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Estonian president right, Paul Krugman wrong

Paul Krugman, a left-wing economist, wrote an article called

Estonian Rhapsody
on his blog harbored by the New York Times. Krugman correctly observed that Estonia, the newest member of the eurozone (from 2011) that recorded an 7.6% growth in 2011, has become a poster child of austerity. However and more importantly, Krugman couldn't hide that this fact drove him up the wall.

This man who wants the "scientists" to fabricate an alien invasion in order to raise the government spending – or, more precisely, acts of wasting – simply hates austerity, fiscal responsibility, living out of one's own work, or economic common sense in general. The worst thing he can imagine is expansionary austerity, the economists' opinion that a major reduction of government spending that makes people believe that taxes will decrease helps to increase the consumption and GDP in general: this thesis contradicts everything that this Big Government champion stands for. That's why he started to hate Estonia, too.

This blog entry will ultimately mention some reactions by the Estonian president, a relatively conservative social democrat born in Stockholm who grew up in New Jersey.

If you study the Wikipedia page on the Estonian economy, you will see that for an ex-Soviet republic, it's doing extremely well. It's already counted as a high-income country. In the 1990s, it had seen a huge amount of foreign investment. The economy grew rapidly, a fact that earned the country a nickname, a Baltic Tiger.

The post-2008 slump has been intense mostly due to a bursting real estate bubble in the country (so it's a demagogy for Krugman to suggest that austerity is the culprit); some of the growth in a few preceding years could have been "fake" due to the same bubble. In a few years after 2008, the GDP dropped by 18% or so. However, 2011 saw a huge growth, 7.6% a year, so the country is at around 93% of the pre-slump peak of the GDP.

This number itself doesn't look spectacular and Krugman uses the corresponding graph as the core of his anti-Estonian demagogic would-be argument. However, I am confident that with the staunch pro-austerity politicians in charge who also plan to introduce lots of pro-business policies, the predictions by CEPII could be realistic. They predict Estonia to be the most productive European country after Luxembourg in 2050 – and among the top five productive countries in the world.

What's cool is that the debt of Estonia is still just 6 percent of the GDP. Even Czechia "boasts" a number that is 7 times higher than that. But everyone knows that most of the Western countries (and other countries) have much more gargantuan public debts that are comparable to 100 percent of the GDP. These are both worrisome time bombs as well as friction forces that reduce the progress. Estonia is clearly doing the right things. Others see this fact, too. Fitch affirmed its A+ rating for Estonia last week. Greece is the role model of Krugman's fiscal policies; Estonia is the opposite role model. And I think that Estonia is doing vastly better than Greece – not only when it comes to ratings.

Krugman has been trying to slander Estonia and others in 2010. He made a big deal out of the 20% unemployment in Estonia and linked it to their policies. However, the policies in 2010 are actually reflected in the difference between the 2012 and 2010 unemployment – and the current one is below 11%. This is really why the policies at least since the slump were going in the right direction.


What has made this story intriguing for many readers is the Twitter reaction by the Estonian president. On his Twitter account, Toomas Hendrik Ilves wrote lots of apt statements about Krugman's arrogance. Here they are in the chronological order:
Let's write about something we know nothing about & be smug, overbearing & patronizing: after all, they're just wogs: [Krugman blog URL]

Guess a Nobel in trade means you can pontificate on fiscal matters & declare my country a "wasteland". Must be a Princeton vs Columbia thing.

But yes, what do we know? We're just dumb & silly East Europeans. Unenlightened. Someday we too will understand. Nostra culpa.

Let's sh*t on East Europeans: their English is bad, won't respond & actually do what they've agreed to & reelect govts that are responsible.

Chill. Just because my country's policy runs against the Received Wisdom & I object doesn't mean y'all gotta follow me.

Sorry, not conserv. or leftist. Just can't fathom why following agreed upon EU fiscal rules justifies smug & snide gloating re: my country.
Other tweets may be indirectly related to Ilves' conflict with Krugman. I agree with Ilves. Krugman is smug, overbearing, and patronizing. And he has nothing substantial to support his assaults with – except for a very superficial form of anti-New-Europe racism. Crackpot economists similar to Krugman are those who have brought many countries to the current level of inefficiency and excessive debt that places some of them next to a chasm.

Similar left-wing folks will abuse any economic decrease, any real or fabricated threat, and any sign of slump to drive the government spending, redistribution, and debt out of control. But people like the Estonian president know better. They know that real estate prices may go up or down and they have often very good reasons for their movements. However, what a responsible politician has to do to help his country is something very different from Krugman's recommendations: he has to keep the public debt low and try to make the markets ever more free.

And trustworthy politicians and people in general should do one more thing: abide by agreements they have signed especially if these agreements were signed for a very good reason.

Krugman doesn't understand anything about the actual mechanisms that lead to the creation of wealth; he doesn't understand economics. His decadent-Keynesian method to "undo" a slump by creating huge debts after the slump makes absolutely no sense. The slump between 2008 and 2010 was real and it's nonsensical to try to rewrite the history. The creation of debt just in order to fit the GDP graphs to a randomly predetermined prejudice makes no sense; what happened between 2008 and 2010 has already happened and what we can do today is to avoid bad policies in 2012. Acts of wasting surely belong among such bad policies.

He is a crackpot and what he is actually using to bully and intimidate people who are much better economists than himself is nothing else than tens of millions of aggressive left-wing activists and politicians that have contaminated the political discourse in many Western countries including the United States of America and that often shield him.

His behavior is shameful. Incidentally, Krugman responded to the Estonian presidential Tweets by writing a new blog entry stating that he was told that the president went ballistic and he, Krugman himself, is too important to study what the president of an ex-Soviet country wrote about him. ;-) Instead, he added a GDP graph from the Great Depression and New Deal, claiming it shows that the New Deal was a good idea. I am not sure how this claim would succeed in a comparison with other countries' graphs but what I am much more certain about is that fiscal conservatism was still a key principle underlying the New Deal and almost everyone who mattered – as well as the public – wanted balanced budgets etc. Those policies were surely excessively expanding the government but they still had nothing to do with the pathological policies recommended by Paul Krugman in the early 21st century.

Via Communist and Socialist Swine

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reader jnicholas3 said...

I had the pleasure of visiting the Alfred Nobel museum this spring while visiting family in Sweden; my only prior knowledge of the man was that he worked with dynamite and the Nobel Prize was his creation. No one that prolific would have done as much in Krugman's little keynsian universe, why should he? Oh, how low we have fallen when people like Obama and Krugman get the Nobel Prize (and Scandanavia is moving away from such economic drivel). I am thankful that most of America doesn't listen to Paul Krugman either.