1. Yesterday (Monday) Recep Tayyıp Erdoğan took office under the system of executive presidency, which gives him arbitrary personalised powers, based on the claim that a system of such extreme powers for one person is the most democratic system if that person is elected. The changes came about as the result of a referendum last year, which gave a narrow victory for the constitutional changes. It seems to me, and many others, that rigging allowed victory in the election. For the first time in Turkey, all ballot papers unstamped by an electoral officer were counted, allowing unlimited fraud. There are other issues about intimidation and irregularities, but this is not the moment to go into further detail, but I will just point out that radical changes to the constitution were ‘legitimised’ by pseudo-democratic fraud.
2. The constitutional changes enable the President to: legislate by decree, appoint most Constitutional court judges, appoint the army chiefs, appoint police chiefs, appoint all higher level members of the bureaucracy, appoint government ministers and vice-presidents without reference to the National Assembly. There is no Prime Minister. The President, Vice-Presidents, and Ministers are not obliged to answer questions in the National Assembly. In principle the National Assembly can reverse decrees as laws, but to allow the President to legislate in such an unaccountable way in the first place undermines all understanding of what a national assembly is for and what the limits on the head of government or head of state (now the same person) should be in a state which is constitutional and democratic.
3. Ministerial appointments have most notably included the elevation of Erdoğan’s son-in-law, Berat Albayrak, to the Ministry of Treasury and Finance. Albayrak is a major businessman whose rise in business and then politics have taken place since Erdoğan became the most powerful man in Turkey in 2002.
4. Other appointments have given business people ministerial posts for areas of the economy in which they have a dominant market position. Erdoğan’s own family doctor who owns a medical business is health minister. The education minister owns a private college.
5. The appointments of business people and a son-in-law show carelessness about propriety in the separation of the administration of public affairs from private and family interests, to put it in the mildest way possible. It also suggests that Erdoğan thinks he is too big for the party which brought him to power, AKP. It has been clear for some time that the most powerful people in the AKP are this son-in-law and one of the sons. That is, the AKP exists as a vehicle of one family, and its businesses associates. In this case, it is hardly a properly functioning democratic party.
6. The appointments were preceded by a presidential decree on the appointment of the governor and vice-governors of the central bank, which reduces its autonomy and makes it more vulnerable to Presidential pressure. Erdoğan has clearly been struggling to live with central bank decisions to raise interest rates in response to inflation and the falling value of the Turkish Lira. Anyway, the currency lost 20% of its value and inflation is at nearly 16% though the central bank’s target is 5%.
7. Market confidence in Turkey, even of a very minimal kind, was resting on one man, Mehmet Şimşek, who has western training in economics and is the last remnant of the days when the AKP appeared to many to be a centre-right reformist party, and did manage to behave in part like such a party. Şimşek appears to have been increasingly unhappy with his situation, putting a rational face on polices he knows are going in the wrong direction, occasionally winning battles to raise interest rates. One of Erdoğan’s main obsessions is that interest creates inflation. He has found it necessary to curtail that belief on occasions. Şimşek apparently wanted to resign from government recently, but no one ‘betrays’ Erdoğan in that way. Şimşek was bullied into staying and has now been sacked. His replacement is Erdoğan’s son-in- law. The markets have been spooked and the lira fell very sharply yesterday evening.
8. The Erdoğanists do have a solution to lack of international market confidence in Turkey. It is to create a Turkish ratings authority which will rate Turkish government credit as the government wishes! This absurd proposal, which will only reduce the credibility of the lira and government debt, shows the depths to which economic policy run on political paranoia has sunk in Turkey. Political paranoia because low credit ratings are due to foreign conspiracies!
9. Going back to last month’s election, about 2% of ballots cast have been declared invalid by the Supreme Electoral Council. HDP (Kurdish rights and leftist party) has pointed out that most ‘invalid’ ballots are from polling stations where it did not have observers. The HDP is defined as ‘terrorist’ by the followers of Erdoğan and its presidential candidate is in prison on ‘terrorism’ charges. This is all based not on credible evidence of co-operation with the PKK, which does have common roots with HDP, but on absurdly broad definitions of terrorism which take in people who do not oppose the PKK enough or which offer any criticism of state policy towards the PKK.
10. Based on point 9, it looks very much like 2% of votes cast were spoiled to take votes from the HDP. It hardly seems likely that would be the limit of fraud. As mentioned in point 1, all ballots were counted which did not have the basic security guarantee of a stamp from an electoral official on the ballot itself or the envelope containing the ballot. It is inherently difficult to arrive at accurate figures in this matter, but it looks very much like at least 4% of the ballot was fixed (that would merely double the most obvious form of rigging, which I do not think is an extravagant assumption, after all most rigging will take place in very hidden ways). If I am correct then the pro-Erdoğan electoral list for the National Assembly did not get a majority of votes and Erdoğan did not get a majority of votes in the presidential election.
11. The government-state machine extends claims that the HDP is terrorist to the main opposition party, CHP, on the grounds that the CHP has offered some criticisms of the detention of the HDP presidential candidate, and that some CHP supporters voted HDP to help it overcome fraud and reach the 10% of votes necessary to enter the National Assembly. CHP provincial leaders have been banned from attending the funerals of soldiers killed by the PKK, soldiers who in some cases will be CHP supporters, showing the kind of spite, vengefulness, and abuse of state power driving the AKP.
12. The Istanbul municipal government has announced that public transport will be ‘only’ half price during next month’s Kurban Bayram (Sacrifice Festival; religious festival and public holiday) instead of free as has been normal for a long time. This shows the strains that public finances are under in Turkey. The AKP are specialists in providing ‘free’ benefits to electors, along with favours for individuals and families, building up a base in local government in this way before they came to power nationally. The Istanbul news is a small thing in itself, but is suggestive of a decline in the capacity of the AKP to use public money to buy votes.
13. Given increasing personal indebtedness, rising inflation, the falling value of the currency, the decline of foreign investment and the credibility of government debt instruments, we could see some very difficult economic times in Turkey. It is clear that this process was important in holding the recent election 18 months early. The loyalty of the AKP and Erdoğanist base is intense, but was formed at a time of economic growth and expanding public services. We see going to see what happens to loyalty in less happy circumstances.
At the Sound Money Project I have a comment on the importance of distinguishing between the bitcoin technological innovation and its use as a means of exchange. A solid technological innovation does meant that bitcoin is necessarily properly coded to be a successful monetary experiment.
Bitcoin is back in the spotlight as its price has soared in recent weeks. The most enthusiastic advocates see its potential to become a major private currency. But it is important to remember bitcoin is a dual phenomenon: a technological innovation and a potentially useful medium of exchange. One might recognize the technology as a genuine innovation without accepting its usefulness as a medium of exchange.
“Unspent dollars means reduced sales, and as sales decline, profits drop, layoffs increase, and the total social income decreases, making less money available for consumption. Hoarding induces more hoarding as the economy sinks into a downward spiral.” (Smith, 2009)
That’s a lot of nonsense in just two sentences. (Note this is Smith’s paraphrase of the anti-hoarding argument, which he ably disputes.)
First, there is no distinction between “spent” and “unspent” dollars. Money jumps instantly from one pocket to another whenever it is used in a transaction. All money is “idle” between jumps. This could refer to the demand to hold money which is the inverse of the velocity of money. We hold money for convenience, safety, and occasionally as a hedge against deflation.
Second, decreased velocity means price deflation, other things being equal, and if a fall in velocity happens suddenly and unexpectedly, it can be a temporary boon to buyers and a detriment to sellers. But the idea of a deflationary spiral feeding on itself is silly, if only because we all have to eat. Low prices are the cure for low prices, as bargain-hunters move in and prices stabilize.
Then there’s this “social income” phrase. Real social income is not enhanced by faster spending. It is enhanced by greater productivity which depends on private saving, which in turn depends largely on property-friendly institutions. We cannot spend our way to prosperity.
I’ll also comment on Kaminska’s claim that bitcoins “do not benefit the economy” because they do not bear interest. Along with currency and (in their time) gold and silver coins, bitcoins are what economists call “outside money” meaning they are an asset that is no one’s liability. Checking account balances are a form of “inside money” because they are at once an asset of the account holder and a liability of the bank. When outside money is deposited in a fractional-reserve bank where it becomes inside money, some is kept in reserve and some is loaned out. This apparently what is meant by “benefit to the economy” but in fact it’s a benefit to the bank which can earn profits on the new loans and to the borrower, if all goes well. It’s a detriment to the rest of us because there is an increase in the money supply which causes price inflation.
There is nothing anti-social about holding outside money. Some of us see marginal benefits in holding outside money (security, convenience) that exceed the cost in foregone interest. So what?
My own two cents on this (get it?) is merely that Dr Gibson needs to spend more time at NOL fixing the mistakes of financial journalists and keeping his fellow economists honest. (Notereaders and Notewriters, holla at me and Warren in the ‘comments’ threads if you agree!)
Last weekend, November 1st 2015, a Dutch television network broadcast a splendid documentary on Bitcoin entitled ‘The Bitcoin Gospel’ (Het Bitcoin Evangelie). It started off with Roger Ver, also known as Bitcoin Jesus in the Bitcoin community for his active promotions of the cryptocurrency, who is standing in his living room in Tokyo sending Bitcoins to the value of 100 Euros into the living rooms of the Dutch. The first person who scans the QR code of the ‘private key’ gets access to a Bitcoin wallet which holds 100 Euros worth of Bitcoins. At the moment of writing, that same amount of Bitcoin has more than doubled to 217.28 Euros. It is a powerful demonstration of how easy currency flows from one side of the planet to the other. If he would have made the transaction through the traditional way, it would have taken several days and it could have cost him up to 30 Euros. Using Bitcoins, he could send the money practically costless, and almost instantly without the need of any intermediaries.
You can watch the full documentary here:
If I could point out my two most favorite scenes, it would be the beginning scene (0:00 – 2:14) in which we can see Roger Ver’s impressive demonstration of Bitcoin transactions and the ending scene (43:43 – 48:24) where the myth making of its founder, Satoshi Nakamoto, is discussed and where an emotional and teary-eyed Roger Ver talks about the subversive nature of Bitcoins against political injustices.
The documentary however, also featured critics of the cryptocurrency – hence providing a balanced perspective of Bitcoins. Its main critic was Izabella Kaminska, a financial blogger at the Financial Times. She has offered several interesting critiques to which I would like to respond in this article.
1) The first critique that Kaminska offers is that Bitcoin prices are too volatile.
Kaminska reminds the viewers of the turbulent swings in Bitcoin prices. Indeed, if one would take a look at the price chart one would see that Bitcoin did rise 800 percent from $129.46 to $1,165.89 in the three month period from September to November 30 in 2013. Within the next four months, the price would plumb to $344.24. The value of Bitcoin is still extremely volatile – it has ranged between $184.32 and $481.51 in the year 2015.
In my opinion however, Bitcoin’s volatility is not necessarily deplorable. Its volatility is due to its small market and the experimental phase it is still in. The total market capital of Bitcoins currently stands at $5,676,100,709. It effectively means that only a small amount of money flows into or out of the market can already have huge implications for its price movements. It is therefore only natural that its price is still volatile. Volatility also offers prospects of possible gains, hence attracting more capital from investors. Total investments into Bitcoin related projects in 2015 is already more than double that for 2014. (Coindesk, 2015) The more investments are made into Bitcoin related projects, the greater the chance that Bitcoin will be widely accepted so that eventually in the long run products and services can be denominated in Bitcoins. Hopefully, this will make Bitcoins gain the same relatively low-volatility attribute of many fiat currencies.
2) Kaminska’s second critique is that buying Bitcoins does not benefit the economy as it is not loaned out to provide entrepreneurs with investment capital.
Kaminska contends that Bitcoins are simply sitting idly in people’s wallets – it has no interest, it has no yield, and she even claims that the persons who hold them believe that they have “a right to future income flows as if they are investing.” The statement that those who hold Bitcoins think that they have a right to future income flows is quite bold. Bitcoins are like any other investments in that they are always subjected to uncertainties. No serious investor believes that he has a right to profits. The Bitcoin investor is like an entrepreneur – he knows that he can only make a profit if he anticipates future conditions correctly. The notion that one should not hoard Bitcoins or cash or gold corresponds with the false notion that
“Unspent dollars means reduced sales, and as sales decline, profits drop, layoffs increase, and the total social income decreases, making less money available for consumption. Hoarding induces more hoarding as the economy sinks into a downward spiral.” (Smith, 2009)
What this notion does not take into account is that hoarding is an expression of people’s freedom to achieve personal goals or to deal with economic uncertainties. As George Ford Smith (2009) writes in ‘The Case for Hoarding’, the increased demand for money also makes prices fall. Those who are not hoarding are therefore actually benefitting from the decline in prices.
3) Kaminska’s third critique is that Bitcoin has transferred power from the existing elite to the new 1% of the Bitcoin economy, thereby going against the ‘democratization’ effects of Bitcoins that has been preached by its prononents.
In my view, it is only justified that those who have done the research into Bitcoins and who have taken the high risk to invest in new inventions also have a higher rate of return. Similarly, those who were pioneers by investing in Facebook or Microsoft during their inception period also deserve potentially higher rates of return as these companies were running higher risk of failures. If the first adopters of Bitcoins would not have had the opportunity to make enormous amounts of money, they would not have had investment incentives, it would not have got this successful and this critique of Kaminska would not even have been possible.
4) Kaminska had also argued that the Bitcoin community is extremely absolutist and driven by political ideology which is thrusted on everyone else.
She maintains that when she is paying for coffee she just wants the benefits of a working payment network and smooth transactions, not support for a certain political ideology. The idea that payment systems can be apolitical is an illusion. Governments have always had vested interests in the moneys of its citizens as its existence is entirely dependent on taxation and money creation. Any decision to meddle with the government’s schemes of taxation and manipulation of the money supply is hence always politically charged. It seems to me that she is holding an idealized view of our society if she believes that using USD does not support any political-economic system. Her statement that the Bitcoin community is thrusting their political ideology on everyone else is highly arguable as well. The government is an institution that holds the unjust power to determine which currency can serve as legal tender and which goods – including currencies – can be traded or should be outlawed. Unlike governments, the Bitcoin community does not hold the power to initiate force upon the people. It cannot thrust the adoption of the payment network on all citizens. Indeed, Bitcoin is a free market invention that allows, but not forces, anyone to join the payment network voluntarily.
Kaminska is right, when one uses Bitcoins one is supporting the libertarian political ideology. If one pays with Bitcoins, one is supporting a decentralized payment network through which transaction costs have virtually fallen to zero and through which it is much more difficult for governments and banks to track one’s financial transactions. The really relevant question however is not whether you are supporting a political ideology. The question that should be asked is: should we prefer to give our governments, and central banks the power to manipulate the value of our currency or should we prefer the separation of state and money?
Coindesk, (2015). State Of Bitcoin. Retrieved from http://www.coindesk.com/research/state-of-bitcoin-q3-2015/
Smith, G.F., (2009). The Case For Hoarding. The Free Market. Retrieved from https://mises.org/library/case-hoarding
Moving on from the narrative of British history concluded in the last post, some thoughts about the way that Britain has existed as a European nation in comparison with other nations, mostly Germany and France. Britain has been defining itself in comparison with these two, in more or less friendly ways since Germany emerged as a modern unified state in 1871. The comparisons with France go back further, as has been partly explored in the narrative posts from Æthelred II’s (the Unready) marriage to a French princess to the Tudor loss of Calais.
The attitude to Germany has been coloured by the pre-1870 Prussian monarchy which became the imperial family of Germany, while retaining the Prussian royal title, in 1871. Even the Prussian monarchy, though, is new compared with the French state. The Prussian kingdom only goes back to 1701, as an elevated form of the Margravate of Brandenburg in which the Hohenzollern family had been the Margraves since 1415, and even that is rather recent compared with the beginning of the history of France. Anyway, we cannot think of Brandenburg-Prussia as a pre-formation of the German state until the early nineteenth century when it took lands on the Rhineland and emerged as the joint leading power in Germany, along, with Austria, after the European settlement at the end of the Napoleonic wars.
It is not entirely clear when we can date the beginning of the French state, since the earliest form, or preformation, of it was the Frankish kings who became rulers of some part of what is now France in the fifth century with the collapse of Roman rule in what had been Gaul. The Franks were German and the sense that the aristocracy of France had a different national origin from the common people lingered into the nineteenth century. It is only in the ninth century that Old French emerges as a written language of state business while the title of King of the Franks was separated from that of the dominant ruler of Germany, holding the title of Emperor of the Romans since the Frankish king Charlemagne was crowned by the Pope in 800.
The official title King of France only stated to replace King of the Franks in the late twelfth century, but it is safe to say that something like a swell defined the French state with a very broadly defined sense of shared culture between king and French speaking subjects goes back to the ninth century, after a preformation going back to the fifth century. Of course it should be remembered in relation to that it was only in the nineteenth century that a shared mass competence in the French of Paris prevailed across France including communities which were historically Basque, Flemish, Breton, German, Italian and Occitan (southern versions of French including Povençal), though a linguistic unity of the educated goes back much further.
One aspect of the sketches of French and German history above, is that the history of the dominant power in western Europe is often the history of France and Germany in various sometimes overlapping forms. This continues into the European Union which is at its heart a Franco-German union and that can be seen in the Euro which comes out of the French belief that it could import German economic success and discipline through a common currency, as well as the belief that it could mitigate German influence in Europe after post-Cold War unification though a shared monetary mechanism. One problem with British membership, maybe the most important, is a lack of interest in the French and German belief in a shared destiny best managed by some pooled sovereignty in a unified Europe, largely if not entirely consisting of countries strongly influenced in their history by contacts with France and Germany.
The most important issue in this post, though, is that France has a history as old and as grandiose as that of Britain, in fact preceding the unified British state history of England and Scotland only going back to 1603. The reason for emphasising this is the British sovereigntist-Eurosceptic tendency to regard France, like all European nations other than Britain in their view, as somehow less proud of their nationality, less patriotic, and less real as nations than Britain.
Really this is preposterous nonsense, and it should not be said that all British eurosceptics hold to this view, but it is hard to imagine the Eurosceptic current existing in Britain without this aspect of its culture, and hard to imagine even many of the more fastidious Eurosceptics do not believe this in their guts. The apparent willingness of France to share sovereignty with Germany in the EU even when Germany has become clearly the dominant EU country may to some degree explain this, but does not justify it.
More on this in the next post
I just returned yesterday from a week in Athens for an academic conference. There seemed to be a big socio-economic divide in voting intentions. The unemployed and menial workers were definite No votes. The Yes votes were physicians and a few academics. Personally I think they should bag the euro and go back to the drachma.
Brandon: how long do you think it will be before Putin is making deals in Athens? Might be nice to have a friend in the EU when sanctions come up again. Port privileges for the Russian navy would be very conveniently located as well.
Jacques has a good, thoughtful response (“Leaving the Euro zone does not require leaving the European Union”) that I wholeheartedly agree with (and that I’ve blogged about here and here), and it appears Dr Amburgey is in agreement with us (though does he think Greece should stay in the EU?). Contra Dr Foldvary, I do not think there is any need for Greece to leave the EU. If anything, the EU should be adding more states, though not expanding its geographic space.
Regarding Russia, I simply don’t know. Russia – along with Turkey, Iran, and China – is a society that is very hard to understand let alone predict (I would add India/Pakistan to this list, but the states of the Indian subcontinent are traditional post-colonial states and are therefore much easier to predict; the other four were never conquered or carved up by imperial cartographers). The whole Crimea debacle still has me smarting. Nevertheless I’ll add my thoughts to the conversation.
I don’t think Athens will grow closer to Moscow. There are two major reasons:
- Greece fears Russia, which is why Athens has remained in NATO for so long.
- Most Greeks – even the ‘No’ voters in this recent referendum – don’t want to leave the EU; Greeks overwhelmingly want to be a part of ‘Europe’.
There are couple of minor reasons, too, though I don’t know how minor they are. 1) Greece is not Ukraine. 2) Russia’s economy is in shambles. Greeks have a higher standard of living than do Russians.
On the flip side, the Greeks are always thinking about the Turks. If an opportunity presents itself (though I cannot think of any arising), Athens may start to edge closer to Russia (a traditional enemy of Turkey) if it thinks Ankara is getting antsy about its former province. This is pretty extreme, though. Also, Russia’s economy may be in shambles, but it seems like Moscow always has plenty of money for military expenditures, and rent stemming from a Russian port in the Mediterranean Sea might be too tasty to resist for a country saddled with so much debt.
At this point I don’t think Greece has much clout in European politics, so I don’t see Moscow viewing Athens as a reliable friend in Brussels.