Economics

Subterms

    More stories

    • 150 Shares169 Views

      in US Politics

      Former Fed chair Janet Yellen set to become first female treasury secretary

      by

      Janet Yellen, the first woman to chair the US Federal Reserve, is set to achieve another first, becoming the country’s first female treasury secretary.
      The 74-year-old economist is expected to be named as President-elect Joe Biden’s choice on Tuesday.
      Yellen will take the job during one of the most trying economic times in modern history.
      US unemployment hit a postwar record in April, in the first wave of the coronavirus pandemic, and while the jobs situation has improved, the recovery has slowed in recent months as rates of infection have increased.
      Millions remain out of work, and women and people of color have been hit disproportionately hard by the downturn.
      Congress has struggled to reach agreement on a new round of economic spending, the US national debt is at record levels, and relations with the US’s major trading partners are frayed after the Trump administration’s trade wars.
      Donald Trump declined to reappoint Yellen to the Fed chair after his election in 2016, making her the first central bank chief not to serve two terms since the Carter administration. During his campaign Trump said Yellen should be “ashamed” of her policy actions and accused her of keeping interest rates low in order to bolster President Barack Obama’s legacy.
      Cautious and carefully spoken Yellen has made few comments about Trump although when asked last year if she thought Trump “had a grasp” of macroeconomic policy she said: “No I do not.”
      Yellen has recently advocated for more federal spending from Congress to tackle the economic devastation caused by the virus.
      “There is a huge amount of suffering out there. The economy needs the spending,” Yellen said in a September interview.
      Yellen, professor emeritus at the University of California at Berkeley, a former assistant professor at Harvard and a lecturer at the London School of Economics, is an expert in labor markets who has highlighted the economic impact of uneven growth in the jobs market.
      She is married to the Nobel-winning economist and frequent co-author George Akerlof.
      Progressives had been hoping Senator Elizabeth Warren, a staunch critic of Wall Street, might get the job. But with control of the Senate still in the balance, Yellen is a safer pick. After the news broke Warren called Yellen “an outstanding choice.”

      Elizabeth Warren
      (@SenWarren)
      Janet Yellen would be an outstanding choice for Treasury Secretary. She is smart, tough, and principled. As one of the most successful Fed Chairs ever, she has stood up to Wall Street banks, including holding Wells Fargo accountable for cheating working families.

      November 23, 2020

      Biden said last week that his Treasury nominee would be accepted by both the progressive and moderate wings of the Democrat party. Yellen has also in the past attracted bipartisan support, receiving 11 Republican votes for her 2014 confirmation as Fed chair, including the backing of three sitting Republican senators.
      She is also one of the best-connected economists in the world, leading the Fed from 2014 to 2018 after a long career in economic policymaking.
      If appointed, Yellen will not only be the first female Fed chair and treasury secretary, but the first person to have headed both organizations and the White House council of economic advisers. More

    • 213 Shares199 Views

      in US Politics

      The 'market' won't save us from climate disaster. We must rethink our system | Robert S Devine

      by

      The massive wildfires that have been rampaging across the American west this year are not purely natural disasters. They are partly products of the unnatural disaster of climate change – “unnatural”, in that the ultimate responsibility for global warming belongs not to physics but to our economic system. Nicholas Stern, the former chief economist of the World Bank, calls climate change the “greatest and widest-ranging market failure ever seen”. Sadly, climate change is only one – albeit a whopper – of the countless market failures that degrade our lives.
      Though it sounds like a generic phrase, “market failure” is actually a technical term. It doesn’t refer to scams like insider trading or corporate fraud. A failure occurs when the marketplace allocates resources in a way that does not optimally deliver wellbeing. We understandably focus a lot of attention on the depredations of greedy tycoons and corporations, but many of the most consequential market failures stem from innate characteristics of our current market system.
      Many of us probably already have a gut feeling that our current market system often fails. In order to build a more sustainable, just and prosperous economy, however, it’s vital that we better comprehend the shortcomings deep in the market’s DNA. Greater awareness would reduce blind faith in the market and enable people to see the market for what it is: a tool. It can be an excellent tool when used for the right job, but relying on the market to deal with something like climate change is like trying to pound nails with a saw.
      One major inherent flaw involves communication. In an ideal version of the market, continuous indirect communication between consumers and producers leads to the best allocation of society’s resources. Consumers make their desires known by the prices they’re willing to pay, and producers convey their costs by the prices they charge.
      However, producers only communicate a narrow range of costs. For example, an oil company will account for typical expenses, like payments to its employees, and then set its prices accordingly. Consumers will receive those price signals and decide whether to buy that company’s gasoline. But markets enable businesses to scrub most social and environmental costs from these signals, which garbles communication with consumers. For instance, the price of gas doesn’t reflect the cost of the revved-up wildfires we suffer due to the additional global warming caused by burning that oil company’s gasoline. Numerous studies estimate that the true cost of gas is two to four times higher than what we pay at the pump.
      Incomplete communication misleads us consumers into buying products laden with hidden costs. Countless goods and services bear the stains of harms such as pollution, habitat destruction, floods, child labor, extinctions and disease. When we fill up at the gas station the price we are charged doesn’t tell us that our purchase increases the odds that a wildfire will burn down our community. Making such partially informed choices is like buying a house having seen only the kitchen.
      Another characteristic of the market that leads to failure is its inability to provide incentives for businesses to produce or protect public goods, such as fire departments or city parks. Most important, the market doesn’t generate the public goods sometimes known as “ecosystem services”, such as nutrient cycling, soil formation, oxygen creation and a livable climate. Many of these essential services operate in the background; like plumbing and wiring, they go unnoticed and unappreciated unless they fail.
      Take the flooding that drowned parts of coastal Louisiana and Mississippi in 2005 when Hurricane Katrina thrashed the Gulf coast. More than 1,800 people died, cherished communities disintegrated, and the price tag swelled to more than $100bn. Much of the devastation occurred because oil and gas development had decimated the coastal marshes that previously had tamed storm surges. The protection those marshes provide is an extremely valuable ecosystem service, yet no entrepreneurs hustle to produce that protection.
      And why would they? The market doesn’t give private businesses a profit motive to produce public goods. For example, even if a company were to restore a marsh, they wouldn’t be able to sell that service because they couldn’t exclude anyone living on that coast from using that protection for free.
      Private restoration companies exist, of course, and some make a profit by rehabilitating marshes. But market forces didn’t spawn these outfits. At some point somebody recognized the value of the marshes and made a conscious choice to try to preserve or restore them. Most likely a number of somebodies made that choice and pressed their government to hire a restoration company. More broadly, environmental and social projects happen when a great many somebodies vote for candidates who support such efforts. Such purposeful collective action is the overarching solution to market failures. Instead of passively counting on supply and demand to provide everything we need, we sometimes need to exert our judgment.
      And there it is, the J-word: “judgment”. Free-enterprise disciples view most efforts to use our collective judgment to shape the economy as central planning that will foul the gears of the market. But banishing judgment about how to allocate our resources will result in a world with plenty of video game consoles and fashionable shoes and precious little biodiversity and climate stability – and, all too soon, biological poverty and climate chaos will also cripple the economy of stuff, and video game consoles and shoes will become scarce, as well.
      Citizens who scorn judgment should note that we’ve exercised some collective judgment to help guide the economy since the advent of government. The problem is that we’re not exercising it enough. In recent decades we’ve gotten out of balance and are leaning too far toward an unrestrained market even when it’s the wrong tool for the job.
      Consider your toaster. It’s loaded with hidden costs that the market doesn’t communicate and that individual consumers can’t be expected to discover. But government (well, good government that pays attention to science) has the expertise to evaluate your toaster. If we citizens decide that we want to address climate change and air pollution, then government can do our bidding by devising energy efficiency standards for our appliances.
      In fact, they did, decades ago. According to the American Council for an Energy-Efficient Economy, those regulations have saved more than $1tn to date and have reduced greenhouse gas emissions by the equivalent of the annual emissions of 800m cars. And we don’t even know the standards are there – hardly the heavy hand of government that haunts free-marketeers’ fever dreams.
      So let’s use our judgment to create an economy that better aligns with our values. Instead of surrendering our autonomy to the soulless mechanics of the market, we can freely choose to grow beyond being mere consumers and become forceful citizens.
      Robert S Devine is the author of Bush Versus the Environment and The Sustainable Economy: The Hidden Costs of Climate Change and the Path to a Prosperous Future More

    • 138 Shares99 Views

      in US Politics

      What led to Trump and what will follow Biden | Letters

      by

      George Monbiot (The US was lucky to get Trump – Biden may pave the way for a more competent autocrat, 11 November) is probably right about Barack Obama paving the way for Donald Trump, because the former failed to tackle big business. I would go even further and say that Tony Blair, another “breath of fresh air” at the time with his Tory-lite policies, more or less paved the way for our Trump – in the form of Brexit.Both politicians had a clear electoral mandate to bring about fundamental changes to their societies: in Blair’s case, to change our parliamentary institutions, as, when it came to corralling business, the UK was very much, and still is, a bit-part player. In the end, his successor handed over a poisoned chalice to the Tory/Lib Dem coalition to attempt to clean up the mess and, after its failure, to face the consequences. Joe Biden, besides confronting neoliberalism, needs to do to his country’s political system what Blair failed to do to his. John MarriottNorth Hykeham, Lincolnshire• George Monbiot paints a bleak prospect for the US and, by implication, the rest of the free world. He writes at length about the failure of Barack Obama to change the basic course of social and economic conditions during his eight years in office. He also comments on how important it is that Democrats win both Senate seats in Georgia to avoid a Republican-led upper house. Surely it was exactly this that stopped Obama at every turn – the fact that during his presidency he was cursed with a hostile and belligerent Senate.The 2008 global financial crisis was one of his darkest moments, and I believe it was Gordon Brown who took charge of the initial recovery worldwide. Most politicians realised that it was senior bank staff who were responsible for the disaster. But as the old adage says, “If you owe the bank £100 then you have a problem, but if you owe the bank £10,000,000 then the bank has a problem.” They were just too big and important to be allowed to fail. What didn’t happen, but should have, was that no bankers were exposed and prosecuted. Both Obama and Brown must bear some of the criticism. Richard YoellBromham, Bedfordshire• I am appalled by the advocation of “tub-thumping left populism” as a way forward for the US. We have seen enough of tub-thumping populism (whether of the left or right) in the world during the last 100 years to know where it leads – to mass civil unrest, police brutality, military intervention, civil war, governments shutting down parliaments and locking up (or kidnapping and murdering) political opponents. In short, to unbridled anarchy, tyranny and mayhem. So thanks, but no thanks! For all its faults and weaknesses, I’ll stick with democracy based on free and fair elections, even if it doesn’t always lead us to the ideal society that we may yearn to see realised.Philip StenningEccleshall, Staffordshire• George Monbiot overlooks the way in which the neoliberal doctrine of “making wealth before welfare” has been massively overturned by the response to the Covid-19 crisis, where the primacy of health over economics has been forced on even the most ardent neoliberal regimes, not least in the UK. This will certainly leave an indelible mark on the post-pandemic era. Unlike the disastrous neoliberal response to the 2008 crash, this time we are seeing the start of a possible end of its dominance as the prevailing ideology of our times, for the first time since the Thatcher-Reagan years.Adam HartGorran Haven, Cornwall More

    • 113 Shares169 Views

      in World Politics

      In Asia, a New Kid on the Trade Bloc

      by

      History undergoes serious change thanks in particular to slow events that fly below the media’s radar. Focusing on dramatic, immediate events, the media tends to neglect the major shifts that unfold over time. Paradoxically, slowly developing events that often go unreported tell the true story of history. Most often, the exciting, explosive events that dominate the news merely serve to accelerate longer-term trends.

      There is a simple scientific reason for this. Systems react immediately to dramatic events that occur quickly and unexpectedly. They typically mobilize their defenses to improvise a rapid reply. Rather than signaling change, such actions serve to protect and reinforce the status quo.

      The 9/11 attacks, clearly the most dramatic event of the past two decades, provoked a massive response from the US government. The effort to oppose the emergence of the new shape of terrorism appeared to mark a decisive shift in contemporary political history. The response consisted of a global military alliance intent on defending the prevailing “rule of law” and the elaboration of a powerful security state.

      Will Laos Become a Model for China’s Economic Colonialism?

      READ MORE

      The effort piloted by George W. Bush and Tony Blair ended up simply reinforcing the focus of Western nuclear powers on the idea that sophisticated military technology provided the key for governing the world. It confirmed and consolidated the long-term trend of building the entire Western economy and culture around the American military-industrial complex.

      Distracted by a relatively meaningless transfer of power in the US following Joe Biden’s election and other colorful events such as the comic melodrama of relations within British Prime Minister Boris Johnson’s chaotic Brexit team, today’s media have paid scant attention to one event of monumental importance that took place on Sunday. The event itself was unremarkable, but it is a powerful indicator of historical change. The signing on Sunday of the act that brought Asia’s Regional Comprehensive Economic Partnership (RCEP) into existence marked a crucial moment in a slowly evolving shift that began nearly a decade ago and will have a profound impact on history in the coming years.

      In its article on the event, Al Jazeera quotes one American expert, Jeffrey Wilson, who sees RCEP as “a much-needed platform for the Indo-Pacific’s post-COVID recovery.”

      Today’s Daily Devil’s Dictionary definition:

      Post-COVID recovery:

      The idea which some people consider to be phantasy that the global economy may some day return to normal once COVID-19 is eradicated.

      Contextual Note

      The New York Times notes that RCEP has been in the plans for eight years and describes it as “designed by Beijing partly as a counterweight to American influence in the region.” In other words, this is a chapter of a story that lives within the context of a massive and continual decades-long shift of momentum in the global economy. The center of gravity of the global economy has been silently but steadily migrating from the North Atlantic following World War II on a south-eastward course toward Asia.

      Back in 2015, Reuters market analyst John Kemp pointed to the West’s failure to sense this movement, stating that “Most western policymakers and journalists view the world economy through a framework that is 10-15 years out of date.” He further points out that “India’s economy has also started to become a major source of global growth, which will ensure the centre of gravity continues to move more deeply into Asia over the next 50 years.” Analysts who have even attempted to assess the speed of the shift appear to agree on a “rate of about 100 kilometres or more per year.” It may have accelerated since 2015, and even intensified as a consequence of the implicit isolationism of Trump’s “America First” philosophy.

      Embed from Getty Images

      Fearful of the threat to US hegemony posed by the RCEP, the Obama administration launched the Trans-Pacific Partnership (TPP), designed to eclipse the RCEP and protect some of the key historical advantages that underpinned US economic hegemony. Once Trump decided to leave the TPP, the US could no longer take advantage of its provisions to protect industrial property rights or oblige other nations to respect unified labor standards.

      The US has literally been left behind in the race to define and enforce the rules that will govern commerce and economic development throughout the Asia zone over the next 50 years. Most commentators suspect that once president-elect Joe Biden is in office, he will not in the short term make an effort to catch up. In the midst of a complex health and economic crisis, there are other priorities. But Jeffrey Wilson’s comment about “Indo-Pacific’s post-COVID recovery” reveals that Asia, under China’s leadership, today has a clear head start and can set the tone for what a post-coronavirus world will look like. This is a question every nation is grappling with. There are no obvious answers. But there can be little doubt that the world that emerges once COVID-19 is completely under control or eradicated will be very different from what preceded the pandemic.

      The Times signals the fact that “to some trade experts, the signing of the R.C.E.P. shows that the rest of the world will not wait around for the United States.” Many commentators have noted that four years of Donald Trump have convinced European leaders that depending on the ideological and geopolitical framework provided by the US is too risky an engagement. It may even transpire that, despite the intensified military cooperation between India and the US directed against the Chinese threat, as reported in this column by Vikram Sood, Atul Singh and Manu Sharma, India could eventually be attracted to the RCEP. Security is one thing. A humming economy is another.

      India could, for example, be positioned to profit from a key feature of RCEP. The Times quotes Mary Lovely, a senior fellow at the Peterson Institute for International Economics in Washington, who notes that “R.C.E.P. gives foreign companies enhanced flexibility in navigating between the two giants. Lower tariffs within the region increase the value of operating within the Asian region, while the uniform rules of origin make it easier to pull production away from the Chinese mainland while retaining that access.” Narendra Modi’s India has not yet managed to fulfill its promises to expand manufacturing in India. Could RCEP be the key to providing conditions favorable to that evolution?

      In short, the world is faced with a formidable number of variables that combine in a variety of different ways. As Brexit demonstrated, today’s political alignments can be nullified in a trice as the perception of economic opportunities and the pressure of uncontrollable crises such as the COVID-19 pandemic lead to new geopolitical configurations. Those trends are far more powerful than bilateral agreements.

      Historical Note

      Asia’s Regional Comprehensive Economic Partnership will only begin to produce practical effects two or three years down the line. But it already opens channels of communication and coordination between fifteen countries. This will not only confirm the shift of the global economy’s center of gravity but also accelerate the shift toward a new power relationship between the US and China. As the recent presidential campaign highlighted, Americans tend to see this as a binary relationship. Yet all the indicators point toward a multipolar reordering.

      The Times article reminds readers of the historical situation when RCEP was first proposed: “The prospect of China’s forging closer economic ties with its neighbors has prompted concern in Washington. President Barack Obama’s response was the T.P.P.” Trump’s action upon taking office of killing the TPP before it could be signed opened the door to the eventual 15 nation agreement, with the roles of the US and China inverted. Obama designed the TPP to allow China in through the back door. RCEP is designed to allow the US in through the back door.

      The world awaits the evolution and hoped-for denouement of a series of crises nested each within the other. However painful and disruptive, these crises have the merit of signaling the existence of a common interest for all of humanity in stark contrast with the traditional model of geopolitical reasoning based on national rivalries. It is in everyone’s interest to keep our eyes fixed on the slow but deep movements of history as well as the superficial ones that the media throw in our faces every day.

      *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Read more of The Daily Devil’s Dictionary on Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 138 Shares199 Views

      in Elections

      How can Joe Biden deal with Donald Trump's obstruction in transition?

      by

      The president-elect can learn from Franklin D Roosevelt’s response to Herbert HooverPresidential transitions are never easy, especially when they involve an incumbent president defeated at the polls. But this time the transition occurs in the midst of an unprecedented crisis. The incumbent refuses to acknowledge the vote as a rejection of his policies and has a visceral dislike for the president-elect, who he accuses of dishonesty and dismisses as too frail to assume the duties of office. He tars his successor as a socialist, an advocate of policies that will put the country on the road to ruin.The year was 1932, and the transition from Herbert Hoover to Franklin D Roosevelt occurred in the midst of an unparalleled economic depression and banking crisis. The outgoing president, Hoover, had an intense aversion to his successor, whose incapacity of concern was not any lack of mental acuity, but rather Roosevelt’s partial paralysis. He called FDR a “chameleon on plaid” and accused him of dealing “from the bottom of the deck”. In his campaign and subsequently, Hoover insinuated that FDR’s socialistic tendencies would put the country on a “march to Moscow”. Continue reading… More

    • 175 Shares159 Views

      in US Politics

      Big tech and corporate tax cuts: the targets of Joe Biden's urgent economic plans

      by

      When Joe Biden enters the White House on 20 January, he will face arguably the biggest set of challenges a president has had to tackle since the end of the second world war. The coronavirus is raging through the US, millions of Americans are still losing their jobs each month, and the climate crisis – ignored by the Trump administration – is deepening.
      Biden has set out his economic and policy plans, but without control of the Senate he may struggle to realise them. Official GDP figures for the third quarter showed the size of the economy was still almost 4% below its previous peak, despite a 7.4% recovery from the spring lockdown.
      At present it looks certain that the Democrats will control the House of Representatives, but we will have to wait for the results of special elections in Georgia before we know who controls the Senate. A Republican majority would block many of his proposals.
      Like Donald Trump, Biden can use executive orders – basically presidential decrees – to circumnavigate political roadblocks. While those orders would have major consequences, Biden is likely to struggle to pass significant legislation without Democratic control of both branches of Congress.
      But here are the some of the key elements of Bidenomics.
      Stimulus package More

    • 125 Shares159 Views

      in World Politics

      Why Populists at the Helm Are Bad for the Economy

      by

      Recep Tayyip Erdogan is a man on a mission. The goal: to make Turkey great again. Making Turkey great again, I guess, means wiping history clean of a series of humiliations, from the ignominious decline of the Ottoman Empire, dismissed as the “sick man upon the Bosporus” in the late 1800s, to the no less ignominious Treaty of Sèvres of 1920 that forced Istanbul to cede vast parts of its territory to France, the UK, Italy and Greece. The treaty not only marked the beginning of the empire’s demise, but also the origins of Turkish nationalism, which led to the establishment of the modern Turkish republic.

      President Erdogan is but the most recent and arguably most egregious expression of Turkish nationalism that seeks to restore past glory by gathering all Turkish peoples under one roof, similar to what once was known as pan-Slavism. This explains why Erdogan has been adamant in his support for Azerbaijan in its conflict with Armenia over Nagorno-Karabakh. Ironically enough, Erdogan has been amazingly sanguine with respect to the oppression of Muslim Uighurs in China’s Xinjiang province. As so often, money trumps convictions while hypocrisy runs rampant.

      In an Era of Strongman Politics, Turkey Is Hard to Call

      READ MORE

      This is deplorable, but, as US President Donald Trump has put is so eloquently, albeit in a different context, “It is what it is.” In any case, the topic here isn’t Erdogan’s attempt to establish himself as the champion of pan-Turkish nationalism or his attempt to affirm his claim to champion the cause of Islam, exemplified in his recent attacks against French President Emmanuel Macron. Instead, the focus is on Erdogan as a typical exponent of contemporary authoritarian populism.

      Claim to Legitimacy

      Populists base their claim to legitimacy on the notion that they promote the interests of “ordinary citizens” against an aloof elite far removed from everyday life, an elite that could care less about people’s concerns and worries. Against that, populists maintain that if elected, they will make the concerns and wellbeing of ordinary citizens their main priority. This is how Erdogan, Trump, India’s Narendra Modi and Brazil’s Jair Bolsonaro swept into office. This is what has been their claim to legitimacy.

      Unfortunately, hard reality is a far cry from lofty promises. Decades of experience with populist regimes shows that populists in power have a disastrous economic track record. To make things worse, populists appear to be particularly resistant to taking advice from those who have studied populist economics or learning from the glaring mistakes made by populist regimes in the past.

      .custom-post-from {float:left; margin: 0 10px 10px; max-width: 50%; width: 100%; text-align: center; background: #000000; color: #ffffff; padding: 15px 0 30px; }
      .custom-post-from img { max-width: 85% !important; margin: 15px auto; filter: brightness(0) invert(1); }
      .custom-post-from .cpf-h4 { font-size: 18px; margin-bottom: 15px; }
      .custom-post-from .cpf-h5 { font-size: 14px; letter-spacing: 1px; line-height: 22px; margin-bottom: 15px; }
      .custom-post-from input[type=”email”] { font-size: 14px; color: #000 !important; width: 240px; margin: auto; height: 30px; box-shadow:none; border: none; padding: 0 10px; background-image: url(“https://www.fairobserver.com/wp-content/plugins/moosend_form/cpf-pen-icon.svg”); background-repeat: no-repeat; background-position: center right 14px; background-size:14px;}
      .custom-post-from input[type=”submit”] { font-weight: normal; margin: 15px auto; height: 30px; box-shadow: none; border: none; padding: 0 10px 0 35px; background-color: #1878f3; color: #ffffff; border-radius: 4px; display: inline-block; background-image: url(“https://www.fairobserver.com/wp-content/plugins/moosend_form/cpf-email-icon.svg”); background-repeat: no-repeat; background-position: 14px center; background-size: 14px; }

      .custom-post-from .cpf-checkbox { width: 90%; margin: auto; position: relative; display: flex; flex-wrap: wrap;}
      .custom-post-from .cpf-checkbox label { text-align: left; display: block; padding-left: 32px; margin-bottom: 0; cursor: pointer; font-size: 11px; line-height: 18px;
      -webkit-user-select: none;
      -moz-user-select: none;
      -ms-user-select: none;
      user-select: none;
      order: 1;
      color: #ffffff;
      font-weight: normal;}
      .custom-post-from .cpf-checkbox label a { color: #ffffff; text-decoration: underline; }
      .custom-post-from .cpf-checkbox input { position: absolute; opacity: 0; cursor: pointer; height: 100%; width: 24%; left: 0;
      right: 0; margin: 0; z-index: 3; order: 2;}
      .custom-post-from .cpf-checkbox input ~ label:before { content: “f0c8”; font-family: Font Awesome 5 Free; color: #eee; font-size: 24px; position: absolute; left: 0; top: 0; line-height: 28px; color: #ffffff; width: 20px; height: 20px; margin-top: 5px; z-index: 2; }
      .custom-post-from .cpf-checkbox input:checked ~ label:before { content: “f14a”; font-weight: 600; color: #2196F3; }
      .custom-post-from .cpf-checkbox input:checked ~ label:after { content: “”; }
      .custom-post-from .cpf-checkbox input ~ label:after { position: absolute; left: 2px; width: 18px; height: 18px; margin-top: 10px; background: #ffffff; top: 10px; margin: auto; z-index: 1; }
      .custom-post-from .error{ display: block; color: #ff6461; order: 3 !important;}

      There is, by now, a substantial record of serious analysis of populist economics, largely based on the experience of Latin American populism. Take, for instance, Jeffrey Sachs, who certainly is above any suspicion of harboring right-wing proclivities. In a paper from 1989, he analyzed what he called the “populist policy cycle”: Overly “expansionary macroeconomic policies,” he observed, “lead to high inflation and severe balance of payments crises.”

      In a similar vein, Rüdiger Dornbusch and Sebastian Edwards noted in 1991, “Again and again, and in country after country, policymakers have embraced economic programs that rely heavily on the use of expansive fiscal and credit policies and overvalued currency to accelerate growth and redistribute income.” After a short-lived economic boom, problems emerge, engendering “unsustainable macroeconomic pressures that, at the end, result in the plummeting of real wages and severe balance of payment difficulties. The final outcome of these experiments has generally been galloping inflation, crisis, and the collapse of the economic system.” Ultimately, those supposed to benefit most from populist economic policies, i.e., the poor, end up worse off than they had been before the populists came to power.

      Recent developments in Turkey suggest that Erdogan’s regime might be heading in the same direction. Take, for instance, the evolution of the country’s currency, the lira. Over the past nine months, the lira has lost almost 25% of its value compared the US dollar and the euro. This reflects investor worries about rising inflation, depleting currency reserves and the fact that Turks appear to be fleeing into foreign currencies.

      Same Direction

      The concerns are hardly unfounded. In late September, the Turkish central bank raised interest rates by 200 basis points, from 8.25% to 10.25%, in an attempt to counter rising inflation. This marked a drastic reversal of previous policy. Starting in December 2019, it had successively slashed the interest rate, which at the time stood at 14%. The move was not entirely of the bank’s own making. In July, Erdogan, unhappy about the bank’s slow pace in cutting interest rates, dismissed its chief for not having “follow[ed] instruction.” His replacement dutifully embarked on a course of monetary easing, based on official projections that the inflation rate would fall to around 8% by the end of 2020.

      Monetary easing provoked a massive “credit binge” by both businesses and households, which, in turn, stoked the flames of inflation, far surpassing the projected 8% mark. In reality, inflation rose to around 12% in 2020. In response to monetary easing, private debt increased substantially, with often disastrous consequences. A prominent case in point is Turkey’s professional football clubs. The four most prominent ones — Besiktas, Galatasaray, Fenerbahce and Trabzonspor — have accumulated around €1.5 billion ($1.8 billion) worth of debt.

      The reason? In line with Erdogan’s goal to turn Turkey into a major global power, the country’s top football clubs endeavored to move into the Gotha of European football, on par with the likes of Real Madrid, Bayern München and Manchester City. In order to reach this goal, they borrowed heavily in euros and dollars in order to be able to attract international star players. The partial collapse of the Turkish lira, together with the drying up of revenues in the wake of COVID-19, has pushed all four clubs to the abyss of financial ruin.

      It would be going too far to suggest that this might be a preview of things to come for Turkey as a whole. In fact, the regime’s economic track record has been relatively successful in performing a balancing act between sane economic policy and populist inclinations. This has been due, to a significant extent, to the central bank’s relative independence, even if this has noticeably eroded over the past several years, constantly under pressure from the president to support the regime’s economic program. The recent rate hike might suggest, or so one might hope, that realism has once again gained the upper hand.

      This would certainly be a departure from business as usual as far as populist regimes are concerned. A recent extensive study by economists from the Kiel Institute for the World Economy and the University of Bonn in Germany provides an extensive and detailed account of the profound incompetence populist regimes have demonstrated when it comes to the basics of economics. Silvio Berlusconi’s tenure, for instance, did little to advance the life chances of ordinary Italians.

      Embed from Getty Images

      On the contrary, the upsurge in voter discontent and disenchantment that, for a short period of time, propelled the Five Star Movement to the top of Italian politics, reflects the opportunities wasted during Berlusconi’s reign. This has been particularly pronounced in Latin America, but not only there. In the medium and long run, as the study’s authors conclude, “virtually all countries governed by populists witness subpar economic outcomes evidenced by a substantial decline in real GDP and consumption.” It would be easy to dismiss these outcomes as the result of misguided policies, informed by good intentions but with disastrous consequences. My guess is, however, that this is only part of the story, and the less important one at that. Not for nothing those who have studied populism have emphasized the importance of the “common sense of common people” as a central trope in populist rhetoric, targeting expert “elites.”

      Unfortunately, more often than not, the common sense of the common people is completely wrong. Even more unfortunately, ignoring expert advice more often than not has disastrous consequences — in economics, as well as with regard to the coronavirus pandemic.

      Once again, Erdogan is a prominent example. Despite an upsurge in COVID-19 infections, the president has been more than reluctant to follow advice to impose stringent measures to contain the virus. At the same time, his political allies have accused Turkish medical experts of “treason,” reminiscent of similar slanders in the United States. To make matters worse, Erdogan’s shameful attack on President Macron in the wake of Islamicist-inspired terrorist attacks in France is hardly conducive to improving Turkey’s economic relations with Western Europe, a vital market for Turkish exports. So much for common sense.

      *[Fair Observer is a media partner of the Centre for Analysis of the Radical Right.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 150 Shares169 Views

      in US Politics

      Trump has gone a long way toward hindering democracy in other countries

      by

      The president has questioned American democracy for four years, creating challenges abroadThe last time a Republican won the popular vote for president, the winning candidate declared that the spread of democracy was central to American security.“It is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world,” said George W Bush in his second inaugural address in 2005. Continue reading… More