Krugman's Social Media Feud Inspires Opera Nostra Culpa

The WealthCycles Staff

A new opera based on, of all things, an argument between two different economic philosophies, will premiere this spring. Meanwhile, the argument that inspired the musical work continues to simmer: Does economic austerity work? As Michael Maloney might say of a similar arguments over the efficacy of free markets:  “We’ve never tried it.”

Last year financial columnist and sometime comedian Paul Krugman, evidently miffed at the good press the tiny Balkan nation of Estonia was getting for its apparent economic turnaround, posted a blog article denying that Estonia’s austerity program was a success. Estonian President Toomas Hendrik Ilves responded in a huff, via Twitter, to defend his nation’s honor, with a frankness of language rarely exhibited by a chief executive. The global media, of course, delighted in the conflict, and for a day or three the snit dominated international headlines.

It was one of those purely verbal altercations that amount to a hill of beans and typically blow over as quickly as they erupt, the public’s attention soon lured off to other diversions. But this particular online back-and-forth piqued the imagination of another sort of communicator, the composer Eugene Birman.

In the January 21 All Things Considered segment featured here, NPR host Peter Siegel interviews Birman about his new opera, Nostra Culpa – Our Fault.

Based on the vitriolic debate that erupted this past summer between Krugman, who writes a Keynesian-flavored New York Times column, and Ilves, the opera follows the story of two opposing economic viewpoints on financial recovery.

Like all operas, Nostra Culpa is filled with tension, animosity and contradicting opinions. Unlike most operas, Nostra Culpa follows the economic travails of a modern economy, an economy that Estonian officials and the International press has hailed as a great success and evidence that austerity works. In his own inimitable manner Krugman takes exception to the characterization of Estonia as a success story. In his June 6, 2012, blog post, Estonian Rhapsody, Krugman said this:

So, a terrible—Depression-level—slump, followed by a significant but still incomplete recovery. Better than no recovery at all, obviously—but this is what passes for economic triumph?

Ilves’ response was quick and acerbic, and delivered via Twitter. Makes one wonder if this will be the last social-media enabled opera, doesn’t it? In what many viewed as his way of defending his country’s honor, Ilves’ replied with this tweet:

Let’s write about something we know nothing about & be smug, overbearing & patronizing: after all, they’re just wogs…
Guess a Nobel in trade means you can pontificate on fiscal matters & declare my country a “wasteland.” Must be a Princeton vs Columbia thing.

In this last salvo Ilves’ is referencing his own Columbia education and Krugman’s Princeton schooling. In these backgrounds and opposing viewpoints was the sowing of the seeds that will become Birman’s opera, scheduled to premier April 7 by the Tallinn Chamber Orchestra at the Estonian Music Days festival.

Although the opera makes no attempt to answer the question that drives the tension in the opera, Anders Åslund, senior fellow at the Peterson Institute for International Economics, Washington, D.C., is willing to step into the fray. His recent analysis, complete with Krugman-style charts, makes it clear that not only is Estonia a clear case for the success of an austerity program but also that the entire Balkan peninsula has been similarly successful, for equally similar reasons. Åslund sheds light on Krugman’s perspective:

Krugman's problem is personal. In December 2008, he claimed, "Latvia is the new Argentina." He envisaged that all three Baltic countries would not recover until they devalued, and now he has been proven wrong, which he refuses to acknowledge. Now he complains that "Estonia has suddenly become the poster child for austerity defenders."

Latvia v Argentina GDP

Whether Åslund’s claim that it is personal with Krugman is correct or not, he makes a good case for how the austerity programs implemented by Estonia, Latvia and Lithuania have successfully helped the Balkan states out of the economic doldrums the major economies of the world continue to endure. The three Balkan nations have not devalued their currencies, as Krugman claimed was necessary, and continue to sustain a recovery in which “The fixed exchange rates did not impede adjustment but on the contrary facilitated radical adjustment and Estonia's successful adoption of the euro in January 2011.”

The unique story of the making of an opera from the clash of economic schools of thought has unfolded in an environment in which mainstream media continues to broadcast the message that European “austerity” programs have been a failure. “Europe’s Failed ‘Austerity,’” National Review trumpeted last May. “How Austerity Plans Failed the European Union,” Inter Press Service wrote in November. “Austerity Has Failed in Europe, But What’s Next?” asked Rajan Menon in Huffington Post in September. As far as MSM is concerned, “austerity” has earned itself a great big F, a message that helps support political forces that would opt for a course other than austerity in the United States. Well, folks, here’s what Michael Maloney would say about that premise: “Don’t blame ‘austerity.’ We’ve never had ‘austerity.’” The proof is that debt is rising everywhere in the EU, almost every single country is spending more, not less. Here is just one example:

Spain's Debt in 2013

Mike mounts a similar defense against those who claim capitalism and free markets have failed, using of all things the financial collapse as evidence.

“All over the world, people are claiming capitalism is failing,” Mike says. “In fact, the economic crises we’re facing are the result of governments cheating capitalism and the free markets. That’s what’s causing all these bubbles to form and the ravages that happen as those bubbles pop.”
Rather than allowing the free market to function naturally to clear out excesses and allow the global economy to heal itself, governments and the “financial establishment” continue manipulating and interfering in its working, then blame it for the disastrous results. “Everybody panics—‘We’ve got to do something about this; the government has to do something’—and it just gets worse and worse,” Mike says. “It’s the constant manipulation by governments and central banks that will continue to drag down the world economy.

The same can be said of Europe’s so-called “austerity” programs. “Austerity” to the European Union means spending more, and at the same time raising tax rates on their citizens, while devoting taxpayer funds to preventing the collapse—in other words, subsidizing—their insolvent banks—the same banks who made really, really bad business decisions. True austerity would be to rein in government spending, to stop pulling wealth from the private sector; hold tax rates steady or, much better, reduce them; and let the mega-banks and bondholders who bet big on bad paper fail—as bad businesses and unwise investors should fail. Under that kind of austerity plan, a painful correction would ensue, but quickly the market would begin to work its healing magic, rewarding smart investors and innovative, well-run banks. Under true austerity, the end result would be the appearance of those mythical green shoots, healthy economic growth, and a citizenry empowered to direct their wealth based on true market needs rather on government needs.

So don’t blame Europe’s continuing economic floundering on failed “austerity.” European-style austerity as currently practiced is aimed at one thing alone—keeping the beleaguered fiat currency and banking systems going as long as possible, hanging on to the status quo while those who have profited from it squeeze every last nickel before, finally, the fat lady sings.

by the way I am from the Balkans and Mr Krugman is absoletly right.... the harsh austerity levied on us from IMF - WB styl plunged the countries into severe depression - stop telling jokes and lies in site !

Austerity has never worked and never will !

Harsh?

https://www.imf.org/external/np/sec/pr/2004/pr0466.htm

Sure, they tried to make Balkan governments spend more. The austerity was for YOU, the citizen.

This is the semantics trick you fall for.

We advocate austerity for THE GOVERNMENT, as taking $$ from people, and then spending it elsewhere, injures your economy.

This means: lower tax rates & fewer taxes & less spending (of citizens $)

Krugman says an Alien invasion and hurricanes are good for an economy, and that the fax machine will have more impact on the economy than the internet. ROFL

 

 

 

 

Austerity never works !

Maloney is not a economist so he doesn't know what he is talking about .... governement cheated free markets- bla bla .... free market doesn't work - after this crisis how can u say that free markets work ???

How can we say free markets work....  read about what caused the crisis in '29 & '07. The intervention before the crisis pulled the economic energy from the future... leaving it... um, hollowed out.

WealthCycles is a great place to start. Here, and here, and this short video, are the basics as to "how we can say that the free market works."

Then the question you should ask is how did government price fixing, regulation and interventions cause the bubbles and booms?

Print much?

Lastly, if you are 4real (doubt it), then learn the basics of classical economics and weigh it against the new-economics shamism.

 

Estonia, Latvia and Lithuania are Baltic states. Balkans are way South - think former Yugoslavia.

Thank you for your work, i really appreciate your articles, they are very helpful. Keep on the good work

Balkan man

P.S: Estonia, Latvia and Lithuania are not in the Balkans

Guys, I appreciate your blog posts and find them very informative but I really hope you check your data more carefully:

"...the tiny Balkan nation of Estonia..."

Estonia is not even close to the Balkan peninsula to be called a Balkan nation at all... and I mean more then 2.500 km away, so basically on the other side of Europe.

Didn't mean to be picky but had to point that out.

The boogyman of this crisis has been austerity even though it has largely been unseen. Its being blamed for the continued depressiin in countries such as the uk that have only decided to "cut" aka reduce the rate of borrowing, but still continue to borrow more. And guess what. Borrowung more money on debts, and vowing not to increase borrowing at a greater rater still means you end up in more debt :O.

During the Great Depression Hoover was called a do nothing president(accused of not doing "stimulus") programs or lowering interest rates enough even though interest rates where lowered for then to an all time low, and he did "stimulus" programs that would make Krugman blush. So how has that left us? Its left us with an over expansive government which channels tax payers money into "bailout" packages, guarantees bad loans, props up connected losers, and gives connected cronnies free money in the hope that some how will "stimulate" the economy.

And considering austerity means getting rid of a lot of debt which earns banks plenty of interest(the UK spends 18% of what it takes in servicing that interest) and a variety of other causes which harm elites im guessing its being demonised now and incorrectly blamed. For the same reasons Hoover was accused for not doing enough...I guess they wont be happy until everyone has been bankrupted and banks own their assets. Debt is being pushed as a saviour by Krugman when its crippling us!!!

Excellent!