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.
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?
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).
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?