Economies are funny things. I just noticed that I forgot to tie today’s video into one of the central messages of this “Markets Are Dumb” series. That’s the importance of Confidence to markets. I sometimes think that’s all there is to them. In our last installment on the Turkish economy I talked about how the fundamentals of the Turkish economy had been disastrous for half a decade. Everybody knew this. All the experts agreed. Yet the Turkish economy kept trucking along, and sometimes putting up very impressive growth numbers. How did it happen? Confidence.
The Turkish people weren’t exposed to the basic facts of their economy, and their misplaced faith, or confidence, kept the wheels spinning. The growth this led to prompted international investors to keep pouring money it. It seems that this perpetual motion machine may finally have stopped. As today’s video makes clear, Trump can’t be held responsible for any of the disastrous choices that Turkish policy makers have made over the past decade. But he is the guy who finally punctured that last bubble of confidence. And that’s actually pretty important.
Sigh. Sunday’s election in Turkey was pretty depressing. Erdogan won re-election as president of Turkey, and his coalition retained a majority in the Turkish parliament. This puts him in a dramatically more powerful position. The recently revised constitution makes the President the center of Turkey’s political system. And with this election, the office of the Prime Minister is done away with, and Erdogan is now in more full control of the country than he has ever been.
You can find an infinite number of articles talking about how bad this development is, and I largely agree with them. But I remain optimistic about Turkey, just in the longer term. Here are two things to make you feel a bit better…
First, this is exactly what we expected when the elections were announced a couple months back. I have said repeatedly in my Turkey videos that I expected Erdogan to win the next couple elections. This has happened. But over the past two months, something really exciting happened. The CHP, the party that has failed to adequately oppose Erdogan for almost two decades now, finally put up a candidate that people actually liked. Muharrem İnce is likable, has a compelling story, and actually seems to be a decent leader, which is at least two things, if not three things that the CHP’s leader Kemal Kılıçdaroğlu does not have. In the weeks leading up to the election, İnce held rallies attended by literally millions of people. This, combined with the founding of Meral Akşener’s Iyi party last year made people surprisingly hopeful.
Those hopes were dashed. The AKP, in an alliance with the (suspiciously successful) hyper-nationalist MHP party, has managed to hold onto a majority in parliament, and Erdogan himself was re-elected. This sucks. But it’s exactly what we expected out of this election before we got our hopes up. The opposition parties remain very successful in Turkey in spite of some truly extraordinary obstacles. We shouldn’t get too depressed about something we expected all along.
The Second reason not to get too depressed about this election is the topic of today’s video. Turkey’s economy is a mess. It’s been on the edge for years now, and 2018 has a good chance of being the year when it finally tips over. When that happens, whether it’s this year or next year, Erdogan will own it completely. Last week, as people were getting more excited about the possibility of an upset, all I could think about was 2015. In June of that year, Erdogan’s party, the AK party, lost its parliamentary majority for the first time. I was quite literally dancing in the streets that June. But because the opposition parties were a disaster, they couldn’t get it together to form the coalition government necessary to get rid of Erdogan. He was able to create a new crisis with the Kurds, and call a new election. He won that 2nd election in November 2015. That felt a lot worse than Sunday did. For me anyway. If the opposition had won this time, I could have easily seen that happening again. It wouldn’t have been the Kurds this time. The economy could have crashed, and as President, Erdogan could have blamed the opposition and called a new election. We’re not going to have to do 2015 again, and for that at least I’m grateful. Today’s video lays out just how difficult a time Erdogan is about to have with the Turkish economy.
With today’s video we go all in on discussing the US stock market. There’s this idea that stock markets are somehow rational, or serious. People who talk about it are always wearing suits, and we put a lot of effort into making all the details of interest rates, portfolio management, and valuations seem boring. The stock market is none of these things. In fact it’s nuts. By going through the history of the “Trump Bump”, I attempt to draw the curtain back a bit.
Unfortunately, watching the video, I think I screwed something up. It’s not that the story I put forward is wrong, it’s just that I left too much out. The video falls into the “Presidents impact everything” school of commentary. I hate that school. The differing views market makers took of Trump and Obama are tremendously important to this particular economic story, but that doesn’t mean that presidents are actually all that powerful. I really don’t want to create that impression, and I apologize if I did so with this video.
I feel like markets and economics have been an underpinning of what I’ve been talking about for quite some time now. It’s been a troubling thing for me. There’s always a lot of certainty when these issues come up in political discussions, but usually almost nothing backing up that certainty. The conditions we’re looking at are always changing, and the theories that people gravitate to are some of the least proven imaginable. Economics has pretensions to being a science. But the variables are immense, and there’s really only one result.
We have one world economy, and its performance at any given time is the only thing that we have to point to, to see whether our theories are working. There is no control group. Most of the figures we rely on to measure what’s going on are little better than rough estimates, and the political consensus rarely lasts a decade. I have high hopes for the profession of economics. People are doing amazing work in the field, and the move onto the internet that our species is currently undergoing provides the possibility of real measurement (and Orwellian nightmares). I’m confident that the future is bright, but I think we all need a lot more humility in talking about the economy. Which is why I made today’s video, and why I’ll be adding to the series in the coming weeks…