Remember classical economic theory, the stuff they used to teach before Keynes became the vogue sometime around 1936. Anyway, here is a story that ought to remind you why economics was once a subject worth studying. It is about Estonia and how they found their way out of the Global Financial Crisis the good old fashioned way.
Estonia is booming. The economy grew 7.6 percent last year, five times the euro-zone average.
Estonia is the only euro-zone country with a budget surplus. National debt is just 6 percent of GDP, compared to 81 percent in virtuous Germany, or 165 percent in Greece.
Shoppers throng Nordic design shops and cool new restaurants in Tallinn, the medieval capital, and cutting-edge tech firms complain they can’t find people to fill their job vacancies.
It all seems a long way from the gloom elsewhere in Europe.
Estonia’s achievement is all the more remarkable when you consider that it was one of the countries hardest hit by the global financial crisis. In 2008-2009, its economy shrank by 18 percent. That’s a bigger contraction than Greece has suffered over the past five years.
How did they bounce back? ‘I can answer in one word: austerity. Austerity, austerity, austerity,’ says Peeter Koppel, investment strategist at the SEB Bank.
You know that old business about cutting your coat to suit your cloth. Well this is what they did adding in a few specifics:
As well as slashing public sector wages, the government responded to the 2008 crisis by raising the pension age, making it harder to claim health benefits and reducing job protection — all measures that have been met with anger when proposed in Western Europe. . . .
Estonia has also paid close attention to the fundamentals of establishing a favorable business environment: reducing and simplifying taxes, and making it easy and cheap to build companies.
This stuff really works. Why others don’t try it stems from the economics education we tend to provide. Unless you teach ‘em about entrepreneurs and the market economy, you might as well have not bothered.