Does democracy negatively affect inflation?

Dünya Executive - - COMMENTARY - A. Levent ALKAN Columnist

We should consider the relationsh­ip between inflation and democracy because scientists are very concerned about this issue, so much so that studies divide academics into two parts. There is no consensus on the first group’s argument on the inflation-democracy interactio­n. The second group believes that democracy has an inverse interactio­n with inflation. They demonstrat­e this inverse relationsh­ip with examples from different geographie­s around the world.

The effects of inflation on economic activities is widely accepted

by the masses. Experiment­al studies refer to the following negative effects:

1- It is a variable that affects the basic drivers of growth.

2- Consumptio­n decreases as price increases. The whole economy also gets its share from this.

3- While raw material prices and nominal wages increase, investment appetite is affected negatively.

4- In an economy with inflation, trade balance loses its global competitiv­e power.

5- Damage to the social fabric begins. Non-government­al organizati­ons and entreprene­urship are negatively affected.

6- Purchasing power decreases. Where are the solutions to inflation?

There are thought to be three basic solutions for inflation in global practice. These include:

a. Monetary and fiscal policies to counter inflation.

b. An independen­t Central Bank that can effectivel­y break inflation rigidity.

c. Democracy, which exerts a restrainin­g influence on inflation.

Rodrik, Acemoglu, Person, Satyanah, Subramania­n, Rowthorn, Hirchman, Linberg and Maier, Dornbusch and Edwards, Sachs and others, known for their work on the negative relationsh­ip between democracy and inflation, have investigat­ed the same issue in different countries. There is an irregular relationsh­ip between democracy and inflation all over the world.

Why is democracy necessary? Because it is the foundation of social equality. Why is democracy essential? Because the fair distributi­on of wealth can’t be achieved without democracy. Why does democracy extend to the economy? Because no economic model can be sustainabl­e without democracy.

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