Sveiki.  New article I wrote (wth Hudson) on Latvian austerity for the Financial Times.  For those interested, type “Latvia is no model for an austerity drive” into your search brower then click on the link.

Laimigu Janu Svetki!

This article is no better than the others you criticize - for the authors not having node their homework.

Just a sampling of issues:

1) “Finding no acceptable alternative, much of the labour force has elected to emigrate.”

This statement is ambiguous and absolutely misleading. First, what is much of the labor force?

Second, the author ties this statement directly to the austerity program at the beginning of the article. The number of 200,00 have emigrated over the past decade begins to tell a totally different story. WHAT is the real reason for emigration? Is it the austerity program (& an implied vote against them) or the extremely low wages that existed well before the financial collapse. This is absolutely misleading b/c emigration existed as soon as Latvia became part of the EU.

2) Another fundamental problem with the article is that you have no direct information (polling or otherwise) related to Latvians and their opinion on austerity. Certainly one can NOT link the popularity of the Parliament with austerity. That is an absurd correlation in light of the many other issues that the govt. faces. How many ethnic Russians have ever thought that Parliament was doing a good job - before or after austerity?

Second, Latvia as a young nation (only 20 yrs) is learning about the limits of its specific parliamentary system. As in the early 1930’s, it has become evident that the current method of electing members to Parliament is not efficient. Latvia does not have threshold limits or voting reaching x% before allowing it representation in Parliament. So, it has a huge number of parties trying to form coalitions. It is difficult & falls apart. In addition, the dismissal of the last Parliament, b/c of issues related to corruption MIGHT have something to do with the ratings.

The U.S. single digit approval of Congress means ??? For or agains Healthcare? For or against TARP? Really - who thought that such data sport any argument in Latvia.

3) A third fundamental problem with the article relates to the lack of considering the people’s still - and it is “still” getting used to a capitalist system. There have been grumblings for years about how the Soviet era was better by a portion of the population. To learn to care for yourself, to think independently, to work for more years - this has been hard for many. Then you place low wages and lack of opportunities. There is a portion of the population that wishes for the security of another system.

You have also failed to do your homework and have written a misleading article full of misleading arguments. If I were to grade this article, I would give it a C- at best. The logical missteps are unfounded and absurd.

Sorry - I have no opinion vested in the argument re austerity in Latvia and whether it is a good thing or bad.  So my criticism simply relates to your total lack of logic.

I hope that your guidance to the Latvian government (likely as paid consultants) is better than this article. B

Answering Vinde:

1) On point one.  The only misleading statement is to suggest there has not been significant emigration from Latvia the past decade, and an acceleration of it with the crisis in 2009.  Anyone who was on the ground then (and I was) saw signs of it everywhere.  The countryside was increasingly empty and everyone knew people leaving.  One can look at the census to see the vast numbers that left.  And, even with that, I suspect the number was unreported for political reasons….

2) Recent polling data from Latvia on austerity:  http://www.delfi.lv/news/national/politics/aptauja-vairak-neka-puse-iedzivotaju-krizes-parvaresanas-celu-uzskata-par-valstij-loti-postosu.d?id=42449412

Shows 19% support for austerity. Amazing the figure is this low after sustained government efforts to promote the policy.

3) There is no “capitalism.”  There are many forms of market economies that roughly claim the name.  Latvia’s economy has market elements, as all economies do, but it has largely been a planned economy run by oligarchs and their politicians at the expense of the Latvian people.

One good aspect of the crisis is that the traditional oligarch parties, in the main, electorally lost.  But, talk to anyone at the Ministry of Transportation and you will discover they still run the show….

Good holiday to all!

The article should have used the Delfi polling as the basis for its claims that the austerity was not popular - certainly not on approval of the govt. per se. Your mistake and your choice in using data that didn’t support the claim (even if it is true). Why not use Delfi? Is it scientific? People respond voluntarily - I don’t know. Did they ask - whether you like the austerity program or not - do you feel that it was necessary for the country. You know that the percentages would be different.

I have relatives who left Latvia and have returned. But no one disputes the horrible economy and job conditions. Both pre and post crisis.

“Capitalism” v. some form of a market system. That is irrelevant to my comment that their are plenty of people that preferred (both pre & post crisis) the system as it was - where there was greater security, etc.

Your article is simply poorly written and lacks sound support - You are using pre-austerity issues and mixing them with post-austerity conclusions.

(I could not do better - I am not an economist - but the problems with the article will be evident with any person who knows something about Latvia and reads critically.)

Visu labu!

@ Vinde.  Have reveiwed much polling data on the issue from seveal sources since the crisis. Some of it even put the austerity Saeima’s approval rating in the signle digits.  Anyone who thinks emigration did not accelerate after the crisis hit, simply was not on the ground to see what occured, nor reviewed the data from demographers such as Mihails Hazans.  Anyone who thinks the austerity measures enjoyed broad support, simply has a rather small circle of contacts in the country.

A final matter, what one has to understand about writing for high-level publications like FT is that they have strict words limits.  We had 750 words, not nearly enough to say all we wished, nor to have deployed all the evidence we would have liked.

That said, enjoy the holiday….

Don’t know where to begin in tearing apart what you write, Vili, but let’s start here—

Latvia does not have threshold limits or voting reaching x% before allowing it representation in Parliament. So, it has a huge number of parties trying to form coalitions…

Excuse me, but we have a very high threshold, 5%, and thus a lot of wasted votes.

/P

Your article is simply poorly written and lacks sound support - You are using pre-austerity issues and mixing them with post-austerity conclusions.

I don’t think it’s poorly written. It’s well-written. Sure, there are things one can quibble with in the blur of condensation.

I’m not an economist, either (and neither is Jeff—his qualifications are in economic history)—but I completely agree with the gist here. I hate to wave anecdotal evidence—but I ain’t met nobody who voted for austerity, man. Not one. I don’t like how ethnopolitics are summarized in this article, but essentially—people voted the way they did with that motivation, didn’t they?

And people are leaving in a different way these days—not “just looking for work,” as Ambi so inimitably put it, but looking for a new home, having given up on this one.

Jeff recognizes the fact that the oligarchs got voted out. But show me the recovery. I just did an informal poll myself, the Beeb calling to ask for advice on what young people here think. I said I’m not young.

Līgo,
/P

Following up on a comment made by Peteris.  Having worked with labor sociologists in Latvia, a disturbing trend is that of the 3 Baltic states, Latvians claim they send the least remittances home.  That data does not show in fact how much is remitted, but merely the intentions of those working abroad.

Other survey data shows the Lithuanians and Latvias less likely to return home.  Estonia, for a variety of reasons, stands apart on this score, both on remittances and intentions of returning home.

Personally, a disturbing trend I have observed is a tendency (mostly amont the Diaspora) to “defend” the homeland by supporting its govenment.  Think this unwise.  Doesn’t help the people who actually live in Latvia…

“Personally, a disturbing trend I have observed is a tendency (mostly amont the Diaspora) to “defend” the homeland by supporting its govenment.  Think this unwise.  Doesn’t help the people who actually live in Latvia… “

It’s because those people live in countries where the government is
working, not perfectly, but actually carrying it’s own load.

In Latvia we go by prihvat and blat. Capitalism was doing well
in the Soviet lands.
It’s too vicious now…...................

” Varna varnai aci neknab” vairs neder.

Jeffrey, thanks for your take on the situation.  As to defense of Latvia in its current state by some in the diaspora, I think it’s because those people are still in the pre-90s mindset that once the commies/Russkies are out, everything will just fall into place and everyone will sing and blossom forevermore.  Admitting that 20 years later there are still problems, and that those problems cannot be laid at the feet of the soviets/Russians, is labelled as unpatriotic.  Just give it a little more time.  Get someone “more Latvian” in there.

Pffft.

Though I do have a question - how do you see the diaspora “supporting the government” as opposed to supporting the people or supporting an idealized dream?  Numerically we’re a fraction of the whole, so you can’t be talking about votes.  Money-wise?  I think most of the money we send is to private individuals or charities.

Peteri - my mistake on the percentages necessary re representation. So, that shows that I am ill informed about events / politics in Latvia. Regardless of that mistake, arguing that “Latvia’s parliament often polls approval ratings in the single-digits” proves nothing as to a specific govt. policy. U.S. approval of Congress is also in the single digits. Why? B/c the partisanship has made the govt. dysfunctional. It is absurd to use the numbers of approval (or disapproval) to argue the they indicate support or disdain for any specific program.

Everyone - Part of the problem with this article may be that the title - that the authors did not choose - “Latvia is no model for an austerity drive” is mixed with do/did Latvians support austerity?

It is absolutely self-evident that no one wants austerity programs. Did Greece just vote FOR austerity? A big yes? No one like wages cut. No one likes to work until they are 62 if they thought they would receive a pension at 60. So, Peter’s statement, “I ain’t met nobody who voted for austerity, man. Not one.” doesn’t surprise me one bit.

Were there negative consequences b/c of austerity in Latvia. Of course. But, as I said, there were major problems with the economy before.

The question that the authors fail to answer is what would have happened without an austerity program. Can they prove that things would be better or worse. Perhaps, the Latvian economy would have slid into a greater hole and even more people would have emigrated than actually have.

Look at the U.S. - Did TARP help or hurt? Did the American people want TARP or did they accept it as an attempt to get out of a financial crisis? Were people hurt by higher unemployment, a slow-down in economic growth? Yes. We have statistics for all this - BUT to make a convincing argument about TARP one way or another is difficult. In the highly partisan era - hardly any individual will be swayed b/c one can argue statistics supporting their position.

So Peter and the authors say - yes people emigrated before the austerity program for x, y, z reasons. Post austerity measures, x, y, z, no longer applied and it was only austerity. Come on - that is not believable. Things were bad - people made no $ - they left. The economic crash caused things to get worse. So was it the austerity measures that led to a conclusion “let’s get out of here” or things were bad and they don’t look lie they are going to get better soon.” I simply can’t believe that the austerity program now became the cause of accelerated emigration. How many people left that had never considered going abroad before the austerity measures and left solely b/c of them. You can’t slice and dice this up like that.

You have some of Europe’s top economists arguing one way and others arguing the other. Some can say - the austerity program worked in Latvia (& not talk about the horrendous implications).

Suicides, drunk driving, theft - all “cultural” issues that existed before. So, to me, it seems too easy to simply say - all of these things have become beggar problems b/c of the austerity programs vis a vis the economic crash and related hardship - WHATEVER policy may have been followed.

I really am not for or against this policy in any way. The authors simply fail create a cause and effect. I practiced law for many years. Cause and effect must be proven. X happened ONLY because of Y. I sit in the US simply reading this objectively. So you can say everything went to hell b/c of austerity programs. But the article (& I grant that you are ltd to 750 words) just doesn’t do it. There are simply too many variables out there to pin all of Latvia’s evils on the austerity programs - especially since each and every one of these evils existed before. Latvia would not have been the beautify romanticized place of the WWII emigrants, but for the austerity programs.

Question to the authors - Is the European model of employee benefits, early pensions, 5-week vacations (in places) a sustainable model? Is the Social Security system in the US sustainable without changes to the retirement age,  percentage taxed, etc?  Is the answer is Yes - all of those arguing that changes are necessary b/c of changing demographics etc are wrong. Or will there need to be further austerity measures to ensure that some type of programs exist? Not a single person will be pleased, but…

No more comments from me - hopefully.

1) Answering Vinde’s last paragraph only. Everything preceding it shows a lack of knowledge about Latvia nor the surveys in the scientific literature (Charles Woolfson, et. al) or the reasons for emigration that grew significantly with the crisis and ensuing thereafter with austerity.  We have covered that in previous academic articles where length permits.

“Question to the authors - Is the European model of employee benefits, early pensions, 5-week vacations (in places) a sustainable model? Is the Social Security system in the US sustainable without changes to the retirement age,  percentage taxed, etc?  Is the answer is Yes - all of those arguing that changes are necessary b/c of changing demographics etc are wrong. Or will there need to be further austerity measures to ensure that some type of programs exist? Not a single person will be pleased, but… “

2) Answering above.  Yes, not only is the European social model sustainable, it is essential. Europe’s problems stem from the euro, financialization, and the dismantling of that model. Europe’s healthiest economies, e.g., Denmark, Germany, Sweden, Austria, etc., have Europe’s most genergous social spending and the greatest share of GDP spent on government.

Europe’ sick economies the opposite. For example, Greek workers have far longer hours worked (with lower productivity) than their German and Scandinavian counterparts.  These countries literally spend twice what Greece does per capita on social benefits.

Stiglitz, Krugman (Nobel winners) among other notable economists, are arguing that our period has structural similarities to the 1930s.  Two factors solved that crisis: 1) Massive and permanent increases in government spending. 2) A dramatic reduction in work hours to balance out the increasing worker productivity generated by technological innovation.

At the time, this was vigorously opposed by many economists and those employing prevailing common “wisdom.”  It took a second World War to introduce a new economic/social order in the West (and then increasingly in East Asia), but it proved durable for several decades on precisely the foundations I enumerate above.

Do demographic challenges need to be addressed?  Yes.  Who has in havinbest handled them? France.  Where France fails is in having too large a banking sector.

Our problem today is ideology/orthodoxy and propaganda (Fox TV, etc. in the US) that is infinitely more effective than anything the Soviets ever had.

The answer on the US another time…

Keep well!

…….Politically, it helps to be a post-Soviet economy with a fully flexible, poorly unionised labour force. Above all, the population needs to put an almost blind faith in “free market” central planners. Ethnic divisions can distract voters from complaints against austerity. Only under these political conditions can austerity be considered a “success”…………..

Completely agree with Jeffrey on the above! Just now summer visitors returning for vacation back home. The one’s I have met have low level jobs abroad, and depend on pulling through the falling employment rate in England and elsewhere by having the entire extended family (whole family clans leave Latvia if possible)  to support each other when laid off from dwingling job market. Very little money being brought back home. One couple drove from England and brought a new lawnmore, which promptly broke when trying to cut the accumulation of grass and weeds around their old house. The local repairman will no doubt benefit.

I personally am a long time advocate of legalizing Johns Grass (marihuana) growing in order to slow emigration and enable a subsistance economy.

My model would allow all retirees grow a limited number of plants for their personal consumption. The government could buy up the surplus, thus helping pensioners double up on their low pensions. Such a policy would return to the retirees respect—as younger folk desperately need their help.

My advocacy earned me a visit from the Criminal Police Investigations Unit recently. They found nothing. The young police men were polite enough, but their leader was a moralizer, apparently having received a heavy dose of same from urban higher ups. No public discussions in society here, but rather obvious “no censorship” policy (100. pants of the Constitution) turned upside down by both government and a timid and submissive media. No chance of discussing ongoing debate in Paraguay or that marihuana in direct translation is not an “evil” name, but describes the plant’s history in proto-Latvian times: it was a plant of the forest: “meža Jānis” or, if you prefer “Roadside John”. Other than making rope and shoes from the fibre, It was also used to heal sick cattle.

No doubt, proto-Latvians enjoyed more freedom than the Latvian people today. Unfortunately, the Johns were gathered up as vagrants with the arrival of the countryside barons who—in order to maintain urban apartments—wished to exploit the country workers and, thus, put all vagrants (actually long-distance travelers) and at home retards away in prisons and “nut houses”.

Q1- every loan / bailout has to be repaid ... how long is this austerity measure meant to last, to repay the loan?

Q2 - “The government could buy up the surplus, thus helping pensioners double up on their low pensions. Such a policy would return to the retirees respect—as younger folk desperately need their help.”
If the govt is in an austerity position, isn’t buying up the surplus putting the govt (hence the people) in an even worse financial position? What’s the govt going to do with the m’jane? Open up smoking cafes?  ala Amsterdam (not that I am saying that their govt is involved). Is it to become a seller of dope?
Maybe the first tier of the ladder might make some extra cash ... and if so, then without a doubt, the (suburban) hydroponic growing industry will take over as a supplier; which then probably will defeat the original purpose.
Yes, hemp is a great product ... the non -TTC type.
And yes ... I’ve read items over here by people who advocate m’jane for medicinal relief (my neice is one of them).
BTW .. Yes ... I’ve had some joints ... about 6 since 1973 ... the last one in 1996.

But to turn the country into a dope smoking nation ... no thanks.

To the author:

So if the Latvian govt. had done nothing, emigration would not have increased, and the economic crisis would have disappeared (magically)?

My point is at the root of the problems. Neither your article, nor your comments here acknowledge that something had to be done.

From your last post, you argue that a stimulus package would have been the solution.

Isn’t this a similar argument that we have been having in the U.S.? Would Republican austerity save the day or is further stimulus the answer. If everyone knew for sure - 100% that one policy or the other would work, wouldn’t this have been instituted?

Krugman is pro-stimulus. Other economists are not.

What I find disturbing about your position is that the underlying problem that led to the austerity program has NO role in any of the problems. It is SOLELY the fact that the austerity program was imposed. I can see and admit that cutting wages, jobs, etc. likely to to more emigration, reduced spending which in turn stalled the economy. This argument makes sense. But to say that austerity alone- without the initial impetus of the economic crisis is the sole cause of increased emigration defies logic. The country was crashing - but everyone would have stayed put in Latvia.

I do not see how someone can separate the cause and then the program with such definition. Cause resulted in no problems - program produced every problem in Latvia.