Krugman defends the Keynesianism-Krugmanism with regards to some popular views on Latvian ‘success’:
OK, the recent Reinhart-Rogoff protest against “gross misinterpretations of the facts” on financial crises doesn’t actually say anything about Latvia. But the points R-R make in taking on the US crisis denialists apply with equal force to the weird phenomenon of Baltic triumphalism.
As R-R say, rapid growth over a short period following a deep slump does not constitute a success story; by that measure, America was a tower of prosperity in the depths of the Great Depression. It’s much more informative to focus on levels, both of output and of unemployment, and compare them with the pre-crisis peak.
So, people keep telling me that Latvia is an economic miracle that refutes Keynesianism and Krugmanism. How’s it doing on the level thing? (All data from Eurostat).
And shows this chart:
The equivalent US chart follows (on the same scale for ease of comparison):
Then there´s the unemployment picture in both countries
And finally, the “digger of misery”, the nominal spending level.
One would think that compared to Latvia, the US is a success story. But that would be misleading. In fact the US is proportionally doing just as bad as Latvia. The US was lucky (or maybe the Fed felt less constrained than Latvia´s CB) to see its spending fall much less than Latvia´s.