RR has been focused on matters economic for some years now as the crises build here and in Europe. In their efforts to recover, I’ve tried to make the case that Europe and the US have actually been headed in opposite directions. Cutting to the chase, debt and socialist policies – entitlements, commerce throttling regulations, tax disincentives, and Keynesian theory - have been the culprits. And the most effective medicine is drastic cuts to spending as opposed to drastic tax increases on the productive sector.
An example of how this works is being demonstrated by Estonia, a country that is in the eurozone and suffered an 18% contraction of its economy when the Great Recession hit. Even Greece did not contract that much. Estonia fought back by putting in place what can only be considered as draconian austerity measures. One reason it could do that was that the Estonians came together as a nation and backed the very politicians who proposed such stern stuff. What, of course, helped was the cohesion of Estonian culture, but it is the rapid modification of their social policies and spending that turned the corner. Estonia is now the 'how to' poster child of European recovery. More details in this current CNBC summary that was sent to me by a correspondent.
While there is still a way to go, Estonia has demonstrated what Germany is telling Europe’s profligate economies – austerity works.
(Full disclosure – I was born in Estonia. RR has tracked other aspects of Estonian economic policy with respect to its tax code, technology, and monetary policy. These are available through either google or RR search.)
[14jun12 update] The WSJ blogged today, again highlighting the high-tech entrepreneurship of Estonians, and the country's government which is receptive to such economic activity (here). In short, they seem to understand that economic recovery needs both austerity (cut spending) and growth (start and build enterprises). What is conspicuously absent from the Estonian regimen is raising taxes to stifle work and risk taking. H/T to a correspondent for sending the link.