The per capita national income riddle: Is it 15,463 dollars or 7,900 dollars?

Economic growth is good. It brings wealth and prosperity to society. However, even if growth brings wealth and prosperity to society, it does not mean development. If the economy is growing but consumption and foreign debt are increasing more than the production of goods and services, we call this hormonal growth. There is something worse than hormonal growth. If the economy grows, but the debts of the state and a large segment of society increase, and on top of that, the purchasing power of broad segments of society falls and misery increases, we call this toxic growth.

Let's elaborate a bit more...

A false sense of spring is created. Total consumption increases. However, this increase in consumption is not met by production, but by the current account deficit, foreign debt, and imports. With increasing consumption, people's prosperity increases. But as the saying goes, "The dates you eat in the evening will scratch your stomach in the morning," after a while, the increasing debts and misery arrive.

This was the model implemented by the AKP government in its early years. We experienced a period of artificial prosperity, especially with foreign direct investment that came with tales of full EU membership and easily obtained foreign debt. The incoming resources did not go to industrial investments, but to construction and imports. The foreign capital that arrived was not for industry, especially export-oriented industries, but for investments aimed at domestic consumption. While analyzing the growth in 2004 and 2005, I was writing for Akşam Newspaper at the time and I named this "Hormonal Growth." When the then-CHP Chairman Deniz Baykal explained the same things at a group meeting the next day, inspired by this article, the concept of "Hormonal Growth" became embedded in our language. I don't know if other colleagues used it before, but I think I am the godfather of the concept of hormonal growth.

About 4 years ago, after hormonal growth, I introduced the concept of "Toxic Growth." Hormonal growth turned into toxic growth after a while. The difference is this: Hormonal growth is a temporary increase in prosperity achieved through borrowing. For a while, all segments of society benefited from this to a greater or lesser extent. In toxic growth, the economy grows, but the debt of both the state and a large part of society increases. While the debt of a large segment of society increases, at the same time, their purchasing power falls and they become impoverished. The income and wealth of a very small segment increase. For that reason, for the last 5-6 years, I have been using the concept of toxic growth rather than hormonal growth for the Turkish economy.

According to the recently announced national income statistics, the Gross Domestic Product has reached 43 trillion 411 billion liras at current prices. After being adjusted for inflation, it increased by 3.2 percent at constant prices (with 2023 prices). In other words, the economy grew by 3.2 percent. However, in 2024, a large segment of society became even poorer compared to 2023. Income distribution deteriorated even further. The strange part of the matter is that our per capita national income has become 15 thousand 463 dollars. The oddity here is this... While national income increased by 3.2 percent in real terms in Turkish Lira after being adjusted for inflation, it increased by 17 percent when converted to dollars.

This clearly shows that the price mechanism in Turkey is not working and that the dollar price is not realistic.

As a result of all the wrong economic policies implemented, the price mechanism does not work correctly with either the Turkish Lira or the dollar. While inflation in the US is at the 3 percent level with the dollar, inflation in Turkey is at the 25 percent level according to TUIK and 45 percent according to ENAG with the Turkish Lira... Therefore, prices cannot be measured realistically with the dollar either. Due to the overvalued Turkish Lira, the import and export balance is being disrupted.

Because the dollar is suppressed, our national income is announced as 1 trillion 322 billion dollars, and our per capita national income as 15 thousand 463 dollars.

In a normal country, exchange rate increases move in parallel with inflation. It increases by the difference between the inflation increase in the world and the inflation in the country. If this balance is broken, your national income increases by 3.2 percent adjusted for inflation, but by 17 percent in dollars, which is an indicator of a nonsensical, massive imbalance. I briefly summarized this absurdity last Wednesday on my dear friend Tuncay Mollaveisoğlu's "Anında Manşet" program on Tele 1 without going into details because there wasn't enough time, and I promised to write about it in detail in 12 Punto. As they say, words fly away, writing remains, especially when numbers are involved...

IF FOREIGN CURRENCY HAD INCREASED AS MUCH AS INFLATION...

Since the exchange rate is suppressed in our country, it did not even increase as much as TUIK inflation. In national income accounts, annual average values are taken, not year-end values. Let's take a brief look at the data. At the end of the article, I have added a graph of possible per capita national income scenarios that I prepared based on TUIK and ENAG inflation rates and average exchange rate increase assumptions.

In 2024, the average inflation increase in Turkey is 58.5 percent, and the annual average dollar increase is 39.6 percent. There is a 20-point difference between them.

This imbalance also existed in 2023. In 2023, average inflation was 53.9 percent, and the average exchange rate increase was 41.8 percent. There is a 12-point difference between them.

If the increase in the dollar had increased in parallel with TUIK inflation, the average dollar exchange rate, which was 16.57 TL in 2022, would have been 40.42 TL in 2024, not 32.8 TL. (16.57 x 1.539 x 1.585 = 40.42) In this case, our national income would have been 1 trillion 73 billion dollars, not 1 trillion 322 billion dollars. The difference caused by two years of foreign currency suppression is 249 billion dollars.

Our per capita national income would also have been 12 thousand 535 dollars according to a population of 85 million 600 thousand, not 15,463 dollars. However, I have an objection to this as well. Per capita national income is calculated according to the population. Yet, there are also refugees living here whose numbers we do not know, estimated at around 4 million by some sources and around 10 million by others. If you add 10 million refugees, our per capita national income would have been 11 thousand 200 dollars this time.

I made this calculation based on the assumption that "if the dollar had increased as much as the inflation measured by TUIK." TUIK inflation is not very credible in the eyes of the public. I also calculated it according to ENAG inflation.

In 2023, while the average dollar exchange rate increased by 41.8 percent, the average ENAG inflation was approximately 120 percent. In 2024, while the average dollar exchange rate increased by 39.6 percent, the average ENAG inflation increase was approximately 86 percent. If the dollar increase had been as much as ENAG inflation, the average dollar exchange rate value of 16.57 liras in 2022 would have been 67.8 liras in 2024, not 32.8 liras. (16.57 x 2.20 x 1.86 = 67.8) Let's take into account the two-year US inflation and the monetary policies implemented by the Central Bank over the last two years and discount it. Let's assume that the average dollar exchange rate for 2024 should have been 57 liras.

In this case, our national income, which is 43 trillion 411 billion liras at current prices, would have been 762 billion dollars, not 1 trillion 322 billion dollars. In other words, 57 percent of the announced amount... According to this assumption, 43 percent of the announced national income is soap bubbles... Per capita national income would also have been measured as 7 thousand 900 dollars including refugees, not 15 thousand 463 dollars...

We live in a country where the people become poorer as the economy grows...