Paul Krugman

According to Anders Aslund, economist at the Peterson Institute in Washington, Nobel-prize winner Paul Krugman lashed out on Estonia because he has a personal issue with the Baltic states.

Aslund writes that Krugman may have been stinged because he has been forced to admit that his predictions that no Baltic country will recover economically before they devalued their currency were false.

In 2007 Krugman claimed that Latvia was the new Argentina. He said that Baltic countries had no option but to devalue their currencies, Bbn.ee reported.

Krugman’s mistakes were that he looked only at one graph and did not think about underlying connections. He took a very short period and chose not to include the earlier period of rapid economic growth. Besides, Krugman ignores the real cause of Baltic crises, believing that it was their cost-cutting that caused their crises, while actually it was the lack of international capital supply, the economist explains.

Estonian crisis solution was both political and economic success story. The Estonian government took advantage of the public opinion that the time of crisis calls for rapid and dramatic action.

Krugman has always claimed that the Baltic states need to devalue to increase their exports. In fact, exports have been skyrocketing above all expectations without devaluation.

“When a country is in crisis, you need to act decisively. The government drew up a crisis program and implemented it rapidly. So it was also a public relations success,” Aslund emphasizes.

BNN already reported that Paul Krugman’s 67-word entry, entitled “Estonian Rhapsody,” last week 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. President Toomas Hendrik Ilves responded to Krugman in a series of outraged tweets, taking offence to Krugman’s tone and writing that Krugman didn’t know what he was talking about.

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