Economics and ideology after major natural disasters

to historical records, i.e. old ACCORDING measurement, the Turkish economy had contracted by 6.6% in 1999, the year of the earthquake. In 2000, the recovery –including the positive base effect- pushed the economy so GDP growth was 6.1%. New measurements hint at a swing of a smaller magnitude, i.e. 3.3% contraction, but the shape and the symmetry of the recovery is similar to the old measurement. In fact, the Russian crisis of 1998, the “bank run” of July-August 1998 in Russia, had already created a balance of payments problem. The Asian financial crisis of 1997 didn’t have a negative impact, but the Russian crisis did. The rather deep GDP contraction of 1999 was a combination of two calamities, the Marmara Earthquake and the Russian crisis, which resulted in a massive FX outflow in Q4 1999. Clearly this was to be expected because Marmara accounts for c. 35% of the GDP. The last earthquake happened in a region that produces 10% of GDP. 3.5 x multiple isn’t small. The impact will be less severe.

GROWTH IMPACT

Hence, the negative growth impact will be lower. Moreover, the 1999 earthquake took place in August, and there was not enough time to rebound in 1999. The rebound came in 2000. This is of course not economically meaningful but in terms of calendar years we may not see a big impact in 2023 in terms of GDP growth because come Q4 there may already be a recovery. Even so Turkish GDP was going weaker before the quake. Now 3% is everyone’s guess, but first GDP will contract more. Exports will also be hit because the region’s share in exports is around 8.5%. Comparing the Southeast to Marmara is obviously impossible, but the region hit by the earthquake isn’t economically insignificant either. Maybe there will be 1% GDP contraction because of the disaster, all other things being constant, but there will surely be a swift response in terms of GDP rebound.

INFLATION

Inflation will definitely increase in the coming months. The earthquake isn’t in fact to blame for that because everything is being done to keep the Lira stable before the elections. An electoral business cycle has already been in the making, and there is no way to stop that. Wage increases, government spending, early retirement etc. all will fuel inflation after the elections. Now, adding insult to injury, there will be a a fall in aggregate supply as the first impact of the quake. Before the region and the economy recovers there are at least two quarters of distress. Clearly the current account deficit, which is already running at 5.5-6% of GDP, would widen further. This will likely put pressure on the Lira in the coming quarters. However, aid relief can ease the bleeding and for a couple of months the pressure on the Lira might ease. The incumbent bloc could surely benefit from that and could increase its electoral chances.

NATURAL DISASTERS: PSYCHOLOGICAL AND IDEOLOGICAL LANDSLIDES

People tend to think things will change after an outbreak or another natural disaster for good or for worse, depending on political beliefs and psychological motives. Let’s see if things had automatically changed after the Black Death, a pandemic that had swept up to half of the European population, not to mention what it had done to the Middle East and Central Asia before it spread to Europe via sea routes. In the two centuries that followed the Domesday Book (1086), population almost trebled, manorial lands, demesne agriculture, serfdom, commerce and towns flourished. But in the 14th and 15th centuries a complete reversal took place. After 1348-49, that is the infamous Black Death, demographic recovery was very slow and demographic expansion could only begin in the 16th century. In full truth, discussions concerning the major demographic trends in early modern England alone –not to mention continental Europe- are far more rich if still inconclusive, in part due to the notorious scarcity of demographic data. There appears to be only scant evidence on mortality and almost nothing for fertility, a fact pointed to by the economic historian Mark Bailey (1996) in a prize-winning article. What seems to remain is a consensus surrounding the claim that, in the 15th century –circa 1400, “wage” labour was better paid –both in terms of real “wages” and disposable income- than in any period in English history between 1200 and 1850.

NOTHING AUTOMATICALLY ADJUSTS OR ISN’T THAT SO?

In fact, discussions concern many facets of occupational and demographic structure, including the proportion of serfs within the rural population. According to John Hatcher, a Cambridge historian, even though the great Evgeny Alexeyevich Kosminsky’s findings were confined to the counties included in the Hundred Rolls alone, Kosminsky (1956) seemed to constitute the best educated guess and pointed to a 3/5 ratio of unfree tenants in the lot. Bailey (1996) examines in details in which directions the occupational structure may have

changed after the Black Death and Bailey (1989) scrutinises the importance of the (various and time-varying ) concepts of the “margin” in the late incarnations of the Postan-Habakkuk school, which contends that the land-labour ratio had already increased before the Black Death since marginal lands could not support population growth. In other words, even though the plague had ravaged entire populations, leaving on occasions only 1/7, 1/6 or 1/5 of people alive –especially if population density was high- the economic impact wasn’t instantaneous. It took waves of renewed plagues and the intermediation of monetary developments –two hyperinflations and then a deflationto make things truly change economically. It took almost 50 years at the minimum for that to happen. Nothing automatically adjusts even after major shocks.

RENAISSANCE TOOK PLACE BUT ALSO…

Flagellants were everywhere. Zealots preached that the plague was calamity sent by God, and sinners, including themselves, should repent. Some people thought the calamity showed how meaningless their previous practices were, and how short life was. All of a sudden everything looked uncertain. Liberty and modernity ensued, but also a return to extreme religiosity. Jews were blamed to such an extent that the Pope Clement VI had to issue two papal bulls that condemned the blaming and persecution of Jews. Obviously the follow up after natural disasters of very large scope can’t be compared to regional shocks. Even so, in terms of the confines of a region, there are similarities. Sometimes the shock is everywhere but there may also be shocks that are pervasive enough to have a bearing on the way people think in the region. Now, inhabitants in the quake region are about 13.5 million. There are many countries in Europe whose populations are smaller. Whether there will be a sea-change in the way they think about the political-economic dynamics of the last decades and even more than that, about life, death and many fundamental issues, is all the more important. There will be relief aid pouring from everywhere, local charities, NGOs, government, and international aid. Whoever wins the hearts & minds of the regional folks by telling a convincing story that it is them that “helped them” –and not the others- could win the upcoming elections in the region. Who is to blame? And who is to praise? These are the essential questions. This has always been so throughout history.

ANOTHER DIGRESSION

Consider another example. In historical periods when the land/ labour ratio was low, such as in the two centuries preceding the Black Death, lords need not have accelerated class struggle by extra-economic means, ceteris paribus. In fact, as the land/labour ratio drastically rises we do see that the labour-rent loses its appeal for the lords as a typical means of exploitation in the 14th and the 15th centuries. The great economist Evsei Domar had claimed decades ago that, in the east of Elbe, the “Second Serfdom” was established precisely by extra-economic coercion because serf labour had become scarce and that coercion had been the only means for the landed nobility to make sure serfs remained subdued. Therefore, after famines, earthquakes, floods and above all pandemics the way economies work could change. The way people think could also change in many directions.