In order to understand what's going on, we must submerge ourselves deeper into data. For that, we have prepared the following chart which plots the debt chart above (as %GDP) as well as the percentage growth YOY (year over year) of the GDP per person corrected for inflation and public debt.
This is difficult to take in, but don't despair. Allow us to simplify. The blue line is the Turkish debt. The red line is the percentage of growth of standards of living from one year to another. The green line is the percentage of growth of standards of living in a free market.
And this is very, very interesting. It is abundantly clear that as the Turkish government pays off the debt, the economic growth slows down. But this is exactly the flip side of Keynesian economics! The dark side that nobody wants to talk about. If it is good to borrow money and spend it to "stimulate" the economy, then the exact opposite effect will also take place if we reverse the process and pay the debt off! As we pull money out of the economy to pay the debt we are "de-stimulating" this very same economy which we previously stimulated! And this is a lesson that nobody, but nobody in the Keynesian field or the Monetarist field wants to acknowledge!
Why would Keynesian economics be a one way trip? A single direction process? We don't know and they are not telling us.
However, Austrian Economics does tell us. It is quite simple, really. All that borrowed money being pumped into the economy distorts the market and makes it addicted to it. Market participants (i.e. producers) cannot distinguish between real market demands (i.e. what people want) and fake market demands (i.e. what the government is buying) because money does not come so labeled! As a consequence of that, producers adapt to government money believing it is market money and for as long as governments keep spending, everything seems OK. However, when governments begin to pay the debt off, government money begins to dry out. The government buys less stuff and as a consequence of that, all those producers who have systems geared at selling to the government (directly or indirectly) have less and less of a demand! Voila! The economic growth slows down!
Now, has this been soooooo difficult to understand? We believe not!
THERE IS MORE
But why stop here? We can obtain some more good stuff from this data. If we look closer at the above chart, we can see that we added two trend lines (i.e. the black lines) and we extended those lines until the debt line crossed the %0 level; this is, the moment when the Turkish government would have paid the entire debt off. Then, we extended the other trend line to find when both trend lines cross. The intersection point occurs at about 2025 and at a 2% growth level… which is very consistent with the historical growth rate of free markets (i.e. between %2 and %3 per year) when there is no government debt! Yet another validation of Austrian Economics… from mainstream, official and formal data straight from the Turkish government! How about that!
BUT IS IT WORTH IT?
OK, so we know that if we borrow and spend the economy goes up. We also know that if we pay the debt off and don't spend, the economy slows down. But from the chart above it would seem that there is an advantage in borrowing and spending and then paying off the debt because of the economic boost it generates at the beginning (disregarding any intermediate busts following the booms). In other words, between 1999 and 2025 the growth rate was significantly above %2, the lower growth limit of the free market growth rate (which we will call the "natural" growth rate). Wouldn't this be an advantage? Wouldn't it be great to borrow, boost, pay and repeat the cycle time and time again to accelerate economic growth as Keynesianism teaches?
In a word…
Well…no (OK two words).
That process would be clearly a winner all things being equal. Problem is, all things are not being equal. This is so because this boost in economic performance is not free. We have to have a government to implement it and this makes all the difference in the world!
There is a price to be paid to have a government and that price is quite significant.
In order to have some idea as to what would have happened should the Turkish government would have never existed, we can recalculate the GDP per capita in constant TRY (over time) but this time without discounting government debt and applying a constant growth rate of about 2.5% which is more-or-less the average yearly growth in purely free markets. If we do so we get:
As you can see, at the end of 2017 the actual growth overtook the free markets. Does this mean that we are mistaken?
We need to remember that what we are losing here is time and as Albert Einstein put it, "The most powerful force in the universe is compound interest". If we now perform the same calculation since the 1980's, the picture changes a lot. See for yourself:
We can clearly see that the free markets have beaten the Turkish growth by about 30%.
If we would to go back to 1960 the difference would be of approximately 50% and so on.
The farther we go back in time, the larger the difference and as such the conclusions are unavoidable; Keynesianism is simply now worth it!
BUT THERE IS MORE
In typical free markets, the economy grows smoothly and so does the GDP. In the previous charts we can see that the Turkish GDP was anything but smooth.
In typical free markets, there is no inflation but dis-inflation (i.e. you money is worth more as time goes by). In the previous charts we can see that the Turkish inflation was anything but mild (i.e. your money is worth less as time goes by).
In typical free markets, we don't have to worry about governments paying off their debts. In the previous charts (and other data that we didn't bother publishing) it becomes obvious that Turkish politicians oftentimes did not paid the debt off which created all kinds of problems.
Even assuming that the last 16 years of Turkish economic history can be sustained as-is (which would be a historical miracle), at the end of the day we come to the conclusion that once everything is paid off, the rate of economic growth irrevocably trends towards the "natural growth rate" of the free markets anyways!
In typical free markets, we don't have to worry about massive economic crisis, booms and busts, cuop d'etats, hyperinflation, depressions, stagnations, military expenditures, balance of payment crisis, debt crisis, austerity programs, shock therapies, military interventions, overheating economies, structural reforms, chronic current account deficits, heavy debt servicing costs, sensitivity to oil prices, high unemployment, unutilized industrial capacity, inability to pay back loans (or interests for that matter), mercantilism, devaluations, inflexible exchange rates, taxation, manipulation of money supply and credit, subsides and de-subsidizing processes, nationalizations, privatizations, wild public expenditures fluctuations, sudden reductions in GDP, government induced interest rate speculation at a massive scale, wild interest rate moves, monetization of fiscal deficits through Central Banks, massive fluctuations of credit ratings, "dollarization", massive capital outflows, banking weaknesses and crises… and on and on and on and on.
All that, all of that, Turkey went through over the last 30 or so years.
All that, all of that, was artificially created by the Turkish government.
Did Turkey really had to go through all of that? No. Not really.
All that misery did not even match (by a long shot) what the free market would have provided automatically!
Allow us to recap. If there is something we will ask you to remember from this article, this would be the following:
Keynesianism (or Monetarism) does not work. Period.
There really, truly is no benefit in having a government manipulating the economy. The disastrous economic consequences are obvious and massive. The example we showed above illustrated that even when a government actually behaves in a manner preached by Keynes (which is exceedingly rare), they still can't get even close to what free markets can deliver. Without the need for any intervention or leadership of any kind. It happens automatically. For everybody. Smoothly. Constantly. Forever.
Now you have to ask yourself, do you prefer to live in a country that follow Keynes' advice or would you prefer in a peaceful and far wealthier world? Because, you know, it's your choice. Yup! The one that you make every time you vote.
And so, we say: How about this? Don't vote. We guarantee you will like it.
And you will be helping your fellow human beings at the same time!
But, then again, it is your choice. Red or Blue. You decide!
Note: please see the Glossary if you are unfamiliar with certain words.