tag:blogger.com,1999:blog-8764541874043694159.post1519612863122727981..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: How do you say "dead cat" in Latvian?Frances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger33125tag:blogger.com,1999:blog-8764541874043694159.post-87516617994316686312015-08-11T17:56:20.047+01:002015-08-11T17:56:20.047+01:00Good article, though, I can't agree on few poi...Good article, though, I can't agree on few points:<br />1) Austerity forced to do bunch of required structural reforms that clearly wouldn't have been done if devaluation was chosen. This is clear step forward sustainable economic growth and clearly not a case of "post hoc ergo propter hoc fallacy"<br />2) If you look at structure of recovery, I see no dead cats. It was driven by strong growth of exports and despite current troubles in Russia (one of the largest trading partners for Latvia) there still are positive dynamics and large input to productivity growth. What still lacks compared to pre crises period, is domestic consumption. But again given nature of consumption back then when it was fueled by cheap loans, now this is not a case. If suddenly domestic consumption would grow, this would have positive effect on GDP growth, yet imports would grow and we would witness unsustainable current account deficit.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-88574261816255858332015-06-07T09:44:53.612+01:002015-06-07T09:44:53.612+01:00Anonymous,
You've read the wrong line in the...Anonymous, <br /><br />You've read the wrong line in the Latvian statistics. Your figures are from the line "% of corresponding period of previous year". Those are annualised figures, which I've already said don't tell you the intra-year trend because they include growth rates from the intervening quarters. The line "% of previous period" gives you the quarterly statistics, and as I said they show clearly growth had fallen sharply by the end of the year - to 0.8% quarter-on-quarter in Q4. <br /><br />I do not regard 2% growth as an acceptable rate for a country as poor as Latvia and as badly hit by the 2008 recession. It should be growing much faster. The last time it grew as slowly as this was during the 1998 Russian crisis - which was hardly a time of peace and prosperity. This is an awful indictment of the EU's policies in general and the behaviour of both the Latvian government and the Latvian banks in particular. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-65848524787473909742015-06-06T16:47:42.445+01:002015-06-06T16:47:42.445+01:00I'd be really careful about interpreting migra...I'd be really careful about interpreting migration as a "rejection of the prevailing political paradigm". You can migrate because you think that you have better opportunities abroad, while still believing (rightly or wrongly) that the choices of your home government are the best to take, given the menu of choices actually available. Indeed, if your government's choices make it easier for you to migrate -- and to move back in future -- you might well feel that the "prevailing political paradigm" not only is correct in the abstract, but serves you personally well.<br /><br />Incidentally, given your doubts about successive Latvian governments' choices being "what the Latvian people really want", what would you recommend that they do? Consider in all cases not only the economic but also the political ramifications of the choices, since these seem to be an important consideration to the Latvians (Russia!).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69793350591210428542015-06-06T16:38:14.105+01:002015-06-06T16:38:14.105+01:00Frances, are you sure you are not making a mistake...Frances, are you sure you are not making a mistake? Unless I am misreading the statistics (I am not an economist), then according to the website of the Latvian statistical authorities, GDP did not fall sharply during 2013: Q1 growth was 3.1% and Q4 growth was 4.5% if you use the unadjusted figures; it was 5.9 (Q1) and 4.5% (Q4) if you use the seasonally adjusted figures. 2014 did slow down, but was 2.4% on an annual basis (2.5% seasonally adjusted), with Q1 and Q4 growth not that far apart, and certainly far from zero (2.8% vs 2.1% unadjusted, 2.3% vs 2.0% adjusted). Q1 2015 was 2.0%.<br /><br />Given the slow growth across Europe and worldwide in 2014, as well as the eruption of a mid-sized geopolitical crisis in Latvia's neighborhood (surely Ukraine that should have had a very negative impact on growth in Lativa?!), it is not obvious to me that so terribly much faster growth should have been expected. What is your baseline?<br /><br />Source for data:<br />http://www.csb.gov.lv/en/statistikas-temas/gross-domestic-product-key-indicators-30517.html Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-70393804633232092862015-06-01T08:50:11.560+01:002015-06-01T08:50:11.560+01:00I don't know too much about Latvia but it is c...I don't know too much about Latvia but it is certainly the case that there's a lot of chatter about Russian banks and money laundering. e.g. http://www.lawlesslatvia.com/author/admin1/ Nicholas Shaxsonhttps://www.blogger.com/profile/16975154273054074389noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-84004461908387681522015-06-01T07:29:26.884+01:002015-06-01T07:29:26.884+01:00There is lots of writing about austerity these day...There is lots of writing about austerity these days. I think there is vagary of wording confusing who gets the austerity. It seems often austerity for the government sector is implied to be austerity for private people (tax payers) and workers. <br /><br />In Greece there might actually be a conflict of interests between the government and it's non-government productive sector and people. Some one stated a government spending was 59% of GDP for a recent year. I would be worried about crowding out and positive feedback. (In the engineering sense, which is unstable.) Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-74131427805287671622015-05-29T20:14:25.673+01:002015-05-29T20:14:25.673+01:00I will not to refute your argument; I agree with. ...I will not to refute your argument; I agree with. But GDP data has shocked me a lot. www.MiguelNavascues.comhttps://www.blogger.com/profile/00880006105532291958noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-32427745904895463692015-05-29T16:50:05.040+01:002015-05-29T16:50:05.040+01:00Ok. I thought the Latvian election was later. But ...Ok. I thought the Latvian election was later. But in 2010 austerity was being promoted as THE way to secure lasting recovery. And the shadow of the Greek crisis was long. Latvia was not the only country to elect an austerity-minded government in 2010: my own country, the UK, did too. Also, Latvia was still being told by the EU to enact austerity in order to meet convergence criteria. And Latvia emerged from recession in 2010, which was widely regarded as proof that austerity worked. Given all of this, it is not surprising that the government was re-elected. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-19766290454276487192015-05-29T16:22:15.438+01:002015-05-29T16:22:15.438+01:00Frances,
Latvia´s government was reelected in 201...Frances,<br /><br />Latvia´s government was reelected in 2010. It was only in June 2013 that the EU asserted that Latvia had met the convergence criteria and could join the euro. In 2010 and 2011 Latvia´s government deficit was still too high to qualify for membership. So delivering the prize could not have been a motive in 2010.<br /><br />For Estonia it seems more plausible. Estonia met the convergence criteria in 2010, and in 2011 the euro was introduced and the two pro austerity parties won an absolute majority.<br /><br />I think, in general, that a lot of people in Estonia and Latvia loved that their country was able to take difficult measures and stick to them, without major protests. Believe me, I know Estonians very well and they have masochistic streak. :)Mysjkinnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-35709411324513493802015-05-29T15:18:49.970+01:002015-05-29T15:18:49.970+01:00Joanna,
I think that's a really important in...Joanna, <br /><br />I think that's a really important insight. The (considerable) emigration of the young and skilled since 2008 can indeed be seen as rejection of the prevailing political paradigm. I wonder if the willingness of older people to tolerate or even welcome severe hardship in the expectation that it will bring rewards is because they lived through the collapse of the Soviet command economy? They have experienced worse. And the 1992 recession did lead to a fast though unstable recovery. <br /><br />Mysjkin,<br /><br />The reason for voting the same people into power again is undoubtedly because they have delivered the prize, which was admission to the Euro. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66953239557858469742015-05-29T10:19:33.178+01:002015-05-29T10:19:33.178+01:00Since the definition of GNP includes government sp...Since the definition of GNP includes government spending it seems rather obvious that over the short term more spending makes the GNP go up and austerity makes the GNP go down. But over the longer term the bigger the government is the worse it is for the real economy. Look at Venezuela to see how lots of government spending ends up. http://www.howfiatdies.blogspot.com/2015/04/the-keynesian-economists-useless-task.html.Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-60498948146924638282015-05-29T08:26:11.707+01:002015-05-29T08:26:11.707+01:00The politicians that implemented austerity were re...The politicians that implemented austerity were reelected, so austerity must have been ´popular´ among at least a significant part of the population. <br />Same here in Estonia, the most pro-austerity parties won an absolute majority in 2011, a much better result than the previous elections.<br />There is a difference between resignation and voting the same people again in power.Mysjkinnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-70814930631786248752015-05-29T07:05:23.133+01:002015-05-29T07:05:23.133+01:00I live in Latvia and doing research in participati...I live in Latvia and doing research in participation within Latvia and Estonia. I am so pleased to see you highlight the culpability of Scandinavian banks. Their lending practices have been somewhat suspect, which helped to precipitate the crisis. Their interest rates were/are eye-wateringly high and not advertised up front. <br /><br />I am not sure that acceptance of austerity could be considered popular, more a resigned acceptance of what was considered inevitable. The people of the Baltics do not have a history of challenging authority within the general population. Neither can it be considered popular when so many people voted with their feet and left. It perpetuated the distrust of the population for their leaders too, especially when those at the top did not seem to suffer as much from the austerity. Joannahttps://www.blogger.com/profile/08013060781688432165noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-89377506491508326492015-05-28T22:30:51.561+01:002015-05-28T22:30:51.561+01:00They are entitled to their opinions, but I think t...They are entitled to their opinions, but I think the structural balance is mathematically incalculable and morally indefensible. I explained why here: http://www.pieria.co.uk/articles/the_myth_of_the_structural_deficitFrances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-74081078068928990502015-05-28T22:16:18.733+01:002015-05-28T22:16:18.733+01:00Paul Krugman uses the structural balance here:
ht...Paul Krugman uses the structural balance here:<br /><br />http://krugman.blogs.nytimes.com/2015/03/29/austerity-big-and-small/<br /><br />If I remember correctly, also Simon Wren-Lewis and Martin Wolf like to refer to the structural balance.<br /><br />Anyway, thank you for the discussion!Mysjkinnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-54046313271146684062015-05-28T22:05:39.838+01:002015-05-28T22:05:39.838+01:00I've been very critical of people who use the ...I've been very critical of people who use the "structural deficit" as an argument for austerity. The "structural balance" is voodoo economics. <br /><br />I certainly don't disagree that Latvia put itself through a wrenching fiscal adjustment in 2009.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-4515271580792644242015-05-28T21:49:17.184+01:002015-05-28T21:49:17.184+01:00Ok, I will not mention these numbers any-more (I t...Ok, I will not mention these numbers any-more (I think then we should also ignore anyone who tries to make a point by referring to something like the structural balance, which is heavily dependent on estimates of potential GDP).<br />Anyway, the fact is that Latvia did more cutting in 2009, then in every single year between 2010 and 2013, probably more than in all those years combined. As you remark yourself, in the latter years much of the improvement of the fiscal deficit as a % of GDP was ´due to an equally remarkable rebound in GDP´. But that (the measures of 2009) is not something you can see by looking at the eurostat data you cite. But I don´t think we disagree on this.Mysjkinnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-72567381555812342602015-05-28T19:37:43.457+01:002015-05-28T19:37:43.457+01:00Unfortunately what the deficit. vs GDP "would...Unfortunately what the deficit. vs GDP "would have been" is the counterfactual evidence that I pointed out in the post we do not have. We simply do not know what the deficit vs GDP would have been, because we do not know what effect the front-loaded fiscal consolidation had on GDP. I am unimpressed with economists who claim to know what "would have been", even if they work for the IMF. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-91371166842303276752015-05-28T19:05:45.837+01:002015-05-28T19:05:45.837+01:00This is becoming confusing. :)
Of course Eurosta...This is becoming confusing. :) <br /><br />Of course Eurostat shows the deficit that Latvia eventually ended with in 2009, but it would have been much higher without measures. Please check the paper I linked to before. The authors write:<br /><br />"Under unchanged policies, the 2009 deficit would have been around 16–18 percent of GDP in Latvia and Lithuania and exceeded 10 percent in Estonia." (p. 17-18)Mysjkinnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-15885473768990205062015-05-28T18:48:52.842+01:002015-05-28T18:48:52.842+01:00Annualised GDP growth in 2013 was 4.5%. But in fac...Annualised GDP growth in 2013 was 4.5%. But in fact growth fell sharply during 2013. The quarter-on-quarter growth rate fell from 2.4% in Q1 to 0.9% in Q4. It has never recovered. Latvian Statistical Bureau figures show that growth in 2014 was half what it was in 2013, and Q1 figures indicate a further fall. I am maybe overstating things in saying growth is "just above zero", but an annualised growth rate of 2% and falling is hardly robust growth for an emerging market economy that has recently suffered a very severe recession.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-30916435398128335062015-05-28T18:40:44.456+01:002015-05-28T18:40:44.456+01:00Oh, I know austerity is popular. And bad though it...Oh, I know austerity is popular. And bad though it was, this was nowhere near as much hardship as the end of the Soviet era. Latvia got its reward, too - joining the Euro was the whole reason for holding the currency peg and undergoing such a wrenching fiscal adjustment.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-53204833423064180602015-05-28T18:36:58.053+01:002015-05-28T18:36:58.053+01:00I'm very sorry, Myskin, but that is not what E...I'm very sorry, Myskin, but that is not what Eurostat figures show. Latvia's fiscal deficit in 2009 was 9.8% of GDP. By 2013 it had fallen to 0.8% of GDP. Government spending fell by a considerable amount in 2009, but GDP fell by far more - hence the high deficit vs GDP. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-16577508768066548182015-05-28T18:16:53.618+01:002015-05-28T18:16:53.618+01:00Hi Frances,
Yes.
But the fiscal deficit vs GDP a...Hi Frances,<br /><br />Yes.<br /><br />But the fiscal deficit vs GDP also fell in 2009, not compared with the previous year, but compared with what the deficit would have been in that year without any measures. I think that what they did in 2009 was the really remarkable achievement. Mysjkinnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-73836044477086581242015-05-28T18:07:47.113+01:002015-05-28T18:07:47.113+01:00I live in Estonia and it is interesting to see how...I live in Estonia and it is interesting to see how austerity is really popular here, among people with very different backgrounds. People here love to see themselves are hard and though, having lived through Soviet times and the economic collapse of the early nineties. The father of my girlfriend is a teacher and when in 2009 he had to accept a pay cut of 10%, he just shrugged his shoulders one time.Mysjkinnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-6109618729644198572015-05-28T15:05:52.998+01:002015-05-28T15:05:52.998+01:00What do you mean by "By the end of 2013, Latv...What do you mean by "By the end of 2013, Latvia's GDP growth had sunk to just above zero"?<br />Latvia's GDP growth was 4.5% in 2013, which is NOT "just above zero".Anonymousnoreply@blogger.com