Recently I was taken by the juxtaposition of two news stories, One, chronicling a dustup between Paul Krugman and the president of Estonia. I have no love for Krugman, of course; and I follow his antics only to see how far afield from real economics a Nobel -Laureate in economics can publicly travel.
The news wasn't that Krugman picked a fight with Estonia. The news was that Estonia and the other Baltic countries are doing very well as a result of their austerity. As a laboratory of economics, it presents a pretty good example of what is possible with a healthy dose of government austerity.
Estonia is growing at 7.6% per year. Yes, Growth AND austerity. Not too bad. Co-balticites Lithuania and Latvia are also reporting positive results from similar economic policies.
Of course, in our own country, this worked for the Harding and Coolidge administrations.Sometimes we need more contemporay examples. I had to look at a map to find Estonia. Then I was struck by the proximity to Finland. A short boatride across the Gulf of Finland is all that separates Estonia and Finland.
Finland is one of the few growing economies left in the EU and is fighting to preserve what little they can of the existing recovery. This is prompting the Prime Minister of Finland to argue against Eurobonds (i.e., printing of excess euros). They think that the Spanish banks are not too big to fail, and that austerity and growth are not mutually exclusive.
Good for them.
If they have to exit the Eurozone, it will be for very good reasons. They understand economics better than Paul Krugman, and maybe even better than the rest of us. I cheer them all on. It appears that the Baltic region will be poised to recover quickly from the double dip. Hopefully, the US won't be too far behind them.
