Steve H. Hanke
Since President Tayyip Erdogan has been at the helm, the Turkish lira has tumbled. Today, it collapsed. At one point, it was down as much as 18.5% against the U.S. dollar. The chart below traces the ugly course the lira has taken against the greenback under Erdogan’s tutelage.
With the collapse of the lira, Turkey’s inflation has surged. The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency mdash; the U.S. dollar. Changes in the exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.
I measure Turkey’s implied annual inflation rate on a daily basis by using PPP to translate changes in the TRY/USD exchange rate into an annual inflation rate. The chart below shows the course of that annual rate. At present, Turkey’s annual inflation rate is 85%. This rate is 5.5 times higher than Turkey’s last reported official inflation rate of 15.39%.
President Erdogan claims that Turkey will come up with a new economic game plan to save the lira. Well, he better come up with one fast. As it turns out, there is a ready-made economic strategy on the shelf, and it’s a strategy that works. I refer to it as the “Singapore Strategy.”
Singapore gained its independence in 1965, when it was, in effect, thrown out of Malaysia. At that time, Singapore was backward and poor — a barren speck on the map in a dangerous part of the world. If that wasn’t enough, it was experiencing race riots, which came close to igniting a civil war. Singapore’s per-capita income in 1965, adjusted for inflation, was roughly equivalent to that of poor countries like Albania, Angola, Armenia, Guyana, Kosovo, and Mongolia, today.
But, at its founding, Singapore had a leader, Lee Kuan Yew. He had clear ideas about how to modernize the country: the “Singapore Strategy.” This strategy contained the following elements:
The first element was stable money. Singapore started with a currency board system — a simple, transparent, rule-driven monetary regime. Currency boards operate on autopilot, with automatic adjustments keeping the system in balance. Accordingly, currency boards deliver discipline to the spheres of money, banking, and fiscal affairs. For Singapore, the currency board provided stable prices and free convertibility of the Singaporean dollar, which was fully backed by foreign reserves and gold, at a fixed exchange rate. This established confidence and attracted foreign investment.
Turkey should follow Singapore’s lead and adopt a currency board in which the lira would be linked to and fully backed by gold. Such a gold-backed currency board would make the lira as good as gold.
The second element was that Lee Kuan Yew ruled out passing the begging bowl. Singapore refused to accept foreign aid of any kind. This is a far cry from many developing countries, where, when you pick up the paper, all you see are politicians and bureaucrats trying to secure foreign aid from someone, be it an NGO, a foreign government, or an international financial institution, like the World Bank. By contrast, signs reading “no foreign aid” were hung figuratively outside every government office in Singapore.
The third element was that Singapore strived to have first-world, competitive private enterprises. This was accomplished via light taxation and light regulation, coupled with completely open and free trade — in short, policies that enabled Singapore to become one of the Asian Tigers.
The fourth element in the Singapore Strategy was an emphasis on personal security, public order, and the protection of private property.
The fifth, and final, element in the Singapore Strategy was a “small,” transparent government — a minimalist government that avoided complexity and “red tape”.
To execute the strategy with precision, Singapore appoints only first-class civil servants and pays them first-class wages. Today, for example, the Singaporean Finance Minister’s annual salary is $1.3 million dollars (USD). In exchange for these high salaries, the Singapore Strategy demands that the government runs a tight ship, with no waste or corruption. By embracing Lee Kuan Yew’s Singapore Strategy of stable money, no foreign aid, first-world competition, law and order, and a government that is free of waste and corruption, Singapore has transformed itself from a poor, barren speck to a global financial center.
If President Erdogan was smart, he would embrace the Singapore Strategy. And he should do it Monday morning, before the markets open.Steve Hanke is a professor of applied economics at The Johns Hopkins University and senior fellow at the Cato Institute.
Ted Galen Carpenter
Donald Trump has again stirred the wrath of his critics by charging that the media can cause wars. His opponents immediately howled that he’d launched another salvo in his ongoing campaign to vilify journalists as the “enemy of the people.” They also ridiculed his contention as factually absurd. Fox News reporter Chris Wallace bluntly asked National Security Advisor John Bolton: “What wars have we caused?” Princeton University historian and CNN analyst Julian E. Zelizer epitomized the view that Trump’s charge is unfounded with a piece in The Atlantic titled, “The Press Doesn’t Cause Wars—Presidents Do.”
Zelizer and similar critics are technically correct, of course. Media outlets have no power to launch attacks on foreign countries or order U.S. troops into combat. But that view is much too narrow. As Zelizer himself admits, the new media have considerable ability to influence public opinion. Such a capacity to shape the overall narrative is not a trivial power. An irresponsible press can, and has, whipped up public sentiment in favor of military actions that subsequent evidence indicated were unnecessary and even immoral.
Two cases stand out: the Spanish-American War and the Iraq War. Historians have long recognized that jingoistic “yellow journalism,” epitomized by the newspaper chains owned by William Randolph Hearst and Joseph Pulitzer, played a significant role in the former conflict. Months before the outbreak of the war, one of Hearst’s reporters wished to return home from Cuba because there was no sign of a worsening crisis. Hearst instructed him to stay, adding, “you furnish the pictures, and I’ll furnish the war.”
History shows that a jingoistic media can whip up support for hardline policies, as Trump rightly pointed out.
Hearst’s boast was hyperbolic, but the Hearst and Pulitzer papers did repeatedly hype the Spanish “threat” and beat the drums for war against Madrid. They featured stories that not only focused on but exaggerated the uglier features of Madrid’s treatment of its colonial subjects in Cuba. Those outlets also exploited the mysterious explosion that destroyed the U.S. battleship Maine in Havana’s harbor. To this day, the identity of the culprit is uncertain, but the yellow press exhibited no doubts whatever. According to their accounts, it was an outrageous attack on America by the villainous Spanish regime.
Such journalistic pressure was not the only factor that impelled William McKinley’s administration to push for a declaration of war against Spain or for Congress to approve that declaration. A rising generation of American imperialists wanted to emulate the European great powers and build a colonial empire. That underlying motive became evident when the first U.S. attack following the declaration of war came not in Cuba, but in the Philippines, Spain’s colony on the other side of the Pacific.
Nevertheless, it would be naïve to assume that the jingoist press did not play a significant role in causing the war against Spain. Indeed, the corrupt role of yellow journalism in creating public support for that conflict is not a particularly controversial proposition among historians.
The role of an irresponsible press in shaping a pro-war narrative was even more evident in the prelude to the 2003 U.S. military intervention in Iraq. New York Times reporter Judith Miller and other prominent mainstream journalists were especially culpable in publicizing erroneous information about Saddam Hussein’s government regarding two emotionally charged issues. They uncritically circulated “evidence” from Iraqi defectors and George W. Bush’s administration that Iraq was in league with al-Qaeda and may well have had a role in the devastating 9/11 terrorist attacks. And they pushed the case that Saddam had weapons of mass destruction and was actively working on developing a nuclear arsenal.
Again, it would be too much to place all or even most of the blame for the disastrous Iraq war on gullible or ultra-hawkish journalists. The Bush administration seemed determined to oust Saddam, and it might have attempted to do so even without strong public support. But most of the media was staunchly pro-war, and that bias greatly skewed the narrative presented to the public. When highly respected journalistic institutions like the New York Times circulated story after story highlighting the alleged security threat that Saddam posed, and those stories were then featured in other publications and on TV, it was hardly surprising that much of the public believed the narrative. The tendency of mainstream media outlets to ignore or marginalize war critics amplified their pro-war bias.
As is so often the case with Trump’s arguments, his accusation that the press can cause wars is an exaggeration, but one that contains an important kernel of truth. Irresponsible media coverage has undoubtedly strengthened public sentiment for ill-advised wars in the past, and it could do so again in the future. The sometimes shrill hostility of the mainstream media towards Russia is pushing the United States toward an increasingly hardline policy that now borders on a second cold war. The original Cold War nearly escalated to a hot one on several occasions. The press needs to be doubly cautious about pushing policies that would send America down a similar perilous path. Trump is wrong to brand the press as an enemy of the people, but it is still a powerful institution that has not always used its great influence responsibly regarding matters of war and peace.Ted Galen Carpenter, a senior fellow in defense and foreign policy studies at the Cato Institute, is the author of 10 books on international affairs, including The Captive Press: Foreign Policy Crises and the First Amendment.
Why is the public’s grasp of economics so weak? A recent Radio 4 documentary by economics commentator Martin Wolf pointed the finger partly at the impenetrable jargon of economists. Wolf worried that “one could not understand politics if one does not understand economics”.
He highlighted a concerning 2017 YouGov poll showing that half of the UK public didn’t feel confident they understood the economic impact of policies on which they were voting. Surely, we’d all benefit, as one interviewee recommended, if economists, politicians and commentators told stories and used simple historical examples to get across complex ideas?
I wonder. Sure, your average guy in a pub might not know the ins and outs of monetary policy (then again, most experts at central banks appear uncertain of its effects these days). But in some areas the public’s inherent common sense seems more economically sophisticated than the talking points of commentators and politicians.
Yes, levels of economic education in the UK overall might be poor. Yet simple historical stories and clichés could sometimes worsen public understanding, not improve it.
A great example of this is the public’s continued opposition to the increasingly costly HS2 rail project. In an age where seemingly intelligent thinkers seem to believe that saying “infrastructure spending is good for the economy” suffices to justify any project, the public shows awareness of the large costs involved and the weak “bang for the buck”.
Indeed, there is an argument that banal, lazy and simplistic storytelling would worsen the quality of public debate about such issues.
Take recent academic work by Danish economists, who in true Monty Python style explored the question “what have the Romans ever done for us?” by examining the legacy of the Roman Empire’s road system. Using mapping and statistical techniques, they showed the patterns of roads built two millennia ago in Europe strongly correlate with prosperity levels today, as proxied by modern road intensity, how built up an area is via night-time light imagery, and population.
The economists produce a convincing case that the direction of causation flows from the public roads to economic development, rather than roads being built with economic potential in mind. The Romans, after all, were primarily concerned about moving armies, not trade. In North Africa and the Middle East (where roads were allowed to fall into disrepair following greater use of camels) the link between roads and today’s prosperity levels is much weaker.
This is a fascinating case study of infrastructure that hugely increased connectivity. But some commentators lazily generalise to suggest this insight shows how “infrastructure investments today could continue to bear fruit for thousands of years to come”.
This kind of conclusion - sweeping judgments about all infrastructure spending - does nothing to inform the public, but actually worsens economic understanding by conflating the intuitive concepts of average effects and marginal effects. That the development or maintenance of a road or rail system has major benefits overall tells us very little about the desirability of new or additional investments today, which should be judged according to their own merits.
Academic evidence from the US by John Fernald, for example, has shown development of the interstate highway system there produced a big one-time boost to economic activity. More recent studies, though, actually find that too many new highways were built between 1983 and 2003 and that these extensions did not bring net social benefits. That was not least because the cost savings of reducing travel times further are small relative to incomes and prices.
Similar reasoning has shown why HS2 is so wasteful. Not only will the high-speed line only shave off a small amount of journey time between London and Birmingham. But technological developments mean that the costs of travelling by rail in terms of productive time lost are much lower today then they have been anyway. Not only can one video-conference, but you can also work online as you travel.
Though politicians supportive of the scheme like to portray its opponents as Nimbys stifling an economically beneficial scheme, the truth is the public know it is just poor value for money. The Government’s own 2010 comprehensive spending review deferred, cancelled or placed under review road investments with average benefit-cost ratios of 6.8, 3.2 and 4.2 respectively, but persisted with HS2 (which had a benefit-cost ratio of 1.2).
But it has become even more obvious since. A fortnight ago, a leaked report suggested the scheme could run as much as 60pc over budget, taking the cost to £90bn or more. The Government’s own assessment suggests there is a high risk of the project not delivering value for money.
Of course, not all projects are this wasteful. The public wants more infrastructure investment. But given we have major networks already, marginal improvements are where the big wins can be found. Some roads and commuter routes in particular suffer from heavy congestion, both requiring new capacity and more effective pricing.
There is scope, with technological developments, to adopt comprehensive road pricing in the longer term, which would provide the clear signals for where new capacity was needed. Eliminating bottlenecks, in particular, can bring big economic benefits. The modern equivalent of the Roman roads could well be capacity for flights to rapidly growing areas of the global economy.
Despite the large sums of money involved, this is one policy area where economists and politicians have oversimplified and often exhibit less level-headedness than the country at large. You’re more likely to hear an economist quoted as saying “infrastructure investment is good for economic growth” in newspapers than garner any insight on these trade-offs and spillovers.
Yes, levels of economic education in the UK overall might be poor. Yet simple historical stories and clichés could sometimes worsen public understanding, not improve it. And that creates a lack of trust in the political class to deliver the public goods that do bring major economic benefits.Ryan Bourne is the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute