Should the government have borrowed money to keep unemployment low? “No,” he says. “We don’t want to be like Greece.” (Estonian quoted in Bloomberg)The country of Estonia saw what was happening with Ireland and Greece, and its people were determined not to go down that road.
In May 2009, months after the passage of a $787 billion stimulus package in the U.S., Estonia’s government took the opposite tack: the hard line. It did not dip into the country’s reserves or borrow money. (Krugmenistan)Paul Krugman excoriated their fiscal rectitude...
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, Estonia’s economy is still almost 10 percent below its peak in 2007. “This,” he wrote, “is what passes for economic triumph?” (Krugmenistan)That earned some pushback from the nation's president, but their economic recovery is what really got them the last laugh over the Pontificator of Princeton.
This chart exposes a classic Krugman crapweasel trick: Take a little slice of data, in this case only the blue line, and use it to show that Estonia's GDP sank after their austerity. The author of Krumenistan plotted it out further, showing that they experienced a bubble, as everyone did, right before the crash. Because they acted responsibly, they are growing again, and faster than their European cousins who are blowing money like there's no tomorrow.
In his blog post, Krugman started his graph—and his logic—when Estonia’s GDP had reached its peak, in 2007. Wages were high, and unemployment was low. Good for most citizens, and for most citizens now things are still worse than they were then.
But if you move Krugman’s graph all the way back to 2000, you see slow, steady growth in GDP, then a short boom, then a hard crash, and now growth leveling back off to where it would have been without the boom.
In the boom years, says Varblane, “GDP growth was not real. It was artificial,” fueled by cheap debt from abroad. The peak, Krugman’s point of comparison, was not “real,” he says. That Estonia has not reached it again is a good thing, Varblane and Ligi say. It never should have been there in the first place. (Krugmenistan vs Estonia)Take away the cheap tricks, and Krugman's Keynesian arguments collapse. The austere Estonians are out of the woods, while the rest of us are still lost, foolishly trying to spend our way to prosperity.
