Tuesday, August 23, 2011

You're Praising Us Wrong

Over the last decade or so, Estonia has frequently been the subject of praise from foreign commentators for its rapid growth and fiscal responsibility. This has increased since the start of the global financial crisis in 2008 - we were hit pretty bad in the property bust, but have recovered well. (I've compared data from March 2007 to March 2011, and the average wage has increased 20%, while the Consumer Price Index has increased 21%.) We're also competing with Luxembourg for the lowest public debt in the Union. All this looks like a really good situation to outside observers obsessed with debt and growth problems in the US and EU, so there have been a number of articles talking about how we've been Doing It Right.

I want to talk about what our fans are doing wrong. I want to talk about bits of the Estonian state which are not mentioned by commentators who are using us an example for their own ideology.

On the US side, the most obvious example of this I've seen recently is this article in something called the Washington Times, by a man called Richard Rahn, "a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth" - in other words, someone who lives in the US capital and talks for a living.
Estonia serves as an example - even for the United States - of what can be accomplished by keeping down deficits and debt, and utilizing a flat tax rather than a progressive income tax.
That is true enough. But to any member of the US right wing (which is quite different, ideologically, from the European and even Estonian right wings), I would recommend they remember this:

1) That flat tax really is flat, as in, it doesn't decrease for the top earners. It also makes no difference between wages, capital gains, stock options, or anything else. Captains of industry may manage to siphon cash into Swiss bank accounts, but all personal earnings are taxed at the same rate. In fact, because income tax is waived for the first little bit of money you earn, the effective rate actually grows the higher your income gets, although this is insignificant above average-wage level. The free-market beacon you offer up to the wayward US does not give tax breaks to the rich.

2) Universal healthcare for everyone. People can be unhappy with the quality of treatment, and occasionally rightly so, but it's almost impossible to end up without healthcare coverage. If you or your spouse are on someone's payroll (even at minimum wage), if you're a minor, if you're a college student, if you're registered as unemployed - you get health insurance. No tiers. You can pay to jump a queue, but you still see the same specialist who's working with the same equipment, and it's paid for by the state.

3) Free higher education. Not universal - because no economy needs too many college graduates - but the state sponsors enough spots that if you know what you want to do after school and have the talent for it, you won't have to pay tuition. Between special subsidized student loans and a tradition of part-time work in college, smart and capable kids from low-income families have no problem getting a high-quality education. Access to the entire EU's worth of universities certainly helps.

The arguments are somewhat different when talking about the praise heaped on Estonia from EU-centric sources; here's a representative article from The Economist. Europe's right-wingers point to Estonia as a paragon of austerity, but are quick to ascribe it to cleverness and low levels of bureaucracy. But the key quality here is patience and a willingness to suffer for ultimate long-term good. That latter is what's missing in Europe as a whole today. Lack of it is the cause of the European sovereign crisis. Its onset is the only way to resolve the issue.

Quite simply, Estonia does not spend more than it earns - and neither should other countries. The Eurozone crisis is about unsustainable government-sector borrowing. Sure, a lot of Estonia's post-independence development has been subsidized by EU structural funds - but the same goes for a lot of other EU states, old and new. The threat to the common currency, the threat of Greece or Spain or Italy or Portugal defaulting, is that afterwards, Eurozone states will no longer be able to borrow money at low rates. So stop borrowing.

Forget PIGS. Both Germany and France have government debt of over 80% of their GDP - the entire value produced in those countries in a year. The Eurozone average is 85%. All the countries in the EU except Estonia and and Sweden spent more in 2010 than they earned, so that debt is only getting bigger. The initial thinking was that deficit spending would be canceled out by growth; by the time a country had to repay the debts, it would be collecting so much more in taxes that repayment wouldn't be difficult, or at the very least there would be a net gain. But most European states are at the point now where it is extremely unlikely that they would ever be able to pay off their public debt, and they haven't even started. Greece and Ireland and the other Eurozone states who have been particularly reckless with their spending are the first to reach the point where nobody trust them to keep up payments any more - but every single country in the EU will get there within the foreseeable future.

Unless they stop deficit spending.

This will be very difficult for politicians to sell to their voters, because today's Europeans see prosperity as their birthright. But balanced, surplus budgets are the only way to deal with the crisis.

The EU's government debt issue is not as bad as America or Japan's, true. But America has a lot of fat to trim. There are vast reserves of inefficiency in its budget-sponsored industries, primarily military and healthcare. Sooner or later, push will come to shove, they will introduce a single-payer system that will cut healthcare costs by a massive margin, and stop shoveling quite so much money into their military-related industries. They will also raise taxes on the top earners, like they did to pay off their WWII debt. They had a surplus in the 90s. The reason they don't now is because of their politicians.

The reason the EU doesn't have a budget surplus is because of its voters. The politicians, I'm sure, are well aware that austerity is necessary - but the populations will not stand for it. The EU already has high taxes. Increasing them further may help, but EU taxpayers expect to get something back for their contribution, a higher level of services, higher government spending. And it's government spending that needs to be cut.

In 2010, Germany's government debt increased by 3.3% of GDP. France's increased by 7% of GDP. Ireland's government spent a third more in 2010 than the value of everything that every person and corporation in that country did or created, put together.

The only realistic way to repay Europe's debts is to cut spending. Some will find it easier than others. None will find it as easy as Estonia did.

23 comments:

John Haren said...

Good points. Another difference is simple scale: there are more people in norther California alone than there are in Estonia.

Flasher T said...

*shrug* There are more people in the EU than in the US. Somehow we manage to give them all healthcare.

moevenort said...

Hey, wanna be- economist, What kind of drugs have you taken to write such an ideologic bullshit? Or Have you watched your religious high priest Mart Laara little bit too often in Estonian State TV? Please don´t forget: you have a cheap BA-degree from a small town university which was not even in economics. rather poor I would say. So what makes an ideologist like you feel to believe that the world should laugh about you ideology from the stone age? Come on guy, give me an expert-religious Neoliberal and not such a small town version like you.

Flasher T said...

What's your real name?

PS: Glad to see you're still excitedly following my blog, even after I haven't written anything in months.

moevenort said...

btw: Who on Earth told you that killing domestic demand, the welfare state and the future of the young generation like i n Estonia is perceived as positive anywhere in Europe. Have you ever read something else than you ideology-driven "Econom ist"? Are you an ape parroting every bushit or a human neing that is able to think before talking bulshit? Did you know that Estonia from the poor factes is the country with the lowest incomes and living standards in the Eurozone? That their minimum wage is the fourth-lowest in whole Europe? That the youth unemployment is only higer in Latvia and Spain? That the only reason for decreasing statistical unemployment is the fact, that statistically people who are unemployed longer than a year are not counted in Estonia anymore as they don get benefits anymore? that? That already more than 10% of Estonian worforce have seen no other chance than leaving the country? That nowhere else in europe, a government spents less on social development, infrastructure and education than in Estonia ? That your "fical diciplin" is the same kind of bubble you had before? That it will kill the future of your country and its inhabitants with it? Is this the future people of your kind want? Have you ever thaught why especially young people all over Europe and even in Israel are protestin right now because of exactly this ideology you defend so blindly here? Are you able to read anything else in foreign languages than in your pidgin-English? Have you not seen the criticism from the Media about this kind of ston age neolibalism in Estonia? e.g. here from Germany:

http://www.ftd.de/politik/europa/:kolumne-fricke-estland-ist-gar-nicht-egal/50212121.html?page=2


or here:

http://www.zeit.de/politik/ausland/2010-12/euro-interview-savisaar

or here:

http://www.3sat.de/page/?source=/boerse/magazin/151152/index.html

or here:

http://www.taz.de/!76692/

all kind of different media, all the same kind of criticism. But let me guess: Probably all the educated people are probably wrong because they are not so ideolgy blinded as people of your kind, isnt it?

Flasher T said...

What's your real name?

moevenort said...

it´s not important, Boy. Its the message that matters. This matters bases on facts instead of ideology. Tell me, Boy, why you defend this ideology so blindely? You cant be stupid enough not to see that the huge majority of people of your age everywhere else in Europe hates your neoliberal agenda more than anything else in the world and try to get rid of it as soon as possible? Or are you still sticked in the stone age in your environment?

Flasher T said...

What is your real name?

moevenort said...

My name is of no relevance for you. Answer the question instead. If you have questions concerning the content you are free to contact me via jabber/ xmpp.

Flasher T said...

The only question I have for you is, what is your real name?

moevenort said...

Boy, why should this be important for you? In my opinion it is by far much more important what is said instead of who said it. Don you think?

apart from this: So hard to understand that there could be a cultural difference here. I don like striptease in the internet. Thats why I do not use facebook, twitter, icq etc. AnAnd d no other comercial shit neither. I do not post anything of my private life online. So basically I do not do anything of the things you are doing. I know thats hard to get for you. But I am not from Estonia, I am from germany. Here taking care of privacy is quite normal.

Flasher T said...

Why it's important is not the question. The question is, what is your real name?

moevenort said...

As we agree that this is not important, your question becomes irrelevant, Boy. Better try to use your brain, think and talk about content. Or is parroting and religious belief in ideology the only thing you have ever learned in your life?

moevenort said...

you are not so good in answering questions. It means that you have to think, antyx, isnt it?

Flasher T said...

I don't know what you agree on, but I think I want to hear your real name.

moevenort said...

tja, you dont always get what you want, antyx. You should learn it.

Flasher T said...

I should learn what your name is.

George said...

Bloody brilliant posting, Flasher. Glad you're back and bang-on target. Herr Doktor Doktor Move-snort, whilst foaming, fulminating and voiding his sauerkraut into his lederhosen, is unaware that many enlightened voices around the globe have seen much of the present mess as discrediting the prognostications of the PhD's (pron. *Phuds*) in economics as well as corporate mismanagement by the MBA's. Move-snort, in his torrent of ad-hominem abuse, displays an astonishing lack of self-irony: I loved that line of his -- "Here taking care of privacy is quite normal."

moevenort said...

no, wrong Antyx. You should learn why so many people in Europe hate your ideology. And about their good reasons for hating it. Your country is the place Nr.1 for poverty and social inequality in the Eurozone. No one else in Europe wants to live in such a perverted society.

btw: George you funny liitle guy. geography is not your strenght, isnt it? You should realize that the picture of Germany you are drwaing here was maybe one of Bavaria in the 1950th but has nothing to do with modern German society. In contrast to Estonia this country has changed a lot ( fortunately). I am glad and happy to live here and not there.

George said...

Ach, Movie, beruhigen Sie sich! We were just having fun with you. Calm down. Drink some camomile tea, or beer, or whatever suits. Get a sauerkraut enema...NO, better not. I just had a peek via Google satellite and your Mom just took your lederhosen off the washline. ALL nice and clean and dry. Now you can go out hiking with your friends (both of them) whilst singing jolly Hate-Estland songs... ;-)

Doris said...

Service is the necessary complement of freedom and every right involves a corresponding duty.

http://en.wikipedia.org/wiki/Oxford_Manifesto

Giustino said...

Advocating a single-payer system or severe cuts to the military industrial complex is revolutionary talk, Flasher T. The connections between the military and health industry lobbyists and America's leaders are deep. At this point, there is no democratic way to overcome their influence.

Flasher T said...

I think that's a red herring perpetuated by the relatively small number of (admittedly quite influential) people who profit from those systems not being there.

When it needed to, the US has introduced everything from massive military spending cuts (post Cold War) to single-payer healthcare (individual states, the Veterans' Administration), to 92% income tax on the top earners.

Everything is possible. And the country is just about on the precipice of politically unacceptable moves becoming inevitable.

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