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Backward Economics on Turkey

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Thursday, 06 June 2013 07:37

The NYT gets the economics upside down in a piece discussing the protests in Turkey. At one point it tells readers:

"And like Spain and Greece before 2008, Turkey runs one of the largest current account deficits in the world, at around 7 percent of G.D.P. That, economists say, sets in motion a vicious circle as an overheated economy sucks in imports. That, in turn, creates a stronger currency that hurts the country’s exports, forcing Turkey to borrow ever more to finance the gap."

Okay, so we have a large current account deficit that somehow leads to an overheated economy, that sucks in imports. That in turn creates a stronger currency.

Let's get out the textbook. Turkey has a current account deficit primarily because the high value of its currency makes imports relatively cheap and its exports more expensive for people living in other countries. The causation is from high currency value to current account deficit.

The deficit means that Turkey is buying goods and services from other countries rather than spending it domestically. This reduces demand in Turkey, making the economy less overheated, not more.

Finally the current account deficit sends money out of the country, it increases the supply of Turkish currency on international markets. That should lower the value of Turkey's currency, not raise it.

In this context, the recent fall in the Turkish lira that is highlighted in the article would be exactly what the doctor ordered. This would make Turkish goods more competitive internationally and reduce the size of the trade deficit. 

 

 Note: Typo corrected, thanks Bill.

 

Comments (7)Add Comment
...
written by Bloix, June 06, 2013 9:06
Most popular writing about economics takes the form of metaphors that hide the writer's lack of understanding. Typically the metaphors are mixed so that they don't even make sense as analogies, as here. How does "an overheated" economy "suck in" imports? When liquids or gases are heated they boil over and rush out, they don't suck things in.
Typo
written by bill, June 06, 2013 10:04
Third paragraph should read:

Okay, so we have a large current account DEFICIT that somehow leads to an overheated economy, that sucks in imports.
Clintonoid
written by Peter K., June 06, 2013 10:32
Please respond to (correct) DeLong's history blogpost.
Urgent Phone Call for Dean Baker from Mainstream Media
written by Last Mover, June 06, 2013 11:00
The deficit means that Turkey is buying goods and services from other countries rather than spending it domestically. This reduces demand in Turkey, making the economy less overheated, not more.


Hello Dr Baker,

We understand you just discovered that demand curves slope downwards in Turkey. We want to know if they slope downwards everywhere else as well or was this just a one-off event.

We would like to schedule you for an interview with our prime time airhead anchorperson on the popular show, Economics for Dummies.
Anonymous economists strike again
written by David M, June 06, 2013 12:06
This is why articles need to include sources, not "economists say". If we knew the names of these economists, we could know to avoid (or at least ignore) them in the future.
...
written by kharris, June 06, 2013 12:57
David M,

My guess is that there is no economist to ignore in this case, and perhaps in lots of "economists say" sorts of writing. The writer kinda thinks he or she remembers that economists say this or that. The fact that this writer got all the factors in there, but got causation backward in every case, suggests to me the author only thinks he's reflecting what a real economist would say. Economists tend to screw up in more "sophisticated" ways.
SS Arithmatic
written by nclarke, June 07, 2013 10:16
Sammuelson: "On a cash-flow basis, this left a deficit of ... $160 billion for Social Security."
From the trustees report total SS income $731.1 (503.9 payroll tax, 97.7 gen fund reimbursement, 26.7 tax of benefits, 102.8 interest)and 645.5 in expenditures. Sammuelson includes the stimulus temporary SS tax reduction in 2012 which was reimbursed by the general fund, and combines SS with the DI fund. The actual shortfall (SS outlays minus payroll tax at full rates)in 2012 was $36.3, offset by interest and tax income of $129.5.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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