The Estonian economy may be in the midst of the most solidly based recovery in the world and it is certainly the best amongst all of the European states. It has also based its recovery on classical principles and has totally discarded any thought of using a Keynesian approach.
A twitter war has now broken out between the President of Estonia, Toomas Hendrik Ilves, and the Nobel Prize winning New York Times columnist, Paul Krugman. Krugman chose to take on Ilves and may live to deeply regret the decision. Ilves has responded with a barrage of twitter attacks on Krugman to which Krugman has thus far said nothing at all. Beyond any personal loss Krugman may endure, he will also have highlighted the phenomenal recovery of the Estonian economy which has based its entire economic strategy on classical economic principles. This from The Huffington Post:
The president of Estonia chewed out Paul Krugman on Wednesday, using Twitter to call the Nobel Prize-winning economist ‘smug, overbearing and patronizing,’ in response to a short post on Estonia’s economic recovery.
Krugman’s 67-word entry, entitled ‘Estonian Rhapsody,’ questioned the merits of using Estonia as a ‘poster child for austerity defenders.’ He included a chart that, in his words, showed ‘significant but still incomplete recovery’ after a deep economic slump.
What Krugman needs to do is find somewhere that is doing better. Every recovery at this stage is incomplete, but a very small number of economies are actually on a road to recovery while most are not. The phenomenal recovery of the Estonian economy was discussed in an earlier post, but I will bring a couple of bits up from that earlier comments thread. This is from Jack Lacton:
I love the story about Mart Laar’s transformation of the Estonian economy post the fall of the Soviet Union.
Laar’s area of expertise were Europe’s 19th-century national movements. ‘It is very fortunate that I was not an economist,’ he says. ‘I had read only one book on economics – Milton Friedman’s “Free to Choose.” I was so ignorant at the time that I thought that what Friedman wrote about the benefits of privatisation, the flat tax and the abolition of all customs rights, was the result of economic reforms that had been put into practice in the West. It seemed common sense to me and, as I thought it had already been done everywhere, I simply introduced it in Estonia, despite warnings from Estonian economists that it could not be done. They said it was as impossible as walking on water. We did it: we just walked on the water because we did not know that it was impossible.’
And this was from JC:
When I read the Prez’s twitter attacks, I thought to myself this dude has living in America before because he’s attacking The Krugster like an American would.
The Estonian prez has a decent educational pedigree and is getting stuck into the Krugster like an American would.
Ilves was born in Stockholm, Sweden; his parents were Estonian refugees. He grew up in the United States in Leonia, New Jersey and graduated from Leonia High School in 1972 as valedictorian. He received a bachelor’s degree in psychology from Columbia University in 1976 and a master’s degree in the same subject from the University of Pennsylvania in 1978. In addition to his native Estonian, he is fluent in English, German and Spanish.
Keynesian economics is dying right before our eyes but this stoush with Krugman will be an important footnote within the full story when it is eventually told in years to come.