Used to Hardship, Latvia Accepts Austerity, and Its Pain Eases

New York Times ^ | Jan. 1, 2013 | By ANDREW HIGGINS

[Brad from Tennessee]

RIGA, Latvia — When a credit-fueled economic boom turned to bust in this tiny Baltic nation in 2008, Didzis Krumins, who ran a small architectural company, fired his staff one by one and then shut down the business. He watched in dismay as Latvia’s misery deepened under a harsh austerity drive that scythed wages, jobs and state financing for schools and hospitals.

--------------------snip---------------------------

Hardship has long been common here — and still is. But in just four years, the country has gone from the European Union’s worst economic disaster zone to a model of what the International Monetary Fund hails as the healing properties of deep budget cuts. Latvia’s economy, after shriveling by more than 20 percent from its peak, grew by about 5 percent last year, making it the best performer in the 27-nation European Union. Its budget deficit is down sharply and exports are soaring. . .

[Da Coyote]

Perhaps, NYT, you might try recommending this for us.

But, then again, YOUR folks in DC don’t have the combined IQ of a cumquat.

[virgil283]

Can we be next????.....Pleeeease Prety please..

[Olog-hai]

What’s that, austerity imposed from without?

Makes sense to do it from within; that way, you don’t lose sovereignty like Latvia did here.

[JustSayNoToNannies]

Latvian humor:

Knock knock
Who’s there?
Latvian.
Latvian who?
Please open door. Is cold.

Is dead dog in road. Is dead Latvian in road. What difference?
Dog have fur keep warm. Also, freedom. And dog try eat poop for pleasure not just survive. So many thing!

What are one potato say other potato?
Premise ridiculous. Who have two potato?

http://www.chrisconnollyonline.com/2009/02/72-is-partial-compendium-latvian-humor.html

[1rudeboy]

You can also wait for unicorns to come riding over the horizon . . . .

[Olog-hai]

I didn’t cite this as what will happen; only as the ideal. We all know how that goes.

[St_Thomas_Aquinas]

-— what the International Monetary Fund hails as the healing properties of deep budget cuts. -—

This isn’t your father’s IMF...

God bless the Latvians. Too bad our intelligentsia is so stupid.

[Mr. Jeeves]

He watched in dismay as Latvia’s misery deepened under a harsh austerity drive that scythed wages, jobs and state financing for schools and hospitals.

Latvia is a racially, religiously, and culturally homogeneous country - they can get away with genuine spending cuts.

If we try it, there will be riots in every urban core and the State will have to kill many, many people to restore some semblance or order.

The decision has been made to keep buying those potential rioters off - until some future politicians finally have to deal with the unimaginable.

[Clock King]

Recovery depends on the culture of the people. We have too many lazy, gimme, the world owes me something, type of people. Even if the US did austerity, too many baby-mommas and deadbeats would still want their free sh— before getting off their butts to help out.

[wac3rd]

You hit it on the head.

I have a very sweet elderly neighbor when I lived in Oakland Hills (CA) who told me that we basically pay tax dollars to the Government (both state and Federal) to create two things for the inner city folks:

1. Welfare and all the perks that go with that (SNAP, Section 8, Medicaid, etc.)

2. Make-work, paid-for-life-artificial-middle-class government jobs that keep a large portion of them off the street and into office buildings.

We agreed and bascially you have to bribe the inner city from robbing, raping or killing you. Inner city is a dog whistle, but yes, it’s that, sprinkled with a lot of foreign visitors from down South and the Occupy crowd.

We still have cut yards and 401K’s, and two cars in a driveway with no rust...we have a full refrigerator and most still have work, or at least savings.

Latvia, like most Canadian and less-populated states like the Dakotas, Alaska, Idaho, etc. would understand if a State Trooper had to (gasp!) save for his own retirement or if all Section 8 housing was in old Army bases...or that free food was doled out 3x a day from donated food and you had to work for that...

If someone loses their cell service or cannot watch cable TV...we WILL see the urban centers explode. 100% guaranteed.

[STD]

It’s the economy of make believe economics. The show always ends with the happy stars of the day getting a new job, the guy/girl and a new car! Praise Hussein, praise allah may pizza be on his head stone.

[William Tell]

From the linked article: "A better and more equitable way out of Latvia’s troubles, he believes, would have been a devaluation of the currency, an option closed to Greece and 16 other countries that use the euro.

Latvia kept its currency pegged to the euro, putting itself in much the same straitjacket as euro zone nations.

But Latvia’s high pain threshold and unusually open economy set it apart, enabling a relentless squeezing of wages ..."

I see one key difference in the two approaches considered.

In the case of devaluing the currency, wages decline, prices of exported goods decline making them more competitive, and capital denominated in the local currency becomes worth less due to inflation.

In the case of keeping the value of the currency constant, wages decline, prices of exported goods decline making them more competitive, and capital denominated in the local currency keeps its value. Thus, those who saved and those who had prospered without undue reliance on government handouts, thrived and stayed in the game.