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Economy
In reply to the discussion: Weekend Economists Repent! The End Is Here! July 20-22, 2012 [View all]Demeter
(85,373 posts)41. Krugmenistan vs. Estonia THE DISH ON KRUGMAN, MAKING FRIENDS AND INFLUENCING PEOPLE
http://www.businessweek.com/articles/2012-07-19/krugmenistan-vs-dot-estonia
In May 2009, months after the passage of a $787 billion stimulus package in the U.S., Estonias government took the opposite tack: the hard line. It did not dip into the countrys reserves or borrow money. Ministers say they never even considered devaluing what was then Estonias currency, the kroon, which would have derailed a 10-year plan to adopt the euro. To maintain the countrys balanced budget, a tradition it had honored since the end of the Soviet occupation, Estonias government froze pensions, lowered state salaries by about 10 percent, and raised the value-added tax by 2 percent. The gross domestic product dropped more than 14 percent that year.
At Estanc, which makes high-pressure steel containers at a plant outside of Tallinn, profits stagnated. The company postponed plans to double floor space at the factory. Unemployment in Estonia got as high as 16 percent, and many of the countrys welders took the ferry ride across the Gulf of Finland to Helsinki to look for work. Vaido Palmik, the plants managing director, had friends lose their jobs during the crash. It was a very hard time, he says.
The welders are back now. In 2010, Estonias GDP grew by 2.3 percent. At the end of that year, the country ran into a burning building and adopted the euro. Last year, GDP grew by 7.5 percent. Estanc has increased its head count by more than a third in 2012. Palmik sells to Finland and Sweden; he wants to break into the German market and has moved forward with plans for expansion. Estonias unemployment is down to 10.8 percentnot ideal, but less than half that of Spain, and enough to get both the countrys president and its ruling coalition reelected in 2011. Last November, the International Monetary Fund praised the countrys export-led recovery and enviable fiscal position. Economists dont get controlled experiments, so they have to take countries as they are. Right now, Estonia seems to show that monetary and fiscal restraint can, after pain, create growth. If you look back, the crash is very good, says Palmik. Not surprisingly, Estonia, a country with 1.2 million people, has been offered as a model by advocates of austerity in Europe and elsewhere. On the far side of the Atlantic, however, Nobel prize-winning economist and New York Times columnist Paul Krugman has been arguing for years against this kind of restraint, saying it leads to pointless misery. The argument is central to the future of the U.S.and most other countries, too. On June 6, in a blog post titled Estonian Rhapsody, Krugman took on what he called the poster child for austerity defenders. In his post, he graphed real GDP from the height of the boom to the first quarter of this year to show that, even after a recovery, Estonias economy is still almost 10 percent below its peak in 2007. This, he wrote, is what passes for economic triumph?
AND IT GOES ON...HOW THE OTHER SIDE SEES IT
In May 2009, months after the passage of a $787 billion stimulus package in the U.S., Estonias government took the opposite tack: the hard line. It did not dip into the countrys reserves or borrow money. Ministers say they never even considered devaluing what was then Estonias currency, the kroon, which would have derailed a 10-year plan to adopt the euro. To maintain the countrys balanced budget, a tradition it had honored since the end of the Soviet occupation, Estonias government froze pensions, lowered state salaries by about 10 percent, and raised the value-added tax by 2 percent. The gross domestic product dropped more than 14 percent that year.
At Estanc, which makes high-pressure steel containers at a plant outside of Tallinn, profits stagnated. The company postponed plans to double floor space at the factory. Unemployment in Estonia got as high as 16 percent, and many of the countrys welders took the ferry ride across the Gulf of Finland to Helsinki to look for work. Vaido Palmik, the plants managing director, had friends lose their jobs during the crash. It was a very hard time, he says.
The welders are back now. In 2010, Estonias GDP grew by 2.3 percent. At the end of that year, the country ran into a burning building and adopted the euro. Last year, GDP grew by 7.5 percent. Estanc has increased its head count by more than a third in 2012. Palmik sells to Finland and Sweden; he wants to break into the German market and has moved forward with plans for expansion. Estonias unemployment is down to 10.8 percentnot ideal, but less than half that of Spain, and enough to get both the countrys president and its ruling coalition reelected in 2011. Last November, the International Monetary Fund praised the countrys export-led recovery and enviable fiscal position. Economists dont get controlled experiments, so they have to take countries as they are. Right now, Estonia seems to show that monetary and fiscal restraint can, after pain, create growth. If you look back, the crash is very good, says Palmik. Not surprisingly, Estonia, a country with 1.2 million people, has been offered as a model by advocates of austerity in Europe and elsewhere. On the far side of the Atlantic, however, Nobel prize-winning economist and New York Times columnist Paul Krugman has been arguing for years against this kind of restraint, saying it leads to pointless misery. The argument is central to the future of the U.S.and most other countries, too. On June 6, in a blog post titled Estonian Rhapsody, Krugman took on what he called the poster child for austerity defenders. In his post, he graphed real GDP from the height of the boom to the first quarter of this year to show that, even after a recovery, Estonias economy is still almost 10 percent below its peak in 2007. This, he wrote, is what passes for economic triumph?
It was like an attack on Estonian people, says Palmik, in an office above his plant, surrounded by blueprints for his new production line. These times have been very difficult. People have kept together. And this Krugman took all these facts that he wanted.
AND IT GOES ON...HOW THE OTHER SIDE SEES IT
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