The world economy has been hit hard by the pandemic. The sharp constraints on the employment market is unprecedented in the recent past. 

Unemployment benefit applications in the United States have increased by 10 million in the second half of March. This comprises 6 percent of the current workforce, and accordingly shows that unemployment has in fact increased from 3.5 to about 9.5 percent by the end of March. The officially announced 4.4 percent unemployment rate was based on the surveys conducted in mid-March, therefore does not reflect the whole picture. We will see the increase more clearly in the April report. As a result of the 1929 Great Depression, unemployment rates in the United States had reached 24.9 percent in 1933. Current predictions state that these levels can be reached in the span of just 3 months.

Despite our weak labour force, we are caught up in this crisis with an economy that even at its ‘brightest’ times, could not meet the unemployment rates of the US during the economic crisis. The government has directed companies to send their workers on unpaid leave, instead of firing them. This will limit the surge in the unemployment rate for a while. However, if there are no developments that would make the current pandemic prevention measures unnecessary, it seems inevitable that we will be entering the summer months with an unemployment rate exceeding 20 percent. 

In an environment in which unemployment has risen so sharply, we see that to varying degrees even the most conservative governments accept their obligation to keep consumer demand alive through direct income transfers. The scope and amount of the transfers to be made is of course an important topic of discussion. 

It is a fact that the measures taken and the rapidly shrinking tax revenues will cause large deficits in the public balance. Countries with reserve funds, such as the USA, have the opportunity to borrow public deficits without increasing interest rates. The same cannot be said for economies such as ours. Central banks have no choice but to create more money in this process, but this is a tool that has its limits as well.

There is story narrated by historians. Abdülemcid one day calls the finance minister to ask for the cost of Dolmabahce Palace. When the Nazır answers with 3,500 kuruş, the Sultan is surprised. Then Nazır adds: the ink, paper, and printing needed for the construction is 70 million Francs, our master. 

The Nazır is correct. States and the central banks of today can generate money from the air. However, after a while, this will have inflationary consequences. The Ottoman trial of paper contains very sad examples in this respect.  

Today, at least in the short term, inflation does not pose a threat on a global scale. On the contrary, we see that the world economy is dragged into a deflationary process. If the process is prolonged, it will be inevitable to drift into a spiral, what Irving Fisher calls “debt deflation”, that is even more destructive than inflation. In this respect, tough expansionary monetary policies have been implemented.

However, let us not be fooled into thinking that money politics will be sufficient enough on its own. In addition to direct income transfers, the current picture requires the public to adopt a stance that regulates the economy and, if necessary, is directly involved in production. 
Firstly, the asymmetric demand shocks in the market should not be overlooked. Whilst the general demand is weakening, the demand for food and health supplies is increasing. The steep price increase in these sectors will strengthen the stocking trend, making the living conditions of low-income groups more difficult. This issue should not be left to the conscience of the market and is ought to be tightly regulated. Secondly, it should be ensured that there are no issues in the production and distribution of goods of vital importance, by closely monitoring the problems that may occur in the supply.

On the other hand, it is important to underline that monetary expansion will cause asymmetric risks for a fragile economy with high foreign debts, such as ours. In an environment where the future is so uncertain, the money pumped into the market will be directed mostly to foreign currency assets. We have experienced this in the recent past with the KGF loans. Turkey is very much dependent on foreign countries for many basic needs, like food. Along with the deepening of the crisis, rapid increases in foreign capital, while the world is grappling with deflation, could trigger inflation in Turkey, leading to further poverty for broad sections of the public. As we have always emphasized, the hot money-dependent structure of the country's economy narrows the field of motion in times of crisis.

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Lastly, it is important to say a few things about the drafted law that the government have opened to discussion about preventing employment loss. First of all, the draft does not prohibit layoffs – it delays them for three months and gives the employer the right to put workers on unpaid leave without consent. Thus, the employer is freed from the burden of severance and notice pay that they would face if the worker were to be dismissed. Secondly, minister Albayrak recently urged companies to apply for a short-time working allowance, rather than sending workers workers away or on unpaid leave. This new draft shows that the scope of the workers who will benefit from the short-time working allowance has been narrowed down and that the companies are aimed to be directed mainly to unpaid leave. What is the difference? While the amount received by the worker in the short-time allowance varies between 1,752 and 4,381 TL, only 1177 TL is paid in case of unpaid leave. Therefore, in its current form, the draft does not offer any additional benefits to employees, jeopardizing their past earnings and condemning them to the lowest unemployment allowance.