American economist Art Laffer prefers Erdogan over Obama. Why are free market types so naive?

by omouggos

Economist Art Laffer giving a speech in Turkey.

Economist Art Laffer giving a speech in Turkey.

Art Laffer is a noted pro-free market economist who was an economic adviser to President Reagan. He is most known for popularizing the Laffer curve, a visual representation of the economic theory that the tax rate yielding the highest quantity of tax revenues does not correspond to the highest possible tax rate. In other words after a certain point increasing tax rates will lead to lower tax revenues.

Recently Laffer was in Ankara, the capital of Turkey, attending an economic conference, in which he gave a speech entitled “Fiscal Policy: The Foundation of Turkey’s Macroeconomic Success.1 He lauded the performance of the Turkish economy, stating it “is doing extraordinarily well compared to rest of the world,” mainly as a result of Erdoğan’s tax and privatization policies. In contrast he wasn’t overly impressed with the performance of the US economy opining “If you want to see a bad economy come to the U.S., and see how we ruined the economy.” He characterized Obama, and his predecessor Bush, as having done a “horrible job” partly due to policies of high taxation.

Laffer is so impressed by President Erdoğan’s economic policies, and so put off by Obama’s, that he commented, “I am very optimistic about Turkey. In the short term however, I would like to propose a deal. I would trade Obama for Erdoğan. One of my friends said, ‘If you can just switch the presidents it would be great’.

At a certain level, Laffer’s proposal was an attempt to amuse his Turkish audience. He also can’t speak too critically of Erdoğan for the very real fear of being labelled a Gülenist and being either deported or imprisoned. However, it does appear that Laffer is honestly impressed with Erdoğan’s economic policy. What are we to make of this?

Well first of all, although Turkey’s economy has been performing well as evinced by its reported 3.1% annualized GDP growth for the second quarter of 20162, this performance leaves much to be desired. For the month of June Turkey’s annualized inflation rate was 7.6%,3 which means that in real terms GDP is not growing, as it is not keeping pace with inflation. As well unemployment is high, standing at 10.9% for the month of February, with youth unemployment at 18.6%.4 When looking at the totality of the Turkish economy, things are not as rosy as Laffer intimates.

Secondly, while Erdoğan has adopted policies consistent with free-market economics he has also advocated proposals that can be labelled as economic quackery. For instance, during a speech before the Union of Chambers and Commodity Exchanges of Turkey he advocated that if Turkish businesses just hired one more employee, this would employ an additional 1.5 million Turks.5 He defended his proposal, “Will you go bankrupt if you hire one more person? No, you will have a bumper business when you do this.” If only it were so easy to engender prosperity by just simply hiring people without considering their economic utility or effect on a company’s balance sheet.

The most interesting implication of Laffer’s suggestion is that it illustrates a common character trait held by many free market economists. While I myself am an adherent of free market economics and agree with much of what Laffer and his cohorts advocate, I do find that such people tend towards what can only be called naivete or gullibility. In effect as long as someone implements free market policies, then they are greatly enamored with such a person and are blind to their other flaws.

In the case of Laffer, just because Erdoğan has implemented low taxes and has privatized some companies, then he is a leader worthy of laudation. Regardless of the fact that Erdoğan is anti-free speech,6 purging Turkey of any and all critics and dissenters, is an Islamist, wants to create an imperialistic new Ottoman Empire, is attempting to replace Turkish democracy with his ‘Presidential system’, and is aggressive towards his neighbours7 among other things. But never mind such trivialities, for Erdoğan is a proponent of, some, free market principles.

This behavior of capitalists, those who practice it and those who study and promote it, is nothing new. When the Bolsheviks assumed control of the Soviet Union the economy subsequently imploded. In the ensuing economic chaos, the Bolsheviks realized that, for whatever reason, their communistic principles were unable to arrest the economic decline. In response they implemented the New Economic Policy (NEP), which attempted to utilize the business know-how of the capitalist class to resuscitate the economy. Control of small-scale industries was transferred to private hands, while large enterprises remained in state control. The NEP succeeded in halting the Soviet economic decline and its associated market liberalization was viewed by Westerners as a sign that the Bolsheviks were not dogmatic communists and in fact were open to free markets.

With the economy stabilized, and taking advantage of the naivete of Western Capitalists, the Bolsheviks solicited the assistance of the latter to undertake numerous building projects within the Soviet Union through the granting of a variety of concessions to Western companies, from America, Britain, Germany, France, Sweden, etc. In effect it was Western Capitalism that built the Soviet Union during the 1920’s. But the Soviets had not become crypto-free market capitalists, they were merely Machiavellian pragmatists well aware that their economy needed to be kick-started, partly through the building of new modern infrastructure, and they were willing, without any reservations, to temporarily make use of an economic system, that of the West, which they detested.

When the infrastructure was built, and the technology and know-how transferred, the concessions were prematurely terminated by the Soviets, and nearly all of the Western companies, with the exception of maybe two, took losses on their Soviet enterprises. If you don’t believe that Western Capitalism built the early Soviet Union then to dispel such incredulity I recommend you read Anthony Sutton’s three volume work Western Technology and Soviet Economic Development, in which the author meticulously details the numerous examples of Western companies assisting the Soviet Union from 1917 to 1965.

While Laffer is not starting a business project in Turkey, his naivete towards Erdoğan is similar to that of Western businessmen in 1920’s and later towards the Soviets. In the case of the businessmen their naivete was, and still is, founded on greed, the overriding desire for prospective short term material gain, at the expense of any other consideration, i.e. that they are providing economic succor to a tyrannical political system, that not only is a destructive threat to the people of the Soviet Union, but also potentially to those in the West.

In the case of intellectuals, the explanation is more complicated, as it cannot be entirely explained away by their avarice. For them I believe part of the problem is that they overstate the importance of economics. To them man is an economic animal, merely an automaton of sorts, whose main, even sole, utility is in what he consumes and produces. With such a view of man all that matters in a society are economics and the maximization of economic output and productivity. As such anyone who promotes this ‘economic good’ is to be admired, regardless of whatever failings they may have. I may be overgeneralizing or even overstating, but I suspect this may explain Laffer’s praise of Erdoğan, even though the latter is nothing sort of a megalomaniac Sultan in the making, who makes Obama, with all of his defects and failings, look like a choir boy.

On a concluding note, since I am neither a fan of Obama or Erdoğan, I must reject Laffer’s proposal. Instead if a swap is to be made, how about replacing Obama with Duke the dog, who has just been elected to his third term as honorary mayor of Cormorant, Minnesota.8 Apparently Duke “has the highest approval ratings in the country,” and at least as President he should be able to unify the country, as who doesn’t like a cute dog.

Duke the honorary mayor of Cormorant Minnesota.

O Mouggos







[6] See my related post Here.

[7] See my related post Here.