All the talk of spending cuts in Washington is fictitious. Even the House Republican Study Committee budget allows spending to increase, on average, by 1.7 percent each year for the next decade. The Ryan budget, which critics deride for its “savage” cuts, allows spending to rise by an average of 2.8 percent each year. And Obama’s budget allows spending to climb, on average, by 4.7 percent each year – which is more than twice the projected rate of inflation.
Too bad American policymakers can’t copy the Baltic nations of Estonia, Latvia, and Lithuania. Like the United States, these nations got in fiscal trouble, thanks to the combination of excessive spending and an economic downturn triggered by falling real estate prices.
But unlike the United States, these nations didn’t follow the Keynesian policy of more deficit spending. Lawmakers in the Baltic nations recognized, to borrow the words of Dan Hannan, that “you cannot spend your way out of recession or borrow your way out of debt.”
So they reduced spending. Not in the Washington sense, where politicians get to increase spending and call it a cut because outlays didn’t rise even faster. The Baltic nations imposed real cuts. And not just for one year, but in both 2009 and 2010. Here’s the data from the European Union for the Baltic nations.
Interestingly, it appears that fiscal restraint has been very successful for the Baltic nations. After suffering a steep downturn, economic growth has returned. Amazingly, Estonia is even back to having a budget surplus.
It’s also worth noting that other nations have enjoyed great success with fiscal restraint. This video shows how Canada, Ireland, Slovakia, and New Zealand dramatically reduced the burden of government spending by freezing or capping outlays. Not quite as impressive as what’s happened in the Baltics, but definitely very good compared to what’s been happening in the United States.
[…] mistakes occurred when he implied that Estonia’s 2008 recession was caused by spending cuts (real ones!) that took place in […]
[…] Estonian lawmakers know how to cut spending. […]
[…] One of the reasons I like the Baltic nations is that they cut spending (actual spending cuts, not fake DC-style reductions in planned increases) when they were hit by the […]
[…] policy. All three nations have flat taxes. And the Baltic nations all deserve great praise for cutting the burden of government spending in response to the global financial crisis/great recession (an approach that produced much better […]
[…] also think genuine spending cuts helped produce the quick economic […]
[…] the nations that actually cut spending – such as the Baltics – have recovered strongly. It’s the big spenders in Europe who are dragging down the […]
Your video showed a picture of a Sydney, Australia to represent a New Zealand.
This would normally infuriate Kiwis but fortunately you distracted them with pictures of sheep a moment later! 😉
[…] it appears that this is just a scheme to transfer money from countries such as Germany and Estonia that have restrained spending in recent […]
[…] the Baltic nations all deserve great praise for cutting the burden of government spending in response to the global financial crisis/great recession (an approach that produced much better […]
[…] Lest I forget, one of the admirable things about Estonia was the way the government cut spending in response to the economic crisis at the end of last decade. And I’m talking genuine […]
[…] I’ve also highlighted the success of the Baltic nations, all of which responded to the recent crisis with genuine spending cuts (and I very much enjoyed exposing Paul Krugman’s erroneous attack […]
[…] phrase that includes bad policy (higher taxes) and good policy (spending restraint). But with a few notable exceptions, European nations have been choosing the wrong kind of austerity (even though Paul Krugman […]
[…] responded to the 2008 crisis by cutting spending rather than engaging in a Keynesian spending binge (which also led to an exploding cigar for Paul […]
[…] d’autres termes, la Lettonie, comme les autres pays baltes, a accompli plus de réformes, et les a faites plus […]
[…] other words, Latvia (like the other Baltic nations) did more reform and did it […]
[…] recently, it showed that genuine spending cuts were the right way to respond to the 2008 crisis (notwithstanding Paul Krugman’s bizarre attempt to imply that the 2008 […]
[…] Blanchard obviously thinks reducing government spending by 10 percent of GDP would have imposed too much “social cost,” but imagine if Greece had bitten the bullet back in 2010. Sort of like what Estonia did in 2009. […]
[…] Unlike other European countries, the Baltic nations focused on genuine spending cuts rather than tax hike and their economies are doing comparatively […]
[…] 17 percent per year between 2002 and 2008! But they have since moved in the right direction, with genuine spending cuts (unlikely the fake cuts that characterize fiscal policy in nations like the United States and […]
[…] this is music to my ears since I’ve already written about the successful spending cuts in the Baltic […]
[…] this is music to my ears since I’ve already written about the successful spending cuts in the Baltic […]
[…] that real-world examples can teach us about the benefits of good fiscal policy (think Hong Kong, Estonia, Canada, and the U.S. under Reagan and Clinton) and the costs of bad fiscal policy (France, Cyprus, […]
[…] that real-world examples can teach us about the benefits of good fiscal policy (think Hong Kong, Estonia, Canada, and the U.S. under Reagan and Clinton) and the costs of bad fiscal policy (France, Cyprus, […]
[…] The Baltic nations are a rare good example of how to respond to a crisis (and another example of Krugman misreading the data), though I should have mentioned that Switzerland never got in trouble in the first place because of its admirable fiscal policy. […]
[…] the Baltic nations imposed genuine spending cuts in recent years and are now doing much better than other European countries that relied on either […]
[…] pleased to see, by the way, that Chile and Estonia score reasonably well. Estonia has been a good role model in recent years for fiscal restraint (even if Paul Krugman can’t understand the numbers). Chile, meanwhile, engaged in many […]
[…] many European nations had the wrong response to the fiscal crisis. With a few exceptions (such as the Baltic nations), European governments used the crisis to impose big tax hikes, including higher income tax rates […]
[…] the Baltic nations imposed genuine spending cuts and are now doing much better than other European countries that relied on either Keynesian […]
[…] keep explaining that the only solution is for Europe’s welfare states to copy the Baltic nations and actually cut spending, but that will never happen if European politicians think that they can get an IMF handout (and […]
[…] keep explaining that the only solution is for Europe’s welfare states to copy the Baltic nations and actually cut spending, but that will never happen if European politicians think that they can get an IMF handout (and […]
[…] why the “exceptions to the rule” in Europe – such as Estonia and Germany – are so noteworthy. While their neighbors are doing the wrong thing, these […]
[…] is music to my ears. I’ve been advocating the Baltic approach for a couple of years. And it turns out that nations following my Golden Rule get good […]
[…] for some bad news. Unlike the Baltic nations, the PIIGS dragged their feet and didn’t reduce the burden of government spending until they had […]
[…] Baltic nations took a much better approach, imposing genuine spending cuts the moment the crisis hit. Now their finances are in stronger shape and they’re enjoying […]
[…] I’ve already pointed out that the Baltic nations are a role model since they made genuine spending cuts the moment the crisis began and they’re now enjoying an […]
[…] paint thinner. Likewise, we need austerity, but that shouldn’t mean higher taxes. We need to be like Estonia and tighten the belts of the public sector, not the private […]
[…] responded to the crisis. Not surprisingly, I praise Switzerland for never getting in trouble and I commend the Baltic nations for rectifying their mistakes with genuine spending […]
[…] never got into trouble in the first place thanks to a spending cap, and the Baltic nations, which imposed genuine spending cuts when the crisis first began and now are reaping the rewards of that fiscal […]
[…] (which they did anyhow!), but a few nations in Southern Europe may have done the right thing by copying the Baltic nations and implementing genuine spending […]
[…] is music to my ears. I’ve been advocating the Baltic approach for a couple of years. And it turns out that nations following my Golden Rule get good […]
[…] The Baltic nations are a rare good example of how to respond to a crisis (and another example of Krugman misreading the data), though I should have mentioned that Switzerland never got in trouble in the first place because of its admirable fiscal policy. […]
[…] Baltic nations are a rare good example of how to respond to a crisis (and another example of Krugman misreading the data), though I should […]
[…] years, and there also have been multi-year periods of spending discipline in nations such as Estonia, New Zealand and […]
[…] in the case of Estonia, where there actually were genuine spending cuts, he wanted people to somehow think that those cuts in 2009 were responsible for an economic […]
[…] experience of the Baltic nations? When the financial crisis hit a few years ago, those governments imposed genuine spending cuts and largely avoided the big tax hikes that have plagued other European […]
[…] experience of the Baltic nations? When the financial crisis hit a few years ago, those governments imposed genuine spending cuts and largely avoided the big tax hikes that have plagued other European […]
[…] the Baltic nations deserve credit for imposing genuine budget cuts several years ago, a policy that has yielded big dividends since they’re now growing while most other European […]
[…] By the way, we also have a more recent example of successful budget reductions. Estonia and the other Baltic nations ignored Keynesian snake-oil when the financial crisis hit and instead imposed genuine spending cuts. […]
[…] By the way, we also have a more recent example of successful budget reductions. Estonia and the other Baltic nations ignored Keynesian snake-oil when the financial crisis hit and instead imposed genuine spending cuts. […]
[…] for some bad news. Unlike the Baltic nations, the PIIGS dragged their feet and didn’t reduce the burden of government spending until they had […]
[…] for some bad news. Unlike the Baltic nations, the PIIGS dragged their feet and didn’t reduce the burden of government spending until they […]
[…] 17 percent per year between 2002 and 2008! But they have since moved in the right direction, with genuine spending cuts (unlikely the fake cuts that characterize fiscal policy in nations like the United States and […]
[…] paint thinner. Likewise, we need austerity, but that shouldn’t mean higher taxes. We need to be like Estonia and tighten the belts of the public sector, not the private […]
[…] never got into trouble in the first place thanks to a spending cap, and the Baltic nations, which imposed genuine spending cuts when the crisis first began and now are reaping the rewards of that fiscal […]
[…] paint thinner. Likewise, we need austerity, but that shouldn’t mean higher taxes. We need to be like Estonia and tighten the belts of the public sector, not the private […]
[…] paint thinner. Likewise, we need austerity, but that shouldn’t mean higher taxes. We need to be like Estonia and tighten the belts of the public sector, not the private […]
[…] […]
[…] never got into trouble in the first place thanks to a spending cap, and the Baltic nations, which imposed genuine spending cuts when the crisis first began and now are reaping the rewards of that fiscal […]
[…] never got into trouble in the first place thanks to a spending cap, and the Baltic nations, which imposed genuine spending cuts when the crisis first began and now are reaping the rewards of that fiscal […]
[…] qui sonne bien à mes oreilles. Je me suis fait l’avocat de l'approche Baltique depuis deux ans. Et il s'avère que ces nations ont suivi ma règle d'or pour de bons […]
[…] United States. The same is true about Canada. But the real success story is the Baltic nations. They imposed real spending restraint, not the fake austerity found in places such as the United […]
[…] The comment about “spending cuts” is nonsensical, however. Even though traditionally left-leaning organizations such as the World Bank have concluded that government is far too big in Europe, most governments have imposed huge tax increases. Only the Baltic nations have focused on spending cuts. […]
[…] bragging about Estonia (along with Latvia and Lithuania, the other two Baltic nations) for implementing genuine spending cuts. I’ve argued that Estonia is showing how a government can reignite […]
[…] figures are some indication of the futility of austerity. Estonia, unlike most European countries, actually has implemented spending cuts. Krugman tried to show the failure of Estonia’s spending cuts using the graph below, which shows […]
[…] been bragging about Estonia (along with Latvia and Lithuania, the other two Baltic nations) for implementing genuine spending cuts. I’ve argued that Estonia is showing how a government can reignite growth by reducing the […]
[…] States. The same is true about Canada. But the real success story is the Baltic nations. They imposed real spending restraint, not the fake austerity found in places such as the United […]
[…] As you can see from the chart, the burden of government spending was rising at a reckless rate before the crisis. But once the crisis hit, the Baltic nations hit the brakes and imposed genuine spending cuts. […]
[…] United States. The same is true about Canada. But the real success story is the Baltic nations. They imposed real spending restraint, not the fake austerity found in places such as the United […]
[…] United States. The same is true about Canada. But the real success story is the Baltic nations. They imposed real spending restraint, not the fake austerity found in places such as the United […]
[…] Dan Mitchell of the Cato Institute has pointed out, those few European nations that have actually slashed the size of their government significantly–the Baltic states of Lithuania, Latvia, and Estonia–have experienced […]
[…] Dan Mitchell of the Cato Institute has pointed out, those few European nations that have actually slashed the size of their government significantly–the Baltic states of Lithuania, Latvia, and Estonia–have experienced […]
[…] government. It’s worth noting that Estonia responded to the recent economic crisis by imposing genuine spending cuts, which helps explain why that nation’s economy has bounced back while other nations are […]
[…] a debacle is that other nations have managed to impose real restraints on government budgets. The Baltic nations have made actual cuts to spending. And governments in Canada, New Zealand, Slovakia, and Ireland generated big improvements by either […]
[…] a debacle is that other nations have managed to impose real restraints on government budgets. The Baltic nations have made actual cuts to spending. And governments in Canada, New Zealand, Slovakia, and Ireland generated big improvements by either […]
[…] a debacle is that other nations have managed to impose real restraints on government budgets. The Baltic nations have made actual cuts to spending. And governments in Canada, New Zealand, Slovakia, and Ireland generated big improvements by either […]
[…] all this research isn’t having much impact. Only the Baltic nations have done the right thing and reduced spending. The Germans also have been semi-responsible in the past couple of year, though that’s not […]
[…] he really wants to improve the French economy, he should copy the Baltic nations and dramatically reduce the burden of government spending, while also replacing a punitive tax system with a simple and fair flat […]
[…] At least one major European nation will default – Yes, the Baltic nations have shown it is possible to make real spending cuts and restore fiscal stability, but I don’t expect other European nations to learn from those […]
[…] Rule is just a minimum requirement. If politicians really want to do the right thing, they should copy the Baltic nations and implement genuine spending cuts rather than just reductions in the rate of growth in the burden […]
[…] Rule is just a minimum requirement. If politicians really want to do the right thing, they should copy the Baltic nations and implement genuine spending cuts rather than just reductions in the rate of growth in the burden […]
The Baltics made the cuts not because of some extraordinary prudence but because of having no options (take EC and IMF soft loans and go under direct financial survaillance or default in a major way – probably Estonia was the only exemption).
The result is that the government plays even bigger role in the economy, the environment for business is even less competitive, high-level corruption is present with every major infrastructure project, domestic investors are moving their investable funds elsewhere and population is shrinking due to mass emigration. This is anything but success story … GDP drop of 25% during the crisis — even Greece looks better than the Baltics.
Besides, the next year budget will go without direct IMF surveilance and you can expect lax budget approach to return …
[…] No bailouts, thus forcing nations to do the right thing (like the Baltics) or letting them default. This imposes the costs on the people who created the mess, addresses the […]
[…] No bailouts, thus forcing nations to do the right thing (like the Baltics) or letting them default. This imposes the costs on the people who created the mess, addresses the […]
[…] keep explaining that the only solution is for Europe’s welfare states to copy the Baltic nations and actually cut spending, but that will never happen if European politicians think that they can get an IMF handout (and […]
[…] In this interview with Neil Cavuto, I explain that more bailouts won’t work and that Europe’s welfare states should copy the Baltic nations and shrink the burden of government spending. […]
Thanks! I needed those facts for a paper that I am writing! Excellent post!
[…] there are solutions to the mess in Europe. The obvious answer is to copy the Baltic nations and slash government […]
[…] got a few cranky emails after my post suggesting the United States should copy the Baltic nations and implement genuine spending c…. These emailers were upset that I favorably commented on the fiscal discipline of Estonia, […]
[…] got a few cranky emails after my post suggesting the United States should copy the Baltic nations and implement genuine spending c…. These less-than-friendly pen pals were upset that I favorably commented on the fiscal discipline […]
[…] Nuoroda į originalų straipsnį: https://danieljmitchell.wordpress.com/2011/05/10/lets-copy-the-baltic-nations-and-really-cut-spending… […]