Free Markets, Free People

Krugman–and now for a little statistical cherry picking

Paul Krugman poops out  a little blog post along with accompanying chart to ostensibly prove his point that austerity is the wrong way to go in Europe (and elsewhere).  He uses Estonia as his example because Estonia committed early to austerity measures.




Says Krugman:

Since Estonia has suddenly become the poster child for austerity defenders — they’re on the euro and they’re booming! — I thought it might be useful to have a picture of what we’re talking about.

So, a terrible — Depression-level — slump, followed by a significant but still incomplete recovery. Better than no recovery at all, obviously — but this is what passes for economic triumph?

CATO guts him with a single chart that makes the point about cherry picking data:



Note where they are headed and note too that this is after rather heavy austerity measures were placed into effect.

It’s called a “recovery”, unlike what is happening here where money we don’t have has been poured down a Krugmanesque rat hole.  Estonia hit a bump in their road of growth, took austerity measures to right themselves and is on the path to full recovery (they still have more to do, but essentially, they’ve weathered the problem).

But you wouldn’t know that from Krugman’s chart would you?

CNBC tells the Estonia story:

Estonia’s achievement is all the more remarkable when you consider that it was one of the countries hardest hit by the global financial crisis. …How did they bounce back? “I can answer in one word: austerity. Austerity, austerity, austerity,” says Peeter Koppel, investment strategist at the SEB Bank. …that’s not exactly the message that Europeans further south want to hear. …Estonia has also paid close attention to the fundamentals of establishing a favorable business environment: reducing and simplifying taxes, and making it easy and cheap to build companies.

How much austerity?  A lot:

… Estonians have endured some of the harshest austerity measures with barely a murmur. They even re-elected the politicians that imposed them. “It was very difficult, but we managed it,” explains Economy Minister Juhan Parts. “Everybody had to give a little bit. Salaries paid out of the budget were all cut, but we cut ministers’ salaries by 20 percent and the average civil servants’ by 10 percent,” Parts told Global Post. …As well as slashing public sector wages, the government responded to the 2008 crisis by raising the pension age, making it harder to claim health benefits and reducing job protection — all measures that have been met with anger when proposed in Western Europe.

But, you know, austerity doesn’t work (and so it is very important, to the point of giving half the story, that spending freaks like Krugman present Estonia as a failure).

Daniel Mitchell points out:

Estonia reacted to the overspending and the downturn in a very responsible fashion. Instead of using the weak economy as an excuse to further expand the burden of government spending in hopes that Keynesian economics would magically work (after failing for Hoover and Roosevelt in the 1930s, Japan in the 1990s, Bush in 2008, and Obama in 2009), the Estonians realized that they needed to cut spending.

Look at Estonia’s chart (not Krugman’s version).  Look at ours.  Tell me again why deficit spending is the answer and the only answer, Mr. Krugman?


Twitter: @McQandO

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29 Responses to Krugman–and now for a little statistical cherry picking

  • Maybe it takes a country that was burned by the socialist joys of the Eastern Bloc economy to understand austerity.  It’s not like Estonia was a spoiled child in the old Soviet and was living the life of, well, Greece, while under the Russian heel.
    “all measures that have been met with anger when proposed in Western Europe.”
    Sure, because they were used to the Russians telling them “Do as you’re told, because it would be a shame if something were to happen to your country, like, an armored invasion….” and I think that sort of thing over the years has led them to be  more willing to exchange scaling back their lifestyles for continued FREEDOM.

  • Obesity in America: To Win, We Have to Lose Government
    Caught this headline today and thought that the piece missed the metaphor.
    We have not just a fat government, but an “obese government.”  You don’t fix an “obese government” with “binge spending”

  • Can you say “Hockey stick”…???
    I knew you could…!!!  Glugman is drowning in his own BS.

  • “poops out a little blog post”

  • Also, whenever you see a chart with the zero missing, i.e. they truncate off a large portion of the data, you should be suspicious.
    The next trick is what year they decide to start with.
    Krugman’s chart plays both those tricks.

  • This has nothing to do with Estonia but, “When the U.S. really did try austerity it worked!”

  • It seems the President of Estonia Twitted (I know, it’s tweeted, but in Krugman’s case, TWIT is so applicable) Krugman rather effectively on this.   He seems to think Krugman believes Estonians are dark eastern European forest savages with not a clue about economics (as opposed to guys who seem to be running a country far more effectively than Krugman has ever done…oh, wait….Krugman has NEVER run a country?  No!!!! Really?!!!!!!!)

  • What a misleading bunch of bull! Estonia hasn’t bounced back – their GDP is still just barely over 90% of what it was in 2007 and unemployment is over 11%, and that’s after 4 years of austerity!!! Then you show a graph that goes back to 1996, but that is irrelevant to Krugman’s point which only concerns recovery from the 2007 crash. Krugman isn’t cherry picking, he’s all about the most effective way of getting gdp and employment back to 2007 levels, how bad things were in 1996 is not germane. You seem to be to just want to muddle around in misery, in fact that seems to be an end in itself.

    • Yeah Dave, and if you read the whole accompanying CATO piece you understand why they crashed like they did, how much worse their crash was than most and that what they’ve done has had a far more positive effect on their comeback than we’ve seen here without such measures. But, of course, you have to read the WHOLE thing. Your analysis is a like Krugman’s short chopped chart.

      • Bruce, I did read it and my comments stand. The relevant year to begin is 2007 and getting back to that level of GDP. Estonia hasn’t done that.

        • No, that’s why the term “recovery” is used. The fact that their GDP is rising at the rate it is from the downturn, however, makes the point that austerity has worked. Compare their quarterly GDP increase to the rest of Europe and tell me who is doing better.

        • Dave, sure, you want to cherry pick the peak of the bubble.

    • Almost EVERYONE crashed in 2007/2008, some people dealt with it realistically and are crawling out of the dtich, then there’s people like Obama, and Krugman, who want to pass out more shovels to dig the debt hole deeper on the premise, I guess, that there’s magic gold down there in that national debt hole if keep digging deep enough.
      Estonia nearly doubled government spending between 2004 and 2008.  They started austerity in 2008, so you can PRETEND that years prior to 2007 don’t matter for the purposes of seeing what’s happening, but it’s games with numbers, which is McQ’s point.  It’s like claiming St. Louis beat the Texas Rangers one to nothing in the last game of the 2011 series because you decided you could just ignore the first 5 innings (actual score, 6 to 2).

    • Gee, wouldn’t it be nice if the world really worked the way that Dave and Krugman believe?  Times are good, you run a big deficit, you spend a lot on wealth transfers and that keeps the proletariat satisfied.  When times are slow, well you just spend a lot more! No thought about tomorrow, hell you never have to pay it back, and we owe it to ourselves anyway. Companies not investing? Just start some new ones, or buy them out. Companies going bankrupt? Buy em out! The money is endless.
      What a great life it would be, all unicorns and rainbows. Any problem can be fixed with more spending. Any little snag can be dealt with with a little more debt. The bill never comes due!
      Yeah, that would be nice.

    • The real problem with Krugman’s graph is that it didn’t show the zero point.
      Also, if you follow Krugman’s technique, you may not get back to 2007, and if you do you could have a huge debt burden…for what?
      You do know that debts have to be repaid through future taxes, so what you have done is simply made the current people 10% richer – wooooohooooo, at the expense of people not yet appearing on the graph.

      • What he keeps missing is this (and it is precisely what Krugman wanted “missed”):

        During the crash of 2008, Estonia’s economic output fell by 18 percent. Instead of calling for more government, Estonians called for less. Estonians lived under communism for decades. They know that central planning is a fatal conceit.

        Estonia cut government, lowered government worker salaries, raised the pension age, lowered taxes and simplified the tax code.

        What happened? While most western economies struggled last year, Estonia’s economy grew almost 8 percent. It’s the only country in the Euro-zone with a budget surplus. Its national debt is just 6 percent of GDP, compared to 165 percent in Greece.

  • “Estonia has also paid close attention to the fundamentals of establishing a favorable business environment”
    Ah, there’s a problem. As far as I can tell economic, financial, and business fundamentals are forgotten or ignored as soon as  intelekshuel giants like Krugman are admitted to graduate school. Supply and demand? Opportunity costs? Pshaw! They are beyond all that stuff.
    “but we cut ministers’ salaries by 20 percent and the average civil servants’ by 10 percent”
    Aha! Hit a little too close to home there, I think.

  • That’s Doctor Krugnuts to you!
    Academic credentials are important!
    Just ask Ott Scerb!

  • I like how he sh ts all over Estonias recovery. As opposed to the economic juggernaut unleashed by the porkulus slush fund? Is he kidding me? I think most Americans would take an “incomplete” recovery over what we have here. And I was glad the Pres. of Estonia told him to sod off

    • Krugman reminds me of a stimulus stimulated underpants gnome from South Park, permanently stuck between step 2 and 3 of their business model.

  • I guess Krugman’s logic works something like-
    “The US tried a trillion dollar stimulus and only got about 2% annual growth, therefore we need more stimulus. Estonia tried austerity and got about 8% annual growth, so obviously austerity won’t work and therefore we need more stimulus”.

    Estonia is a quasi-socialist-capitalist economy—also known as a mixed economy (like most countries, there are no pure forms).  Before justifying the Estonian experience as a remedy for the US economy—which I think is being suggested—we must consider a few cultural differences:

    1)  The Baltic nations—Estonia, Lithuania, and Latvia—were previously governed under a
    communist dictatorship, until the dispersion of satellite nations by the USSR.  Being governed
    by an authoritarian government for so long, gives the population a higher degree of comfort with
    government edicts—such as the implementation of more austerity—whereas Americans and
    western Europeans have lived, for the most part, under democracies for decades, or centuries.
    This governing through democracy further has given rise to a belief in individual freedom and
    equality. These concepts also create certain problems for conservative austerity in America:
    Conservative austerity is considered to be appropriate for some, but not for others. Whereas
    austerity in Estonia is for all—”both ministers and workers” (and ministers in the context does
    not refer to religious leaders).

    What does austerity mean in Estonia, compared the US? In a 2008 survey, “Of the 31 nations that were rated, Estonia was placed 11th….”

    Whereas, the US ranks 37th in health care world-wide

    Estonia ranks 10th in reading, math, and science skills; the US ranks 15th—not too bad.

    Now these ratings, in my opinion, are a result of the degree of expenditures for teaching and health services—unless you want to consider America a nation of sick dumb-asses (an alternative which might have some merit). It seems that Estonia’s ratings in both these categories can survive some reductions due to some austerity—but can America? After all, austerity according to the conservative American mind, means taking benefits from the lower economic levels of society—instead of everyone sharing in austerity, like Estonia. That’s a result of the plutocratic, corporatist, fascism (this term is only used to designate the econo-political system, for now) which is developing within this country .

    • ” Being governed by an authoritarian government for so long, gives the population a higher degree of comfort with government edicts—such as the implementation of more austerity—whereas Americans and western Europeans have lived, for the most part, under democracies for decades, or centuries.”
      Bollocks. You don’t know many Poles, Estonians or Czechs do you? Your average Frenchman or Norwegian is much more comfortable wuth government edicts than those who lived through communism. That is because the Frenchies etc still believe the state knows best (kind of like your yankee Democrats I believe) whereas Easterners know that they will get buggared sooner rather than later.

    • “After all, austerity according to the conservative American mind, means taking benefits from the lower economic levels of society”
      “This governing through democracy further has given rise to a belief in individual freedom and equality.”
      There ya go Tad, the demonstration you’re a walking talking hypocrite – we’re into individual freedom, and equality.
      Well, except for taking things from one group of people to give to another based on a personal opinion of who’s poor and who’s rich and how that wealth should be evenly distributed according to some formula decided by someone other than the people we’re taking wealth from.
      I mean, other than that, we’re really into “individual” freedom.   You know, freedom to work as hard as we want and make as much money as we can so you can decide who has made too much, and whether or not they did it ‘unfairly’.
      Equality?  Equality will be determined by…well, equality doesn’t just mean in the eyes of the Law, right?   It doesn’t just mean that all eligible citizens get to vote, or that citizens shouldn’t be discriminated against due to religion, or sex, or color, or ethnicity.  It doesn’t just mean that laws apply to everyone, equally.  Nope. EQUALITY means making sure the ‘rich’ pay benefits for the ‘poor’ – means the reverse of “taking benefits from the lower economic levels of society—instead of everyone sharing in austerity”, right?
      And where did those benefits come from?  Ah, well, it was decided to take things from citizens, probably a minority of the population, who couldn’t stop it, to hand out to other citizens via government and ‘law’.  Confiscated wealth, administered by appointed officials treating, the receiving groups (we should be so lucky there was only one), different from the group being confiscated from.  Even though the confiscated group doesn’t get MORE government, or better roads, or better police, or a better army, or a better capitol, they need to pay MORE for their benefits because they have more.  Isn’t equality wonderful!!!???
      It was decided that wealth was what should officially make these two groups ‘unequal’ in the eyes of the law so we could treat them unequally in a legal way.  Why this belief in equality is so strong that it really trumps ‘individual freedom’ and, to use the vernacular, we can take their shit and give to others.
      But really Tad,
      Equality, isn’t a guarantee of outcomes, it’s a guarantee of opportunity.  Don’t spout off about individual freedom, and equality, and then talk about the legally enforced obligation of the ‘rich’ to provide payments to ‘the poor’ so you can snuggle up warm and cozy at night and dream of the good deeds you did today with someone else’s money.