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June 06, 2012

Will Estonia Lead The Way? Little Estonia Was Devastated By the Downturn, But is Now Growing at 7.6%, Due to Three Things: "Austerity, Austerity, Austerity"

I think it would behoove Mitt Romney to contrast Greece (Obama's model) with little Estonia (the conservative model).

@comradearthur made a good point: Scott Walker was only in office for two and a change years, rather than Obama's three and change years, but Scott Walker's reforms produced tangible, positive results in that time-frame, whereas Obama is still blibble-blabbing about "needing more time."

This is the acid test of politics: Do your policies correlate with positive results, or do they not? Theory and ideology and partisan rooting-interest are all well and good, but ultimately, do your policies actually produce the results you predict they will?

Scott Walker turned a $3.4 billion deficit into a $156 million surplus. Scott Walker's union reforms were praised as helpful by every school district that implemented them (and the reason that property taxes did not go up for the first time in a long time). Scott Walker's tax cuts and more business-friendly policies produced new job creation in a state that had had little of it during the downturn.

Those are results, not theory. The things he said would happen did, in fact, happen.

And Obama's promises?

Obama's predictions did not even come close to tracking with reality.

In science, you would look at the predictive ability of the two models, or theories, and decide that one seemed far more better-evidenced than the other.

Which brings us to Estonia.

Crisis? Estonia asks. What crisis?

Sixteen months after it joined the struggling currency bloc, 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.


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.

After three years of painful government belt-tightening, that’s not exactly the message that Europeans further south want to hear.

A diabetic does not wish to hear he cannot eat donuts and must prick his skin several times a day to monitor his blood sugar, and yet that is what medical science tells us he must do.

While spending cuts have triggered strikes, social unrest and the toppling of governments in countries from Ireland to Greece, Estonians have endured some of the harshest austerity measures with barely a murmur. They even re-elected the politicians that imposed them.

They slashed the salaries of public-sector employees by 10% (and cut high minister's salaries by 20%, to share the pain -- something we should consider in America).

It wasn't popular, and Estonians say it was "tough," but they are now reaping the rewards of having a stable, sustainable system of finance. They have made their country a safe bet for investment and a good bet for business, and investors and businesses are therefore betting on them.

We can continue pretending that we have an imaginary source of infinite money to meet infinite demands of government clients, or we can recognize the obvious reality of the situation -- we do not.

Jay Cost's article is, as ever, worth reading in full.

Cost's article, The Politics of Loss, has a simple basic point: During boom years -- and/or while running up massive deficits that future generations will be expected to pay -- both parties can conspire to be profligate. The Democrats want higher spending, the Republicans want lower taxes; they can agree that the man who is not represented in this negotiation -- the Future Hypothetical Taxpayer -- shall have the difference in outlays versus income taken out of his hide.

Since Future Hypothetical Taxpayers do not vote in current elections, he's always the most popular guy in the world to punish with very high tax rates and unsustainably high unfunded mandates.

He doesn't get to vote.

Now, some of us will turn out to be these same Future Hypothetical Taxpayers we're shackling with economic misery. But we don't really think about that too much, for the same reason most people decide they will have a huge feast today, and begin their diet later.

Or they will smoke up a storm tonight, but get serious about quitting smoking tomorrow.

Everyone secretly hates their Future Selves, because in the present, we are constantly burdening our Future Selves with crushing problems and unfinished wori.

Every delay a major paper or project for work until days before the deadline? Yes, that's you deciding that your Future Self will suffer all burdens and pains for your procrastination, while your Current Self watches a Deadliest Catch marathon.

This is how government grows by leaps and bounds -- current goodies are popular, and we can always just not think about the future miseries we are making for ourselves.

People are good at not thinking about things they really ought to be thinking about. That's how people get into serious trouble.

But what happens when we've even maxed out the largest possible burden the Future Hypothetical Taxpayer can conceivably be expected to shoulder? What happens when credit rating agencies decide that it is no longer even plausible that Future Hypothetical Taxpayers will honor the debts we made on their behalf, and will, quite rationally, choose to default?

At that point, the luxury of not thinking about things is stripped from us. We are forced to confront, in the here and now, the ramifications of our choices.

And thus our politics shifts, as Cost notes, from merely deciding "Who gets what, when, and how," to "Who are we going to take from in order to meet the outsized commitments we're making?"

And then, and only then, the Spend Now Pay Later model begins to become unpopular enough that the always, always unpopular choice of Pay For What You Spend, Now begins to become politically viable.

Not because the latter has actually gained in popularity -- people still hate the thought of having to pay for their goodies.

But because all other options have become foreclosed to us.

As a sage said, "Democracy is the worst form of government, except for all the others."

And living within our means is the most painful and polarizing economic model -- except for all the others.

We will continue to select Spend Now Pay Later until we no longer can.

And then, at that point, we will be forced to make painful choices.

And "that point" is now.

There is good news, however. We are moving into the most painful and rancorous and angry period Americans have seen in perhaps 80 years. Probably longer, as far as political rancor.

There is no way cheap piousness about a "New Tone" will avoid this -- because we're forced, by economic reality, to begin deciding not just Who Gets What, but Who Loses What-- a much more personal and emotional decision about who will collect the most goodies from the Future Hypothetical Taxpayer who doesn't yet exist to complain of the situation.

Now, Current Actual Taxpayers -- and Current Actual Government Clients -- are going to have to argue about Who Is Going To Lose.

Both parties -- he who gains and he who loses -- are finally both at the table. Which they hadn't been before.

And now we're actually going to have that argument with real flesh-and-blood people, and not Future Hypothetical Taxpayers who exist only in our account-books as The Guy Who Will Pay For All This Crap.

That politics is about to become very personal indeed is unavoidable.

But the good news is that Scott Walker and plucky little Estonia have shown us what lies beyond the rancor, if we make the right choices: Financial stability, financial security, stable government, an environment which encourages industry and produces prosperity, and, ultimately, national success.

It will not be easy, and it will not be friendly.

But in the end, it will be done, for we have no other options remaining.

The diabetic hates the loss of the donuts, but he gains a benefit from his caloric austerity: He gets to live, and with adjustments to his lifestyle, he may even find himself living well.

I would be remiss if I didn't note that Jay Cost is such an expert on the shift of the Democratic Party to a Tamany-Hall Political-Spoils client-service conglomeration that he wrote a book about it, called Spoiled Rotten: ow the Politics of Patronage Corrupted the Once Noble Democratic Party and Now Threatens the American Republic.

Which currently has a five-star rating on Amazon, because they don't let you give six.

digg this
posted by Ace at 02:22 PM

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