American economy grew by 3.5 percent in the third quarter of 2009. Thus the free fall of the economy came to an end, period of recovery begin. So, are we done now? No, we are not. With the end of the free fall in the US economy, does the period we look forward to, where Turkey will grow at the highest level, begin? Of course it did not. We are at the beginning of a period where apples must be separated from oranges. First, let us calculate what we missed. If you wonder what Turkey missed in policy inertia, please go on reading.

American economy demonstrated an impressive performance in the third quarter of 2009 and put the hearts of people following the trends of the world economy in rest. Of course almost everyone started to put on the fore the infertile growth performance. But this does not change the fact that figures have for the first time turned to positive. Let us underline this as the first point: It is rather good than bad that the growth figures turned to positive after contraction over four consecutive quarters. However, it is doubtless that employment losses are striking. The picture described by Paul Krugman in the New York Times is quite severe. If the third quarter performance of the US economy (3.5 percent growth) is assumed as the annual performance, we get an annual average growth rate quite close to that achieved in Bill Clinton's rule. Annual growth average in Clinton's period was 3.7 percent. With the contributions of this growth performance, unemployment rate was reduced from 7.4 to 3.9 percent. Over 8 years from the end of 1992 to the end of 2000, unemployment was reduced by 3.5 points. With a simple calculation, it will take another 8 years to reduce the 9.8 percent unemployment of today to 6.3 percent, under the assumption that annual average growth will remain at 3.5 percent, which is above historical averages for the USA. It is correct that a new period began, but the recovery period dynamics confuse us. We will face a long period of infertile growth. IMF Chairman Kahn's emphasis on unemployment must be considered within this perspective. Unfelt recovery does not count as a recovery. Given the current level of unemployment and that the recovery does not ease the problem; one cannot enjoy the end of the recession. As unemployment figures are considered, recession will prevail longer. This is the second point to keep in mind.

So, what is the source of the recovery in the US economy? It is doubtlessly the fiscal stimulus plan launched by Obama. The intervention has eventually ended the free fall. In spite of those arguing that the measures were late and insufficient, American administration have injected $175.8 billion of public funds into the economy from February 2009 to September 2009. Yes, the total amount of funds is not $800 billion, but even this much have served the purpose. Out of around $360 billion disposable funds, $175 billion was spent rapidly in the first eight months. And the amount spent from February to June is almost $90 billion. So the third point is: process of recovery was initiated thanks to the rapid execution of the fiscal expansion program.

Fiscal expansion program can be evaluated also by the areas where one dollar spent turns into highest level of economic activity. According to this, giving flexibility to terms for benefiting from unemployment benefits is the area with created highest economic contribution with one dollar spent; with a rate of 1.6 dollars of economic activity level per one dollar (I recommend you to reassess the TEPAV March 2009 crisis measures in this context). The amount spent to give flexibility to the unemployment insurance system so that the new unemployed benefit from unemployment benefits for a longer time conditional to fewer formalities is around $25 billion. When you add other support schemes like stimulus payments, health insurance benefits and tax cuts, amount of funds transferred to individuals reach $70 billion. Therefore, the fourth point to be reached should be: It is not only spending public funds but also spending funds in the most fruitful area possible that matters. And the area that is most fruitful is direct support to purchasing power of individuals. American experience reveals that increasing public expenditures and public transfers is more effective than tax cuts.

This brings us exactly to the fifth point. It appears that, Turkey missed an important opportunity in the previous period because of not having an active policy framework considering public transfers. Figures on the American economy demonstrate this missed opportunity. We cannot expect that the policy inertia does not take effect. The point Ersin Özince emphasized is highly relevant: Banks will use the profits derived as a result of the falls in interest rates to cover the losses they are to make really soon. What were we saying? Banks of a country cannot be in a good shape if the corporate sector of that country is not in a good shape. What is to be will be. In such an economy, pace of recovery will also be slow.

Turkey will see first in economy then in politics the impact of the damage resulting from the lack of a skillfully devised fiscal expansion policy.

We will live and see. Do not worry; as it becomes apparent, we will also address the causal relation.

This commentary was published in Referans daily on 03.11.2009