Topic: International Economics and Development

Is Turkey Golden?

By
Steve H. Hanke

Recently, Moody’s Investors Service took some wind from Turkey’s sails, when it declined to upgrade Turkey’s credit rating to investment grade. Moody’s cited external imbalances, along with slowing domestic growth, as factors in its decision. This move is in sharp contrast to the one Fitch made earlier this month, when it upgraded Turkey to investment grade.   Moody’s decision not to upgrade Turkey, and its justification, left me somewhat underwhelmed – given how well the Turkish economy has done in recent years.

Since the fall of Lehman Brothers, Turkey’s central bank has employed a so-called unorthodox monetary policy mix. For example, a little over a year ago, it began to allow commercial banks to purchase gold from Turkish citizens and allowed banks to count gold to fulfill their reserve requirements. Incidentally, this was a remarkable success – from 2010-2012, the Turkish banking sector’s precious metal account increased by over 7 billion USD.

For all the criticism its unconventional monetary policies have garnered, the Central Bank of the Republic of Turkey has, in fact, produced orthodox, golden results. Indeed, as the accompanying chart shows, the central bank has delivered on the only thing that really matters – money.

Turkey’s economic performance has been quite strong (despite some concerns about inflation and its current account deficit) . Turkey’s money supply has been close to the trend level for some time, and it currently stands 2.41% above trend. This positive pattern is similar to that of many Asian countries, who continue to weather the current economic storm better than the West.  And, it stands in sharp contrast to the unhealthy economic picture in the United States and Europe – both of which register significant money supply deficiencies.

So, why would Moody’s not follow Fitch’s lead and upgrade Turkey to investment grade? To understand this divergence, one should examine Turkey’s recent current account activity. Since late 2011, Turkey’s current account has rebounded somewhat (see the accompanying chart).

But, if gold exports are excluded from the current account (on a 12-month rolling basis), a rather significant 47% of this improvement, from the end of 2011 to September 2012, magically disappears.

Where is this gold going? Well, a quick look at the accompanying chart shows just how drastically exports to Iran and the UAE have surged this year.

Taken together, the charts indicate that Turkey is exporting gold to Iran, both directly and via the UAE , propping up their current account in the process. This has put Turkey and the UAE in the crosshairs of proponents of anti-Iranian sanctions.   Those who beat the sanctions drum are now seeking to impose another round of sanctions, aimed at disrupting programs such as Turkey’s gold-for-natural-gas exchange. This proposal clearly highlights some of the problems associated with sanctions, specifically the unintended costs imposed on the friends of the U.S. and EU in the region. Indeed, Dubai has already taken a hit, with its re-exports falling dramatically as a result of the sanctions.

What is the U.S. to do – go against Turkey, its NATO ally? Believe it or not, some in the Senate are allegedly considering such a wrong-headed move.

If these proposed sanctions are implemented, then Moody’s pessimistic outlook on Turkey may turn out to be not so far from the mark, after all – and Turkey will have no one but its “allies” to blame.

Topics: 
Finance, Banking & Monetary Policy, Foreign Policy and National Security, General, International Economics and Development, Trade and Immigration

Mexico’s Drug War and U.S. Policy: New Cato Video

By
Caleb O. Brown

Since President Felipe Calderon took office six years ago and decided to aggressively fight Mexican drug cartels, Mexico has seen some 60,000 drug-war-related deaths. That’s “more than the number of Americans who died in Vietnam, but in a country with one third the U.S. population,” says former Mexican Foreign Minister Jorge Castañeda.

In a new Cato video released during President-elect Enrique Peña Nieto’s visit to Washington this week, Ted Carpenter explains why the U.S.-backed drug war has been a disaster and urges an end to prohibition. For an in-depth look at the issue, read Ted’s new book, The Fire Next Door: Mexico’s Drug Violence and the Danger to America.

You can read more Cato scholars’ writings on the War on Drugs here.

Topics: 
Foreign Policy and National Security, International Economics and Development, Law and Civil Liberties

From the Bank of Canada to Threadneedle Street – Finally

By
Steve H. Hanke

On July 1st 2013, Bank of Canada Governor Mark Carney will assume the position of Governor of the Bank of England . Will Carney’s hat-switching be good for the UK? At present, one thing is certain; Carney has delivered to Canada the one thing that matters – money .

A quick comparison of the money supply in Canada to that of the UK shows the stark differences in the health of their respective money supplies  (and thus, of their respective economies).

 

 

The Canadian money supply has managed to stay near trend throughout the post-Lehman era. In fact, the Canadian total money supply is currently 0.5% above trend, while the UK’s money supply is a dismal 12.1% below trend – no wonder the UK keeps flirting with recession. Although Canada’s GDP growth rates are less than stellar, they are above the average of the 34 OECD nations . Indeed, Canada’s overall economic outlook is much stronger than that of the UK .

In his new position, Carney will face the formidable challenge of turning around the UK’s slumping money supply. Regardless of Carney’s success in Canada, we will have to wait and see if he’ll be able to pull it off on the other side of the pond.

Topics: 
Finance, Banking & Monetary Policy, International Economics and Development

French President Demands and Gets Firing of Opposition Editor

By
Walter Olson

According to the New York Times, French Socialist president François Hollande demanded and received the dismissal of the editor of Le Figaro, the country’s leading conservative newspaper. If that sounds impossibly high-handed, consider the background, as reported in the Times:

The publisher, Serge Dassault, is a senator from [ousted President Nicolas] Sarkozy’s political party [and thus opposed to Hollande]. But Mr. Dassault also heads a major military contractor, and there was widespread speculation that [Figaro editor Étienne] Mougeotte’s ouster was meant to put the Dassault group in good stead with the new president.

For an American reader, it would be natural to turn the page with a murmur of thanks that such things don’t go on in our country. Don’t be so sure:

[Since-convicted Illinois Gov. Rod] Blagojevich, Harris and others are also alleged [in the federal indictment] to have withheld state assistance to the Tribune Company in connection with the sale of Wrigley Field. The statement says this was done to induce the firing of Chicago Tribune editorial board members who were critical of Blagojevich.

And in 1987, at the secret behest of the late Sen. Edward Kennedy (D-MA), Sen. Ernest Hollings (D-SC) inserted a legislative rider aimed at preventing Rupert Murdoch from simultaneously owning broadcast and newspaper properties in Boston and New York. The idea was to force him to sell the Boston Herald, the most persistent editorial voice criticizing Kennedy in his home state. Kennedy’s and Hollings’s actions drew criticism in places like the Harvard Crimson and from syndicated columnist R. Emmett Tyrrell, but no national furor developed.

One moral is that we cannot expect our First Amendment to do the whole job of protecting freedom of the press. Yes, it repels some kinds of incursions against press liberty, but it does not by its nature ward off the danger of entanglement between publishers and closely regulated industries, stadium operators, and others dependent on state sufferance. That’s one reason there’s such a difference in practice between a relatively free economy, where most lines of business do not require cultivating the good will of the state, and an economy deeply penetrated by government direction, in which nearly everyone is subject to (often implicit) pressure from the authorities. France has been unable to avoid the perils of the latter sort of economy. Can we?

Topics: 
General, International Economics and Development

Paul Krugman’s ‘Remarkable Success Story’ in Latin America

By
Juan Carlos Hidalgo

Remember back in May when Paul Krugman described Argentina’s economic model in the last decade as a “remarkable success story”?

Today La Nación of Buenos Aires reports [in Spanish] that Argentina will have the worst record in terms of inflation and growth in South America in 2012. The Argentine economy will barely grow 1% this year and inflation will be above 20%, while the rest of the region enjoys healthy growth and low inflation rates.

Argentina is indeed a remarkable story. But not necessarily a successful one as Krugman pointed out.

Topics: 
International Economics and Development

The ‘Happy Planet Index’ Ranks Venezuela, Albania, and Cuba Far Higher than the United States

By
Daniel J. Mitchell

Rankings can be very useful tools, assuming the methodology is reasonable and the authors use robust data. I’ve cited many of them.

But I’ve also run into some really strange rankings since starting this blog, some of which are preposterous and others of which are rather subjective.

That last one was good for my ego. My only comment is that I wish that I had real influence.

Speaking of preposterous rankings, I have something new for the list.

There’s a group that puts out something called the “Happy Planet Index,” which supposedly is a “global measure of sustainable well-being.”

But it’s really an anti-energy consumption ranking, modified by life expectancy data along with some subjective polling data about lifestyles. And it leads to some utterly absurd conclusions.

Here’s their map of the world. All you really need to know is that it’s supposedly bad to be a red country.

 

I’m perfectly willing to agree that people in Afghanistan and Angola are not part of a “happy planet,” but do they really expect people to believe that the United States is in the bottom category?

I’m not being jingoistic. Yes, I am a patriot in the right sense of the word, so I would like the United States to be at the top of most rankings.

But my job is to criticize bad public policy, so my life would be rather dull if the crowd in Washington adopted a much-needed policy of benign neglect for the economy.

My real gripe is that some of the world’s main cesspools get high rankings. The United States is 105th according to the clowns who put together the rankings, while Cuba somehow came in 12th place.

Venezuela also ranks near the top, and other jurisdictions that score at least 50 places above America include Albania, Pakistan, Palestine, Iraq, Moldova, and Tajikistan.

It’s not just that those nations all rank above the United States. They also are ahead of Sweden, Canada, Australia, Iceland, Singapore, and Hong Kong.

And I’d rather live in any of those nations than live in any of the ones I listed that got good scores according to the poorly named Happy Planet Index.

Heck, I’d also prefer to live in some of the nations that score even lower than the United States, such as Belgium, Denmark, Estonia, or Luxembourg.

The Luxembourg ranking is particularly absurd. It is down near the bottom, with a ranking of 138 and trailing such garden spots as Burkina Faso and the Congo.

But it also happens to be one of the world’s richest nations according to World Bank data, in part because it is a very good tax haven.

But the nuts who put together the Crazy Planet Index give Luxembourg the second-to-worst ranking for its “ecological footprint,” and I guess you’re supposed to be unhappy if you have enough wealth to use a lot of energy.

Gee, too bad Luxembourg couldn’t be more like the nations that get the highest rankings for their “ecological footprint.” The people of Afghanistan and Haiti must be very, very happy about that high honor.

Topics: 
General, Government and Politics, International Economics and Development, Political Philosophy

A Cautionary Tale on Negotiated vs. Unilateral Trade Liberalization

By
Sallie James

Many economists, including myself, take some convincing when it comes to the benefits of bilateral and regional trade agreements. I’m not as skeptical as the likes of, say, Rep. Ron Paul, who often votes against preferential and piecemeal trade liberalization legislation on the basis of it being “managed trade”  (his latest protest vote on that score was a “nay” on granting Russia permanent normal trade relations status).  But since the 1950s, when the work of Jacob Viner showed that when trade agreements cause the importing country to favor less-efficient producers (a phenomenon known as trade diversion), trade theory has pretty-much consistently shown a hierarchy of mechanisms for increasing commerce across borders: unilateral trade liberalization is best, followed by multilateral trade liberalization (although the current WTO round of trade negotiations is dead), and then regional or bilateral agreements. Most economists more-or-less subscribe to this hierarchy on the basis of pure economics, although we disagree on the extent to which political and practical concerns should trump the economic theory in order to harvest at least some benefits for consumers and taxpayers, who have had their wallets picked for decades if not centuries in the name of “leveling the playing field.” (In the interests of preserving appetites in anticipation of Thanksgiving, I will spare the readers further details on the esoteric and internecine squabbles between trade economists on this topic.)

In the early to mid-2000s, the Bush administration (followed by others) tried to turn this thinking on its head, arguing that bilateral negotiations can aid trade liberalization by (a) forcing the hand of foot-draggers, by scaring them into joining the fray and (b) setting up a series of trade blocs that subsequently could be joined together like a jigsaw puzzle (a process known as “competitive liberalization”, a term coined by Fred Bergsten at the Peterson Institute of International Economics). Die-hard unilateralists like Jagdish Bhagwati (a member of the Herbert A. Stiefel Center for Trade Policy Studies Advisory Board), instead cautioned of a “spaghetti bowl” of trade agreements. Preferential deals would cause extra burdens for customs authorities, they said, for example by giving rise to complicated and in some cases conflicting rules about deciding where a good comes from for the purposes of assigning tariff rates.

Economists and free trade advocates also worry about the effect that preferential deals have on multilateral trade negotiations. I saw this first-hand when I worked on the Doha Round in 2005-06. Many World Trade Organization members, particularly developing countries, receive preferential (i.e., lower) tariff rates on their exports to developed countries. They thus often raise concerns about non-discriminatory tariff cuts because it would mean their preferences were worth less (called “preference erosion,” in the jargon of trade negotiators).  You then see the somewhat perverse situation of developing countries arguing against tariff cuts in rich countries, or at least demanding compensation for it.

The latest example of the conflict between modes of liberalization – in this case, unilateral v. regional liberalization – comes from closer to home. The trade press is buzzing with the news that the Obama Administration has raised concerns about the efforts of some lawmakers to cut tariffs on certain footwear items (on the basis that we do not make them in the United States and therefore have no competitive interest in the market). These sorts of efforts happen regularly in the form of “miscellaneous tariff bills” (MTBs), usually with little fanfare given the uncontroversial politics of it, Republican concerns notwithstanding. Why would the administration object to limited tariff relief on goods not produced domestically? Because, as is typical among trade negotiators, they want to keep the tariffs in place as bargaining chips:

Alex Boian, director of trade policy at the Outdoor Industry Association (OIA), said in an interview that administration officials in private conversations have made clear their reservations relate to the fact that Vietnam is seeking a reduction in U.S. footwear tariffs in the context of the TPP talks. In the administration’s view, these tariff lines represent “prime negotiating leverage” with Vietnam in [the Trans-Pacific Partnership negotiations], Boian said. (emphasis added. Source: Inside U.S. Trade [paywall])

A few industry groups have raised a stink, pointing out that the tariff relief provided by the MTB is limited and temporary, so are unlikely to threaten the TPP. And procedurally, it is not clear if the administration even has the right to object to the MTB tariff breaks on this basis anyway. More broadly, I find myself sympathetic to the arguments of the American Apparel and Footwear Association, which in their letter to United States Trade Representative Ron Kirk, said:

…the objection that “Enactment would undermine existing U.S. trade preferences” creates  significant concerns.  In addition to the reasons outlined above, the basic premise of this objection is faulty. To extend the logic outlined in this objection, the current negotiations toward a TPP agreement would “undermine existing U.S. trade preferences” as would negotiations toward a Doha Round agreement at the World Trade Organization.

For that matter, under this logic, any new trade negotiation would “undermine existing U.S. trade preferences.” By making such an objection, the administration is essentially arguing that U.S. trade policy should be brought to a halt altogether. [emphasis added]

Indeed. When it comes to preferential trade deals, caveat emptor.

Topics: 
International Economics and Development, Trade and Immigration

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