Baltic Tiger Takes A Bite Out of Paul Krugman

Story Stream
recent articles

Economics: Estonia's president drew criticism for his ferocious rebuke on Twitter to New York Times columnist Paul Krugman, who belittled his country. In reality, he drew attention to Estonia's little-reported success.

Sure, a string of angry tweets from the president of a nation aimed at an influential Nobel-prize-winning economist might not seem, well, presidential. That didn't stop Estonian President Toomas Hendrik Ilves from doing so Wednesday after Krugman pooh-poohed his nation's escape from recession.

But when you are the president of a small country that gets no press, aren't afraid of the unconventional, and have a fiscal record that, if duplicated, would save the West from ruin, then maybe a smackdown of Krugman was the right thing to do.

Ilves got panned at home for flaming Krugman with sarcasms such as: "Let's write about something we know nothing about & be smug, overbearing & patronizing: after all, they're just wogs."

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

In reality, what Ilves' tart tweets did was draw attention to a country whose every move in a recession should be studied and imitated. Estonia's story can no longer be ignored after those eye-catching tweets.

Krugman was a good target because he's been peddling the common wisdom, heard all over the European Union and in the White House, that massive deficit spending brings economic recovery - never mind the failure of the $830 billion U.S. stimulus or the big spending that brought southern Europe to its knees.

To Krugman and his power-elite pals, the only reason big government spending doesn't bring recovery is it's not big enough.

Estonia did the opposite of what Krugman prescribed over three years, and as a result shook off recession and returned to high economic growth. It now stands like a colossus disproving Krugman's policy prescriptions.

Fact is, Estonia tried stimulus after a steep recession in 2008. That "stimulus" shrank its economy a mind-boggling 18%, worse than anything seen now in Greece.

Instead of going into deeper debt, Estonia reversed course, slashing its budget to 6% of GDP. By 2011 Estonia racked up 7.6% growth, the highest in the EU and five times the EU average. Its credit was upgraded.

The Estonian success story highlights important lessons for both Western Europe and the U.S.:

• That cutting the size of government really is possible, contrary to the conventional wisdom that the rate of government growth can only be slowed and not reversed. Estonia went full Tea Party and reversed it.

• That smaller government makes room for the private sector. Cutting bureaucracy in Estonia triggered a wave of startups. As a result, Estonia now has a vibrant tech sector, whose most famous company is Skype.

• That addressing spending problems honestly and directly instead of putting them off is the shortest route to economic recovery. There were no Sen. Harry Reids halting a vote on a budget in Estonia.

• That it's possible for political leaders to cut government and not be thrown out of office by voters. Wisconsin-style, Estonia's government was reelected handily in the midst of its austerity because the public was united by leaders like Ilves.

Ilves may now be panned for his unconventional approach, but his record speaks for itself. His credibility went up, not down, with his powerful tweets.


Show commentsHide Comments

Related Articles