30 Jan 2014

Krugman on Turkey

Krugman 15 Comments

As faithful readers know, I was wondering how Krugman would deal with the fact that the Turkish central bank felt compelled to sharply raise its interest rates across the curve, in order to fend off an attack from the Visible Currency Vigilantes. (I am now clarifying that this is a more accurate description than “Bond Vigilantes” in the case of Turkey.) Well now we know:

“OK, did we need this? Turkey? Who was paying attention to Turkey?”

Yes, he’s being “funny,” but he really is admitting that the gurus didn’t see this coming, and that he himself needs to do more research before saying anything substantive.

However, lacking detailed information, Krugman is confident enough to offer this general reaction:

If you take secular stagnation seriously, as you should, then we have a chronic problem of too much saving chasing too few good investment opportunities, which means that you only feel prosperous when money thinks it has found more good places to go than it really has — and soon enough figures that out, with nasty effects.

So, it’s just as I said in my post: Austrians (and other small-government people) will say this just shows the dangerous game the world’s governments have been playing, while Krugman can blame it on too much saving.

15 Responses to “Krugman on Turkey”

  1. John says:

    Krugman’s piece seemed very generic and thoughtless. He was talking as though there was a real crisis in Turkey when it looks like their central bank actually did the right thing. The TCB (Turkish Central Bank) saw shares worldwide rise in response to their rate hikes and the Turkish stock market has not seen any dramatic price swings this week. In fact, an ETF tracking Turkish companies is up almost 2.5% today. This seems like a complete non-event and Krugman is talking about emerging market crises like it’s 1998.

  2. Random Guy says:

    Anyone else wonder if Murphy explained ABCT well enough to Krugman that he actually did kind of grasp it, but has kept it a secret? And knowing where the policies will take us, he jumped on board the secular stagnation train in order to have their next excuse lined up for when we stagnate(flate) until the bond bubble goes boom?

    • Tel says:

      Yeah, I was just about to mention how similar Krugman’s explanation is to ABCT. The only bit that Krugman fails to mention is that the chronic problem of too much saving chasing too few investment opportunities gets worse when the central bank cranks out QE money printing and by doing so it adds even more hot money into the mix competing for the same investment opportunities.

      At any rate Turkey wants itself to offer an investment opportunity for foreigners, so raising their interest rates makes that more attractive.

  3. John says:

    To be more specific, the USD/TRY went from 2.24 on January 20th to 2.34 on January 24th. That’s 4.5% which isn’t huge. Since the central bank stepped in, it went back to 2.24 as of today. Given Turkey’s higher rate of inflation, it seems like 2.2 Liras per dollar is a reasonable amount based on the history of the exchange rate.


  4. Andrew' says:

    Starting the pool now on when they roll out ABCT as Keynesianism. He already did it with debt deflation.

  5. Ken B says:

    “So, it’s just as I said in my post: … Krugman can blame it on too much saving.”
    You said that in your post?

    • Keshav Srinivasan says:

      Well, he didn’t specifically say that. He just said ” I can definitely tell you an Austrian story where the above data are just what we’d expect to see, and Krugman can definitely tell you a Keynesian story that does the same thing.”

      • Ken B says:

        The same Bob who was slamming Krugman for vague or weasely worded predictions? Bob predicted — shock — that a Keynesian would give a Keynesian response. Then when said Keynesian makes a *particular* argument Bob claims he predicted *that particular argument*. But he hadn’t. It’s a bit like people who predict ‘climate change’ and then say “New reports show global cooling of .04 C. Just as I predicted.”

        I predict if I ask keshav Srinivasan how heat flows in Lake Erie he’ll give an answer based on thermodynamics …

        • Ken B says:

          Btw I realize Bob is just snarking. Well and good, it’s fair. I’m just saying that “Ha! Pegged him!” doesn’t really fit.

          • Bob Murphy says:

            I said “Ha! Pegged him!” in my post?

            Anyway Jon Stewart is on. I’m outta here.

        • Tel says:

          A few pages back, LK predicted that Bob would agree with Mises. With the Great Recession people seem to have lowered their horizons a touch.

  6. Major_Freedom says:

    Krugman, you write:

    If you take secular stagnation seriously, as you should, then we have a chronic problem of too much saving chasing too few good investment opportunities, which means that you only feel prosperous when money thinks it has found more good places to go than it really has — and soon enough figures that out, with nasty effects.

    You don’t seem to understand that in reality, contrary to your theory, there are far more, and I mean spectacularly far more, opportunities for profitable investment than any quantity of savings could come close to satisfying. The entire world’s savings could be profitably invested in just a single city.

    Reisman explains:

    “Before the scarcity of capital could be overcome…capital would have to be accumulated sufficient to enable the 85 percent of the world that is not presently industrialized to come up to the degree of capital intensiveness of the 15 percent of the world that is industrialized. Within the industrialized countries, capital would have to be accumulated sufficient to enable every factory, farm, mine, and store to increase its degree of capital intensiveness to the point presently enjoyed only by the most capital-intensive establishments, and, at the same time, to enable all establishments to raise the standard of capital intensiveness still further, to the point where no further reduction in costs of production or improvement in the quality of products could be achieved by any greater availability of capital…. Long before such a point could ever be reached, time preference would put an end to further increases in the degree of capital intensiveness.”

    More here:


    • John Becker says:


      I really like a lot of Reisman’s book but I don’t think I’ll ever be able to read it cover to cover. Have you read it cover to cover, and did you find it worthwhile? I really liked how he describes how societies without specialization and trade are wasting the power of the human brain. I also like how he refers to certain economic laws of gravity like workers with similar skills tend to receive the same wages regardless of what sector they work in.

  7. bob rooney says:

    When PK talks about the “saving glut”, it is acutal nominal savings. Since this is money income less consumption is “funny money” creation he i at least half right.
    To much funny money hunting investment opportunities in a global malinvestment enviroment caused by monetarist and keynisian policy. Thank you for secular stagnation.

  8. William Anderson says:

    Yep. Those damned Turks have saved too much money. Confiscate savings, inflate the currency, and we will have prosperity! Guaranteed!

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