Krugman on Latvia

06. janvāris, 2010


Vjačeslavs Dombrovskis

Here is a pointer to Paul Krugman's presentation for the Allied Social Science Associations, which has substantial references to Baltic States and Latvia in particular. Specifically, Krugman re-iterated his Latvia -Argentina analogy again (p.1): "…the Baltic nations, in particular, seem well positioned to follow in Argentina's footsteps."

Although Baltic States were not the main focus of his presentation, he took time to argue that not devaluing was, and is, a big mistake (p.8). The arguments are pretty straightforward, no need to reproduce them here.

I am thoroughly mystified about how long people here can persist in their belief that launching deflation was the right thing to do. The world’s top economists tell us that not devaluing was and is a serious mistake. Moreover, the result of this has been, so far, such an obvious disaster. Yet the government and the Bank of Latvia (and some other people) keep telling us that, “oh, it’s different in Latvia”. This is of little practical value, or consolation, I am afraid. As Reinhart and Rogoff in their “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises” tell us, that’s what people were saying on the eve of nearly every financial crisis in history. I guess Krugman is right in saying that there is a “strong “pride goeth before a fall” syndrome”.

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