Frank Shostak, “Why Estonia Is Beating the Eurozone,” Mises Daily, October 18, 2012.The chief reason cited for the alleged “success” by Shostak is the fall in the unemployment rate in Estonia. Shostak asserts that unemployment “fell to 5.9 percent in August from 7.6 percent in January.” I am not sure where he gets his figures from.
http://mises.org/daily/6232/Why-Estonia-Is-Beating-the-Eurozone
According to Tradingeconomics.com, unemployment in Estonia in the second quarter of 2012 was at 10.2%. In late 2011, it was at about 11%:
http://www.tradingeconomics.com/estonia/unemployment-rateNow it is certainly true that Estonian unemployment significantly fell from 2010 to early 2011 (from about 20% to 13%). But why did unemployment fall like this? The evidence suggests that a great deal of the fall in unemployment in these Baltic states in the years of austerity should be ascribed to mass emigration, not to strong domestic employment growth:
“… all three [sc. Baltic states] have seen mass emigration over the last four years, particularly amongst the young. All three have the highest emigration rates in the EU, with 24 people out of every 1,000 leaving Lithuania in the last year. This, in turn, has restrained domestic unemployment; and while people should be free to go and find work where they can, their exit hardly counts as a ringing endorsement for the government.”And then we get this astonishing admission from Shostak:
James Meadway, “The Myth of Successful Baltic Austerity,” New Economics Foundation, 18 July 2012.
“Since Q2 2011 the government has reversed its stance and embarked on massive spending. The average of the yearly rate of growth between Q2 2011 and Q2 2012 stood at a positive figure of 11 percent. (Contrast this with the -7.4 percent during Q3 2009 to Q1 2011.) Furthermore, the yearly rate of growth of money supply has been displaying strong growth. The average of the yearly rate of growth between December 2009 and August 2012 stood at 8 percent. (Contrast this with the figure of -7.9 percent during May 2008 to November 2009.) Rather than persisting with the cleansing process, the government and the central bank have chosen to reverse the stance, thereby arresting the process of healing the economy.”So in truth Estonia has from quarter 2, 2011 embarked on fiscal expansion to some degree (just how significant I don’t know, without further research).
Frank Shostak, “Why Estonia Is Beating the Eurozone,” Mises Daily, October 18, 2012.
http://mises.org/daily/6232/Why-Estonia-Is-Beating-the-Eurozone
That fiscal expansion is correlated with the higher GDP growth rates that occurred from 2011:
http://www.tradingeconomics.com/estonia/gdp-growth-annualSo whatever one wants to argue about the strong growth rates and recovery from 2011 (which was probably due to export-led growth to some degree as well), it was not correlated with austerity at that time.
In general, if your model of economic policy is to drive a significant proportion of the population overseas, owing to the social devastation caused by domestic wage and price deflation (what seems to have happened in the Baltic states from 2008–2011), then no doubt you can declare a “success” story.
Those of us not in thrall to neoclassical or Austrian economics will not be convinced or impressed by such balderdash, however.
BIBLIOGRAPHY
James Meadway, “The Myth of Successful Baltic Austerity,” New Economics Foundation, 18 July 2012
http://www.neweconomics.org/blog/2012/07/18/the-myth-of-successful-baltic-austerity
Wouldn't Austrians say that reduced unemployment due to massive emigration is, in fact, a valid part of the "cleaning process" and thus a feature, not a bug? If Mellon's "less competent people" flee the economy entirely, hasn't austerity had its desired effect (from the austrian standpoint)?
ReplyDeleteI'm not sure how they would defend it, quite frankly.
DeleteIt would make them sound a bit like Scrooge from A Christmas Carol, almost Malthusian in their lunacy:
"After ... [Scrooge's] nephew leaves, two charitable men come in and ask Scrooge if he is willing to help them raise a fund to help the poor, but Scrooge comments that he pays taxes for the poor. The two charitable men comment that many would rather die than go to a government funded workhouse. To which Scrooge responds: "If they'd rather die then perhaps they had better do so and decrease the surplus population," and angrily dismisses them."
http://en.wikipedia.org/wiki/Ebenezer_Scrooge#Story
Isn't emigration a bit better than death?
DeleteIsn't purging a country of undesirables immoral and unethical?
Delete"Isn't emigration a bit better than death?"
DeleteObviously, that is why I said: "sound a bit like Scrooge".
@Neil: I raise all-in--isn't not allowing unlimited immigration from poor countries unethical? You're denying them access to your 1st world living standards!!
DeleteAnd by the way--I thought govt policy in democracies could never be "unethical" since govts are democratically elected by the people. Isn't that the justification given on this site to refute the "taxation is theft" argument? So no, according to your own social democrat logic, Estonia's economic policies are not unethical.
"isn't not allowing unlimited immigration from poor countries unethical? "
DeleteNot at all - the unlimited immigration would be counterproductive and would not work anyway, since first world nations and economies would be overwhelmed.
Also, there is another flawed assumption in such an argument: that there is no other effective ways to relieve the poverty in the third world by other means.
In fact there are: allowing developing nations access to our medicine, technology, subsidies to create public infrastructure and education, independent economic policies to build their economies by industrial policy and import substitution, instead of impoverishment by neoliberalism.
I thought govt policy in democracies could never be "unethical" since govts are democratically elected by the people. Isn't that the justification given on this site to refute the "taxation is theft" argument?
That is a stupid straw man and demonstrates that you have not properly read this blog.
I have never argued that "democracies could never be 'unethical' since govts are democratically elected by the people". Nor have I ever justified taxation by the "majority-supports-it-so-it-must-ethical" argument.
On the contrary, I argue taxation is justifiable by consequentialist ethics - and would be moral even if the majority opposed it.
From what I know about the Austrians and their epigones, the shades of Malthus, Spencer and Sumner are never far away. Austerity Past, Present and Future, to continue the Dickens.
DeleteWhat do you make of this paper?
ReplyDeletehttp://www.economics.harvard.edu/faculty/alesina/files/Fiscal%20Policy,%20Profits%20and%20Investment.pdf
"After the fiscal profligacy of the seventies and
eighties, several OECD countries have stabilized
and reduced their debt to GDP ratios by means of large fiscal adjustments. In contrast to the prediction of standard models driven by aggregate demand, many fiscal contractions have been associated with higher growth, even in the very short run. Similarly, economic activity slowed during several episodes of rapid fiscal expansions."
The work of Alberto Alesina et al. has been extensively refuted by Bill Mitchell and even Krugman has provided a useful critique of some of the cases.
DeleteOf course you can get some cases of growth from the export led sector and private sources, when a nation's export partners and the rest of the world are booming. That is not the situation we find ourselves in today.
Just do a search for "Alberto Alesina" on Billyblog. E.g.,
http://bilbo.economicoutlook.net/blog/?p=10920
http://bilbo.economicoutlook.net/blog/?p=19050
This proves once again that the "austrian" school of economics is nothing but a pseudo-science and pure political propaganda. It is common for pseudo-scientists to pick those data which seems to support their causes, while they refuse to tell the whole story. The paraphrase Robert Nozick: one might left with the view that austrian economics is the exploitation of people's lack of understanding of economics.
ReplyDeleteI've had austrian schoolers tell me that they don't favor austerity because it doesn't change the amount of taxes paid, only the amount of services provided. Is there any evidence that this is true from what you've read in regards to taxes being changed?
ReplyDeleteIn many cases of fiscal contraction taxes are often raised - to reduce the budget deficit.
DeleteYet Austrians mostly support austerity - this is just another piece of illogic in their worldview.
For the past one year, I have largely agreed with those who say that internal devaluation is a very bad and costly means of bringing recovery.
ReplyDeleteHowever, I was surprised by one tiny bit of success - if it could be called that - of internal devaluation.
Greece has now become an "exporter" economy since its current account shot up into a surplus from a deficit - by a change of nearly 1.5 billion euros. If this is followed by rising employment-to-population in Greece, then the proponents of internal devaluation may have one little victory.
Nevertheless, an independent currency and depreciation / devaluation of the currency would have had much the same effect - without the destruction of the domestic economy.
DeleteSo are you against the euro? Do you favor its breakup?
DeleteNot sure whether you ask this question of me or the original commentator.
DeleteYes, either the Eurozone should be thoroughly reformed with a fiscal union as well as monetary union, and expansionary fiscal policy, or in the long run the Eurozone is likely to break up.
In your opinion, what are the benefits of the euro? Cross-border labor and trade flows are good, but the common currency seems to have caused far more harm than good in countries like Spain, which is now being crucified on a cross of gold.
DeletePrateek, all of the Greek increase in exports is due to high primary prices. Here you can find an analysis of Greek "success": http://www.social-europe.eu/2012/10/european-wage-austerians-are-getting-desperate-what-really-happened-with-greek-exports/
Delete