Warning from Mahfi Eğilmez: Trust and Expectations Are Decisive in the Economy
Mahfi Eğilmez stated that trust, predictability, and expectations in economic decisions are as critical as interest rates and inflation.
Economist Mahfi Eğilmez stated that behind economic decisions lie people's expectations regarding the future, emphasizing that trust and predictability in economic management are as important as interest rates, inflation, and exchange rates.
Basic Dynamics of the Economy
Classical and neoclassical economics have long treated the economy like a mechanical system. However, the economy cannot be managed merely by stepping on the gas and brakes because it involves people, not machines.
People do not make their decisions solely based on current conditions; they act by looking to the future. This situation increases the importance of economic expectations.
Decisions Made by Looking to the Future
When companies make investment decisions, they take into account not only the current interest rate but also the economic conditions a few years down the line and the predictability of the rules.
Employees also shape their wage demands in line with their expectations regarding future living costs.
The Impact of Expectations on Inflation
If producers and employees think that inflation will rise in the future, they may increase prices today or demand higher wages.
The spread of these behaviors can accelerate price and wage increases, contributing to even higher inflation.
Interest Rates Are Not a Solution Alone
Leading indicators such as Central Bank expectation surveys and PMIs are important for tracking the evaluations of economic actors.
However, in an environment where expectations have deteriorated, it is quite difficult to fix the economy solely by changing interest rates.
If There Is No Trust, Investments Are Postponed
When making investment decisions, investors question whether the economic and legal environment concerning the future provides confidence, alongside the interest rate.
In situations where an environment of trust is lacking, investments are postponed, which produces negative consequences for production and employment.
Economic Stability and Institutional Structure
The rule of law, predictable institutions, property rights, and transparency are extremely decisive for economic stability.
It becomes difficult to achieve lasting economic stability without expectations improving and trust being re-established.