Taking Nobel laureates’ economic advice for Estonia
09.06.2009, 11:10
Economists have been observing economic
fluctuations for a long time now. A country can have economic boom, which will
be followed by economic recession and then by another expansion and so on,
Viktoria Riiman, research associate at Center for Business and Economic Research
in Sam M. Walton College of Business wrote.
Nobel laureates such as Paul Krugman and Joseph Stiglitz in their research
offer advices for governments dealing with recessions. They are experts on
crises that happened in Germany, Russia, U.S. and other countries. James Tobin,
another laureate, was an expert on economic fluctuations. Could Estonia use
experts’ advice and behave smartly at the time of its current recession?
The experts agree on the necessity of stimulating an economy. Here economists
make a difference between short-term and long-term goals. According to the
laureates, social help should never be cut during the time of recession, even
for a short-time period and at a fear of a budget deficit. Decreasing pensions,
support (toetused) of parents, students, and unemployed – is bad for the economy
and as life showed, its implications will be deep and troublesome. (Increasing
inequality, social and political instability - to name a few.) On the other
hand, social aid during recession not only helps the neediest, but also put
money in the hands of people who are likely to spend it.
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Increasing taxes is not an experts’ answer either, because it will curtail
economic activity more, and the recession may be prolonged. What governments
could do first is to spend domestically in order to create employment (again
even at a fear of budget deficit), cut general administrative costs that do not
hurt local employment, and make long-term budgets more austere. Once the economy
will rebound and new opportunities for employment appear, government will again
start receiving bigger revenues and budget surplus will appear.
Even such Nobel laureates and free market advocates as Friedrich von Hayek
and Milton Friedman believed in government intervention in some areas. As
Friedman stated, “A government which… engaged in activities to overcome
neighborhood effects widely regarded as sufficiently important to justify
government intervention, and which supplemented private charity and the private
family in protecting the irresponsible ... would clearly have important
functions to perform. The consistent [classical] liberal is not an anarchist.”
Implementing absolutely free market ideas has indeed resulted in several major
crises in Russia, Chile, and Japan – proving that free markets cannot always
work, they do fail. And social safety net established by a government is the
only rescue at recession times.
All these experts’ advices supported by research studies, also seem logical
and making sense. Continuing receiving 13th month of salary and parties’
financing at the cost of those needing social help seems ethically wrong. And
why not use milliards of crowns given by Euroopa Investeerimispank for 2007–2013
to Estonia for good? Could Estonian government really follow the advice - that
is the question.