Austerity Works, And The Baltics Have Proven It

SONY DSC

Europe is in the midst of a financial crisis brought on by exorbitant spending and hugely expensive social programs creating large budget deficits and driving huge amounts of debt creation.  Here in America we have a similar problem, though we’re a bit behind the curve in comparison to the Europeans.  We, too, have exorbitant levels of spending and unfunded obligations from programs like Social Security and Medicare that are almost un-payable.  Our budget deficit is over $1 trillion for the fourth consecutive year, and we’ve added more national debt under our current president than every other president in the history of the country.

And America’s credit rating just got downgraded.  Again.

Yet, in both Europe and America, the political left argues that the solution for these financial crises is more spending.  Spending to stimulate the economy.  Spending to maintain the social contract with the populace.  Spending to promote social justice.  We’re assured, by people like economist Paul Krugman, that if we just keep growing spending we will, in turn, stimulate the economy.

That this has yet to work anywhere it has been tried is, apparently, irrelevant.

But what has worked is austerity.  What has worked is cutting down to something that can be paid for with reasonable taxation on a broad base of taxpayers.  And three Baltic nations have proven it:

Amid the carnage of the European financial crisis, the Baltic countries, by and large, are doing quite well. Estonia, Latvia, and Lithuania are booming. Last year, their growth rates reached 7.6 percent, 5.5 percent, and 5.9 percent, respectively. The turnaround, driven largely by manufacturing exports, has been one of the most remarkable and promising stories of the crisis. In 2008-2009, all three countries were badly hit by a nearly complete liquidity freeze, which sank their economies by as much as 24 percent. Even so, only Latvia required an IMF and EU bailout, and all three returned to growth after only two years of recession. Today, all three Baltic countries have ample access to international financial markets, and their credit ratings have risen steadily since the summer of 2009. …

The simple explanation is that the Baltic countries have pursued the opposite policy of the southern Europeans. In 2009, the Baltic governments each carried out strict austerity, with a fiscal adjustmentof about 9.5 percent of GDP, mainly though expenditure cuts and substantial structural reforms. The southern Europeans, by contrast, delivered substantial fiscal stimulus in 2009.

The entire article is worth your time to read.

It never ceases to amaze me that this is even a controversial topic.  It doesn’t not take the work of great academics, or the scientific endeavors of economists, to conclude that the less burden the government and its spending/tax policies represents to a given economy the more healthy that economy will be.

Here in America the Democrats are adamant that we need higher taxes.  President Obama has even taken to mocking tax relief on the campaign trail, suggesting Republicans pitch it as a sort of cure-all snake oil.  And yet, we see from the Baltics that in this instance the “snake oil” is working.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

Related posts

  • robert108

    As a Marxist, obama believes that all our wealth belongs to the govt, which is why he is always going on about “tax breaks”. This is why he and the Democrats want to raise taxes; they think it’s their money. Of course, that has never worked in the history of the world, but that just makes them double down on stupid.

    • Roy_Bean

      The democrat philosophy:

      …..All that we have is Thine alone,
      A trust, Obama, from Thee……

    • http://nofreelunch.areavoices.com/ Kevin Flanagan

      But Obama and his ivy league buddies worked out all the kinks in Marxism during their late night pot sessions.

      • $8194357

        choom choom comrade..

        • Bobby

          I will say this, the ease you fellers have in discounting anything done by a democrat as marxist (i suspect you’ve never read marx, or smith, or mills hobbes payne milton) is odd. If you are.a generational farmer,the land you own was given to you, or to those from whom your betters acquired it, by the feds. Free land. that makes you a ward of the state, and the money you’ve made makes marx grin and tolstoy find peace at last.

          • http://sayanythingblog.com Rob

            They settled the land nobody was living on, and were granted title after they worked it.

            That would match the definition of communism only for someone who doesn’t actually know what they’re talking about.

          • Bobby

            So ernest! Well, off to the gym! Rob, have a sense of humor, lighten up!

          • http://sayanythingblog.com Rob

            Who is not light? I think the self-assurance of your not-so-well-informed comments are hilarious.

          • $8194357

            10X Rob..
            The aloofness and elitistism of the casual leftist relitivism
            know it all know nothings.
            We just don’t get the “nuance” of their “enlightenment”,huh.

          • robert108

            Right. Communism is ownership by the State of the means of production and all property. Not anywhere near accurate.

          • Bobby

            Rob,

            I didn’t say your posse fans were commies or anarchists, nor did I suggest the same with respect to the system of land distribution. But, a commie would take a little pleasure in the notion (and the final holder of title, I.e. the state) and tolstoy would love the whole free farm kind of a thing, promotes liberty afterall. ta ta!

          • http://sayanythingblog.com Rob

            But it’s not a free farm.

          • $8194357

            Your assumtions are wrong.
            Most modern liberals are.

            I own no land and was given nothing by the state.
            Nice little pro marxist diatribe tho..

          • robert108

            The Democrat Party, with its commitment to redistribution through taxation and regulation, its class warfare techniques to pit groups of Americans against each other, and the constant growth of govt power that robs us of our individual rights and freedoms, the Democrat Party is clearly committed to Marxism. Furthermore, the constant blaming of “social disorder” to justify criminal behavior is pure Marx.

    • Bobby

      And, fyi, estonians do not consider themselves baltics.

      • http://sayanythingblog.com Rob

        You’re conflating the name of the region with the name of the people. Estonians don’t consider themselves part of the Baltic people, but Estonia is one of the Baltic states.

        • Bobby

          ? I know, thanks though rob.

    • Adolf Mittler

      You’re right, raising taxes has never worked in the history of the world. Except for when Clinton raised taxes in 1993 and then the economy boomed and the budget got balanced. And except for when the top marginal tax rate was almost triple what it is now – back in the 1940s and 1950s – and the economy boomed.

      Higher taxes never works, except for when it is tried.

      • robert108

        As a lying liberal sockpuppet, you are wrong about cause and effect. The entire “Clinton prosperity” was due to Newt Gingrich and the Republican Congress(the first Republican House in 40 years of Democrat spending).
        In his first two years, Clinton tried to force through a “stimulus”, under the threat that “cities would burn” without it, and tried force a giant healthcare industry takeover by Hillary. They both failed, and the American people voted in the Republicans in ’94. Taxes can’t create prosperity, it’s economically impossible, but you leftists don’t know real economics.
        The Post War economy boomed due to accumulated investment caused by war rationing, plus the death of FDR and his failed social policies.

        • Adolf Mittler

          The facts are what they are. Clinton was president. Clinton raised taxes. We had higher taxes and the economy still boomed.

          My point is not that higher taxes creates prosperity (you said that, not me), it’s that you can have higher taxes and still have a booming economy.

          Someone please tell me how lower taxes, budget deficits, and collapsing economies are better than higher taxes, balanced budgets, and booming economies.

          • http://proof-proofpositive.blogspot.com/ Proof

            The economy, which had already started to recover before Clinton took office, was strong enough to prosper in spite of higher taxes, not because of them. The balanced budget was forced upon Clinton by a Republican majority in Congress. Your cherry picking once again illustrates your abysmal knowledge of history.

            The fact is the government spent far too much money then, it spends even more today. The facts are what they are. (Apparently you wouldn’t recognize one if it bit you.)

            Now call me some more names. Throw in a few insults. It’s what you so best. (Well, that and spin partisan fantasies!) The other fact you have trouble dealing with, is that whenever anyone challenges you on your bogus facts, you toss out a few more insults and run like a scalded dog from the discussion. We’re still waiting for that list of wars we asked you about, for example.

            Now bloviate for a bit about how you are under no obligation to defend anything you say, and run like a scalded dog…again.

          • robert108

            “My point is not that higher taxes creates prosperity (you said that, not me)…”
            This is what you said, not me: “raising taxes has never worked in the history of the world. Except for when Clinton raised taxes in 1993 and then the economy boomed and the budget got balanced.”
            You did make that claim, which reveals your superstitious belief that coincidence equals causation. It doesn’t.
            You show your ignorance of economics, again. Balancing the budget is about spending, not taxation. Newt Gingrich and the first Republican House in 40 years forced Clinton to abandon his free spending ways(stimulus package, big govt healthcare takeover) and be fiscally responsible for the first time in his life. He balanced the budget on the back of our military preparedness, which gave us 8 years of worldwide islamic terrorism, failure to take OBL three times, failure to go after AQ after the ’93 WTC bombing, and failure to detect and expel the 9/11 hijackers, who trained for their mission on his watch. Your choices are false. The real choice is between high taxes, big govt, stagnant economy, low economic growth and a declining position in the world(the Democrat way), or lower taxes, more private sector prosperity(the private sector pays for everything) and good economic growth that enriches all Americans according to their choices to achieve.

  • WOOF

    All three of these counties together have a population approximating Brooklyn.
    What Europeans consider austerity, you’d consider a Marxist takeover.

    • mickey_moussaoui

      Woof, you make no sense. The Europeans
      do not like these austerity measures. You can call it anything you like and it
      is still unpopular. One thing is certain; no one here is accusing Obama of practicing
      austerity because he is doing the exact opposite. He and his Marxist ideology are
      all about SPENDING recklessly on social programs at a level we can not afford. For many years the Europeans did indeed live outside
      of their means, they did spend lavishly on social programs they couldn’t afford
      and now, they, like us, are broke. What part of unsustainable do you not get? Marxism and austerity are on two opposite polar ends of each other. Ironically, due to Marxism ideology we all will be living in austerity because you want everyone to be equal and that equates to being equally poor. When I see obama give away all the corrupt wealth he has aquired then I’ll begin to believe your messiah has seen the error of his way. Until then I’ll continue to see him as the fraud leader of fools like yourself.

      • WOOF

        The Europeans are voting out austerity politicians cause austerity did not work. € down, $ up.

        • alanstorm

          So, were you unable to READ the article, or unable to UNDERSTAND it?

          And sequestration is austerity? the same way that amputation is a weight-loss program.

          • mickey_moussaoui

            woof has the union mindset where there is limitless money and the rich have it all

    • http://flamemeister.com flamemeister

      Gibberish.

    • sbark

      just means we need 100X the amount of austerity of the Balkens……
      or a similar percentage across the board…..
      Sure Austerity might be painfull……but the ultimate markets solution to this morass will be alot worse than anything you can imagine……..
      famed Investor Jim Rogers………
      The resulting chaos is going to crush Americans.”

      Another member of this team, Chris Martenson, a global economic trend forecaster, former VP of a Fortune 300, and an internationally recognized expert on the dangers of exponential growth in the economy, explained their findings further:

      “We found an identical pattern in our debt, total credit market, and money supply that guarantees they’re going to fail,” Martenson said. “This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible.”

      “And what’s really disturbing about these findings is that the pattern isn’t limited to our economy. We found the same catastrophic pattern in our energy, food, and water systems as well.”

      According to Martenson, these systems could all implode at the same time.

      “Food, water, energy, money.

      • $8194357

        Thats what I been telling ya all since I came here.

      • mickey_moussaoui

        better start filling your mattress w/ cash

        • http://flamemeister.com flamemeister

          Rice, dried beans, fishing equipment, home renovation. My broker agrees.

        • $8194357

          Bullets and nessecities IMO..

  • WOOF

    Note how REPUBLICANS are fighting sequestration, (austerity).

    You people will swallow whatever your elite masters cram down your throats.

    • robert108

      National defense is one of the few legitimate Constitutional reasons to spend taxpayer money. In the world of today, where obama’s bowing and weakness have given rise to worldwide jihad, we would be insane to cut any defense spending. If we want to spend money, drill our own oil.

      • $8194357

        We will be allowed to drill our own when the “right people”
        control its profits and agendas IMO..

  • robert108

    Here’s the difference between austerity, which the Euros need very badly, and fiscal responsibility, which is what we need, after we get rid of obama and his Marxist crew in the Democrat Party. Austerity is necessary for socialist economies, since they barely produce enough to break even financially. Austerity is their real lifestyle choice, since they have chosen socialism. For us, because we have an economy that generates economic growth when it’s not held back by the Democrats, what we need is financial responsibility, or living within our means, which will yield a decent middle class lifestyle for the American people.
    We just have to keep the govt out of the economy, and severely curtail govt spending.

  • Bobby

    Good post. Estonia suffered a back and forth for years, between russian and german rule. They came out of it after the wars in a defeated way, but never lost their national identity. Great growth tied to telecom and real estate, really an odd old world new world mix. They have a great president from what I know. Thanks rob for posting on this. Hope your readership will use this is a starting point for thought through this particular region.

    • Bobby

      It’s worth adding that these countries were in general flux and through the 80s. I think Estonia is out in front, but these are developed and educated countries only recently freed to capitalism. Cheaper operators for the region, and they are capitalizing. Latent capacity, I guess.

      • http://sayanythingblog.com Rob

        Or maybe lower cost of government, and greater economic freedom, actually makes people more prosperous.

        Heady concept, I know.

        • $8194357

          How conservitive of you Rob…
          hee…hee

        • Bobby

          I agree, but god you are such an ass! Enjoy your saturday, robbo

          • http://sayanythingblog.com Rob

            You come here, condescend all over the place, and then get all butt hurt when people don’t take kindly to it.

            Grow up, Bobby.

          • Bobby

            Thanks for the advice!

          • siouxfanatic

            we’re using the term butt hurt here?!?!? I’m back in

  • AV

    The Baltic countries have small populations and GDP’s, so the billions of Euros that they receive, in structural adjustment aid, is not insignificant. And their below-average wages, in the EU, probably mean that their economies may grow faster, at times, but also contract (implode) faster during downturns, as the evidence shows.

    So, Rob, in your world, does “austerity” mean low wages, very cyclical economy, and receiving EU aid? Ryanomics FTW!!

    • http://sayanythingblog.com Rob

      So, you’ll just ignore the parts of what happened there that are inconvenient for your narrative.

      Typical.

  • VocalYokel

    Of course austerity works, and the Leftards are willing to keep spending your money to prove it.

    • Adolf Mittler

      How about we stop giving federal money to the Republican farmers, and get rid of all farm welfare and all CRP welfare? Is that an “austerity” strategy they will accept, or will they squeal like little piggies caught in an electric fence?

      How about ND stop begging for FEMA money for flood relief while sitting on a mountain of surplus money? Isn’t it about time ND start practicing what it preaches and pull itself up by its own bootstraps?

      • VocalYokel

        Works for me.
        As far as I’m concerned, any farmer who takes government subsidies is nothing more than a sharecropper.
        And I’m for spending ND’s oil ‘surplus’ on reasonable flood relief, although I’d much rather see it used to give tax relief…to taxpayers of course, not as some pie-in-the-sky economic development nonsense.

        • Adolf Mittler

          Well, that would include just about every farmer in ND, most of which are Republicans. Personally, I have no problem with some sort of safety net for farmers, it’s the hypocrisy I can’t stand.

          On flood relief, I also favor a safety net, but I am totally against paying people to rebuild in a flood-prone area. That’s just common sense.

          I have to agree with you on the economic development nonsense. I would agree with some tax relief, but I think having some surplus for leaner times is a good thing.

        • $8194357

          10X

      • robert108

        I’m sure the far left wing obama administration has plans for discriminating against people on the basis of their Party membership, little comme.
        There’s no such thing as “surplus money”.

        • VocalYokel

          To the government “surplus money” is simply money they haven’t figured out where or how to spend yet.

  • Mike Adamson

    That was an interesting article. For a different view readers might be interested in
    http://www.guardian.co.uk/world/2012/jun/08/estonia-latvia-eurozone-champions-austerity and
    http://blogs.ft.com/the-world/2012/06/myths-and-truths-of-the-baltic-austerity-model/#axzz26ZgTzkvt There’s no denying the fact that government expenditures can be severely cut but to believe that there won’t be negative consequences is naive. In addition, if our current economic malaise was due simply to government over spending and indebtedness then it would be much easier to address but it’s not so it’s not.

    • robert108

      It’s not easy to address with a Marxist in the White House, Mike. Whenever we get a real American back in the White House, one with real American values, things will “miraculously” recover. Our current economic malaise is due to left wing govt policies, period. We lower tax rates, cut back on punitive regulations and stop attacking private sector profits, and the malaise will vanish.

  • Snarkie

    I bet Rob banks with Canadian banks. They have good credit scores which flow from their more rational behavior.

Top