricity for less than the potential spot selling price. Why? It is valuable. As such, the amount of collateral required to be deposited in the stock market by the manufacturing companies for the contracts with this value increased, of course. Those who know have announced that the additional guarantee amount to be paid by electricity producing companies is 1.5 trillion euros. High. In fact, there is no loss, the contracts are valuable, but additional liquidity demand arose for companies during this transition period. At least they need a loan from the state for now.
Why? The unpredictable rapid transition to war economy conditions turned all calculations upside down. Even short selling contracts got in trouble because of Putin. The proposition that economists should read lots of science fiction novels is very meaningful in this context. In Asimov’s Foundation trilogy, Psychohistorian Hal Seldon’s age-old statistical model exploded when not a human but a mutant or a biologically altered creature took over, I still remember from my middle school years. Someone who was uncertain how to act had smashed the rational model to pieces and trashed all the plans made on that model. It’s just like him.
So, what is this comfort of Turkey?
The first things that come to mind in the conditions of war economy are being expressed rapidly nowadays. In fact, I am most surprised at the comfort of Turkey. I remember writing this once recently. What changed? Of course, there was no change.
Even if it doesn’t do as it did last year, if Iran doesn’t touch gas this year, and even if Russia continues to supply gas to Turkey, it is debatable how Turkey will pay this winter. The European economy will slow down when Putin cuts off the gas, and Turkey’s exports to Europe will be adversely affected. Why?
It means that half of our exports will be negatively affected and will go down. Decreasing export volume and weakening euro dollar will increase the foreign trade deficit. As risks increase, financing requirements will increase. Is it good? Bad.
Where does this bring us? This basically means that it is not enough for Putin to simply not cut off the gas. Putin needs to help us with one more thing? Why? this year’s natural gas payments should also be delayed by two years, just as it did in 2018 during the Pastor Brunson crisis. Can it? He can. But what does he want in return?
If you ask me, for example, Russian consumers, whose consumption basket and quality of life have been negatively affected due to Western sanctions, may want solutions that will relieve them. Under these circumstances, can we still say no to this request? I guess, no. If you ask me about secondary sanctions, Turkish companies will receive more letters then. Anyways?
“Why do we need a wealth tax?”
Here’s “Why do we need a wealth tax?” in the British Financial Times newspaper last week. I think the video should be considered within the framework of this rapid and uncontrolled change agenda. The systematic decrease in the share of labor in national income is a problem not only in Turkey but also in all developed countries of England. In such an environment, the increase in inflation, of course, makes analysts think. Increasing poverty is bad.
In 2003, 36 percent of the nation in Turkey was considered poor because, according to the World Bank definition, they were trying to live on less than $5.5 per day. By 2018, this rate had decreased to 8 percent. AK Party won those elections with a more inclusive growth process. Nothing is inexplicable. Now, we are in a new period in which the number of poor starts to exceed 25 percent and rise towards 30 percent.
We have this winter and the next spring ahead of us until the election. What is this? It is bad. Because inflation will continue to rise. Why is this happening? It happens because there has never been such a rapid increase in inflation in our history. Look, we’re seeing this for the first time. We will also evaluate the results for the first time. I don’t know, are you aware?
In fact, I look at the “citizenship income” debate and the need for “wealth tax” from the same perspective in this series. In the coming period, there will definitely be an emphasis on strengthening the social protection network and some kind of income policy component in all kinds of economic programs. Especially after the election; I think the economic program that Turkey will have to implement in any case will be the first Turkish stabilization program that I know of, which includes social expenditures and social protection network. I think there will be no other way to compensate for the damage caused by the regulation that pretends to be an economic program today. Today, we are at a point where the fight against inflation meets the fight against poverty. Honestly, it still seems possible to me in Turkey.
When it comes to how we will finance the expenditures, it is perhaps natural that the wealth tax comes to mind first in this context. However, in an environment like Turkey where the tax administration does not function effectively, it is not possible to expect mechanisms such as wealth tax and citizenship income to yield the expected results. Get your citizenship income. The state will give a salary to everyone without discrimination just because they are citizens of the country, then it will take it back from the rich by increasing its taxes, but it will not take it back from the poor. Why so? This is due to the principle of equal citizenship, no one gives charity to anyone, everyone gets their rights equally, then this money is taken back from the wealthy through increasing taxes. This is a country where the wealthy get a green card and bring someone in to request a scholarship from a private university for their child. Is it easy to operate such tricky proposals appropriate for the time? Hard.
The world is in a great upheaval, passing from one state to another. Just like Karl Marx said years ago, everything solid evaporates. In this period, everyone everywhere is putting forward and evaluating unfamiliar proposals in order to cope with the war economy we are in and to plan the future in this environment. I see a calm here and a drowsiness here.
No. I’m only asking because I don’t understand what we trust: Are you really aware of what you are playing with and what kind of risks you are taking on behalf of the nation? I honestly think we take extra risks at a time when derisking is needed.