Turkey’s economic crisis is a glimpse into the future of Trump’s America

The charismatic president wins elections, but he’s also an unabashed authoritarian.

He fires up his predominantly rural and religiously conservative base with populist and divisive rants. He trashes multilateral institutions and insults nations that displease him. He puts his relatives in positions of power. He propagates idiotic economic theories. He complains about interest rate hikes by the independent central bank.

Donald Trump? No, Recep Tayyip Erdogan, the president of Turkey.

Erdogan proclaims that phrases such as “democracy, freedom and rule of law” have “absolutely no value any longer”. Trump describes the media as the “enemy of the people” and attacks judicial decisions with which he disagrees. Erdogan has appointed his son-in-law, Berat Albayrak, as finance minister. Trump’s 37-year-old son-in-law, Jared Kushner, is his “senior advisor”.

Erdogan believes, despite all the evidence in the world, that low interest rates curb inflation, rather than stoking it. Donald Trump thinks, contrary to the view of every credible economist, that the US trade deficit can be eliminated by tariff hikes and trade wars, and that a current account surplus represents some kind of a national economic victory.

Erdogan says the United Nations has “collapsed” and describes the Dutch as “Nazi remnants”. Trump labels the World Trade Organisation a “disaster” and talks of “shithole countries” in Africa.

Erdogan describes high interest rates as “the mother and father of all evil” and pledges to “take responsibility” for such issues. Trump says he’s “not happy” about the Federal Reserve putting up the cost of borrowing.

The big difference between the two men? That, for Erdogan, the economic reckoning for all this populist destruction has arrived. The Turkish lira is in free fall. After Erdogan’s interference with its independence, few trust the central bank to be allowed to do what is necessary to restore calm to foreign exchange markets. The son-in-law finance minister lacks any credibility. This is what happens when you undermine independent institutions, trample over norms of good governance, ignore expert advice and give free rein to nepotism.

Turkey is, of course, in a profoundly different place from the US. The failed coup in 2016 was what accelerated Erdogan’s march into autocracy. Opponents of Trump are not locked up, unlike in Turkey.

Journalists are not jailed in the US, unlike in Turkey. Yet things can unravel remarkably quickly.

Just 14 years ago, Turkey’s institutions were considered to be of such sufficient quality – with its politics, too, moving rapidly in the right direction – that EU membership was a serious proposition. In 2006 even one Boris Johnson was making the case for its entry into the club. In those days Erdogan took advice from technocrats and experienced, credible political figures such as Ali Babacan and Mehmet Simsek. Few predicted he would morph into today’s demagogue.

Now consider the US’s trajectory under Trump. Degrading conduct by the president that would have been jaw-dropping from any of his predecessors has become routine. Republicans turn a blind eye to behaviour that would have sent them running to start impeachment proceedings had it come from Barack Obama, or Bill Clinton (or Hillary).

There is a great deal of ruin in a nation, as philosopher and economist Adam Smith once told us. By that, he meant that it’s usually premature to announce that a country is finished. Nation states can cope with a great deal of stupidity and corruption from their leaders and folly from their populations.

There’s momentum in an economy. Foreign capital continued to sluice into Turkey in great volumes despite Erdogan’s authoritarian turn. The US economy is growing at its fastest rate in years, partly thanks to the decent foundation from the Obama years and partly thanks to Trump’s unfunded tax cuts.

Unemployment is at its lowest in two decades. The stock market is booming. Yet there comes a point when the ground gives way. And when the breakdown happens, it can happen very fast.

Turkey, under Erdogan, appears to have reached that point. How long will it be before America does the same? To have posed that question only two years ago would have seemed absurd. Alas, thanks to Trump and his enablers in the Republican Party, no longer.

#DonaldTrump #lira #RecepTayyipErdogan #Turkey

Thanks to austerity the modern policeman’s lot is not a happy one

A policeman’s lot is not a happy one. 

If Gilbert and Sullivan were writing today would they cite not only the “enterprising burglar” and his “felonious little plans” but also the misery of payday loans and the need to take a second job as a driving instructor? 

According to a new survey by the Police Federation, almost half its members worry about their finances and 12 per cent feel they don’t get paid enough to cover essentials. 

Eight per cent of respondents say they have taken a second job – up from six per cent of those surveyed last year. That implies around 10,000 police officers are doing something on the side to make extra money, whether taxi driving, plumbing or fitness training.

“[It] clearly cannot be right or acceptable that those employed to keep the public safe cannot make ends meet or put food on tables for their families,” says John Apter, the Federation’s chair.

Apter also links government cuts to rising violent crime rates. “We are in crisis and that is a direct result of the pressure the government has put on by a reduction in funding,” he says.

That’s a verdict echoed by Labour, which has pledged to recruit an extra 10,000 officers by 2022.

It’s not particularly surprising to see the Federation pressing for more money for members. The police are part of a swelling chorus of public sector anger over eight long years of government-imposed pay restraint.

Is the police service in as dire a condition as the Federation claims? And is government austerity to blame? The data point unambiguously to a major squeeze. Spending on individual forces in England and Wales is down by between 10 and 20 per cent. The number of full-time equivalent police officers has collapsed from a peak of 144,000 in 2009 to 123,000 last year.

According to the Office for National Statistics, the median annual pay of a police officer last year was £ 40,616. In 2010 it was £ 38,464. That’s a rise of 6 per cent. But prices have risen 15 per cent over the same period, meaning officers’ real terms average pay has fallen by close to 10 per cent.

Are drastic cuts in numbers responsible for recent increases in violent crime? Are real terms pay reductions creating a demoralised and increasingly ineffective force? It’s difficult to be categorical. Looking back over recent decades, there’s no clear correlation between police numbers and reported crime. Police numbers and funding rose strongly in the 2000s, when recorded crime was falling. But that was a continuation of a longer term trend which began in the mid-1990s and which was seen across the Western world.

Research by the Institute for Fiscal Studies shows no clear association since 2010 between the scale of cuts in each force and key performance measures from HM Inspectorate of Constabulary.

Yet a rise in reported stress levels among officers certainly coincides with the cuts. The recent disturbing spike in violent crime such as robberies is also consistent with police forces being overstretched.

A leaked internal report from the Home Office suggested the fall in police numbers “may be an underlying driver”. The most recent independent police pay review report highlighted a “significant reduction” in new recruits in 2016.

And the new home secretary, Sajid Javid, has broken with the denials of his predecessor Amber Rudd and pledged to fight the Treasury for more “resources” for the police.

Other austerity policies in recent years have contributed to a growing and more complex workload for the police. “Many of the problems the police are now dealing with – homelessness, mental illness, children leaving home – were previously picked up by other departments of local government,” points out the University of Sussex’s Richard Disney, someone who has studied the economics of UK policing in depth.

Even if, being generous to the government, austerity did succeed in squeezing some inefficiency out of the police, it’s a strategy that has now pretty clearly run out of road. Further cuts to funding and real terms pay reductions for officers really will hollow out the service.

If the modern police officer’s lot is not a happy one, ultimately, the same will be true of the public.

#police #austerity #SajidJavid #AmberRudd #PoliceFederation

The $1 trillion company

It’s the most expensive game of Snakes and Ladders in history. On Thursday the market value of Facebook dropped by around $100bn (£76bn) after the social media leviathan reported an unexpected decline in user growth numbers to the US stock market.

The very next day Twitter’s shares fell 20 per cent, though this meant a slightly less impressive $6bn drop in market capitalisation. Meanwhile, Amazon shares were popping higher after reported quarterly profits exceeded $2bn, reigniting media speculation that it could beat Apple to become the first company with a $1 trillion valuation.

But what does a one trillion dollar valuation mean? Rather less than the media commentary would lead you to believe. The truth is nothing happens when the threshold is crossed. There’s no prize awarded.

Shareholders don’t receive a cent more in dividends than when the company’s value was $1 trillion minus $1. At least not automatically. It’s just a big and round number.

The significance of the first $1 trillion company even as a meaningful numerical landmark is overstated. In 1999, at the apex of the dotcom bubble, Microsoft was worth more than $613bn. Adjusted for inflation, that’s $927bn in today’s money; so in line with both Apple ($954bn), Google ($888bn) and Amazon ($877bn) today. This is not uncharted territory for corporate valuations.

What does “market capitalisation” mean anyway? There are two traditional ways of valuing a company.

The first is to simply ask what someone else would be willing to pay for its shares. If you can sell the share for $10 it’s worth $10.

The second is based on calculations of the value of all its future expected profits, adjusted for how much those revenues would be worth today. So if a company makes $10 in earnings per share today and you think this will grow by five per cent a year for the next 50 years you might value the share today at around $200.

It’s important to bear in mind the pretty speculative nature of this second method when considering media reports about the value of fast-growing technology companies. In a world of massive uncertainty over digital disruption and the potential for sudden shifts in online consumer behaviour such estimates are inevitably going to be highly volatile.

The valuation of a company such as Amazon is based not on its current profits but on its profits later this century when, many assume, the “everything store” will have pushed aside almost every other retailer on the planet. That’s certainly the trajectory. But it may not work out like that. As we’ve been reminded this week, it can be easy come, easy go in the Silicon Valley valuation game.

But there’s probably another motivation for the obsessive media interest in the ups and downs of tech company valuations, and that’s the ability to personalise the stories. Amazon, Facebook and Google have outsize founder share ownership stakes. Jeff Bezos owns 16 per cent of Amazon. Mark Zuckerberg owns 28 per cent of Facebook. Larry Page and Sergey Brin own 11 per cent of Google. This lends itself to eyecatching calculations of swings in personal wealth on the back of share price movements. It makes for a striking headline to report that Mark Zuckerberg lost $15bn in wealth in a single day. Or that Jeff Bezos gained $12bn in an afternoon.

But these are not losses and gains in the way that most people understand them. There’s nothing those two individuals could suddenly afford after a good day, or which they could not afford after a bad one. These are paper fortunes that they could never spend over their lifetimes, even if they shopped like Michael Jackson in Las Vegas.

This fixation on personal wealth is, in some respects, socially useful. With this kind of corporate paper wealth tends to come control. And with control, rightly, comes responsibility. It’s good that when Amazon fulfilment centre workers strike over their brutal working conditions they have a flesh-and-blood person like Bezos to direct their complaints to, rather than an anonymous board. It’s useful that, when Facebook becomes a vector for democratically damaging misinformation on an industrial scale, pressure can be brought to bear on a powerful individual like Zuckerberg rather than a committee.

Yet, at the same time, there’s also something slightly socially unhealthy about fixating on the paper wealth of individuals, at least in the celebratory way that one often encounters in news reporting. As Adam Smith, the father of economics, wrote: “This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments.”

Something to bear in mind next time you are invited to enjoy a game of Silicon Valley billionaire snakes and ladders.

#Amazon #Twitter #Apple #companyvaluation #AdamSmith