Estonia Set to Overtake US Economy

Topher Morrison
PurpleSerf.com

Estonia might not be large, but it serves as a big lesson
to its neighbors and to the world.
Image Source: Prescottenews.com

This prediction may be more than premature, but this Baltic Tiger has much to teach Europe and the United States about how to grow an economy.  Virtually entirely self sustaining and enjoying robust growth, almost zero debt, and plunging unemployment rates this tiny country is a state apart from a European Union in fiscal tumult and a languishing US. 


          Estonia has had anything, but an easy history.  For roughly 700 years a once independent Estonia served successive conquerors as agrarian serfs until the 1920s when the Estonian government paid off their German landlords and restored home rule.  Estonia decentralized and modernized its economy only to breathe one fresh breath of freedom until the Soviet Union and their former Nazi overlords returned with ghoulish force.  


          After allied victory in World War II the USSR illegally annexed and plundered Estonia, deported tens of thousands, centralized its economy, and sequestered civilians under iron hard tyranny.  A ravaged country, Estonia was finally able to achieve independence in 1991 after the Singing Revolution, which initially featured spontaneous mass choirs singing illegal songs of patriotism and culminated years later in over 2 million people linked hand-in-hand over Estonia, Latvia, and Lithuania. 


          During the 1990s Estonia embarked on the path of privatization handing over state owned industries to the Estonian people.  In 1995, one year after the last Russian troops left Estonia, the revitalized economy began to grow at 4.6% and skyrocketed in 2007 to 10.4%.  After sustaining a brief contraction of 0.7% in 1999, Estonia from 2000 to 2007 averaged supercharged growth upwards of 8.3%!  


          If you were to dissect this engine of true capitalism (to be contrasted with crony capitalism found in China and the US) you would find that very little of any one part of the economy is favored.  Estonia features a constitutionally mandated balanced budget, the highest levels of internet freedom, one of the world's first flat tax systems (the government has just approved to cut income tax from 21% to 20% by 2015), an open banking system allowing for generous foreign investment, and unlike the United States (sitting on unparalleled and untouched oil reserves) Estonia is self sustaining supplying 90% of their energy from local oil shale.  Aside from the obvious structural and political advantages Estonia benefits from frugal politicians more interested in seeing their country grow than growing their government.  


          The most important characteristic of this economy, however, is its resilience.  Because it is no longer burdened by a centralized economy and slowed down by immense bureaucracy Estonia has shown an uncanny ability to bounce back.  In 2009 the economy plummeted by an abysmal 14%, due to easy lending and over speculation, but as of the first quarter of 2011 the Estonian economy exhibited traditionally strong growth at 8.5% (highest in the EU) and sent its unemployment rate from 18.8% to 13.8%.  While the unemployment remains high, national debt is at a remarkable 6.6% of GDP (lowest in the EU) recently earning Fitch's, a rating agency, A+ rating.  


          Today, the United States Congress just increased its ability to take on more debt by the largest margin in US history.  The fact that US leadership isn't at least taking clues from the mess in Spain, Greece, and Italy who's debts are 60%, 120%, and 142% respectively and are clamoring for bailouts to stave off open revolt is astonishing.  Take a peak at someone else's playbook for once - its not cheating in the real world, its smart. 

SALVATION! The Oboenher Bill Saves Big Government, Again

Topher Morrison

PurpleSerf.com

Compromise, the predictable spawn of divided government - hailed as progress and a testament to democracy.  The nation has been held hostage by the debt crisis over the past month amidst a barrage of countervailing sound bytes from both sides of the isle and obnoxious CNN digital countdowns to default, and for what?

          We are being led down a seemingly inevitable path, by our leaders, to credit downgrade, irreversible economic malaise, perpetual political tumult and loss of international leadership.  The 2.4 trillion in "cuts" proposed by Washington should return us to 2004 spending levels, albeit in 2021 and if they were real, but they almost immediately could give us the largest debt-limit increase in US history!  How can Washington be serious about tightening its belt when it apparently plans to create a bigger one?    
     

Like shooting BBs at a battleship, "cutting" 2.4 trillion
over a decade wont take down this Leviathan.
Graph made by usgovernmentspending.com

                    The marathon long "cutting" plan will only succeed at mitigating the avalanche of government spending as it remains obvious "cuts" in Washingtonese means reduction in discretionary lower-than-projected spending not real cuts, you know like the ones you and I use planning our daily lives, which bring spending in line with revenue, balance our budget, and allow us to save.  The "cuts" our fearless leaders propose pair down what they hoped to spend in the next 10 years and they praise it!  This is like a welfare recipient pairing down their hope of buying a new Fendi purse and saying it was a relief they made the right decision.

          The federal government has doubled its expenditures over the last decade and now the president and Capitol Hill want us to believe they'll reduce spending to 2004 levels?  They actually want us to believe that they have flipped the political universe on its head and turned the tide of the past decade.  According to Ron Paul (R-Texas) today:

"Why has our budget doubled in 10 years?  This country doesn't have double the population, or double the land area, or double anything that would require the federal government to grow by such an obscene amount.  In Washington terms, a simple freeze in spending would be a much bigger "cut" than any plan being discussed."

          Conservatives decry the compromise over cutting spending on our worldwide police force and not tackling entitlements, while liberals/progressives lament the lost opportunities to saddle the rich with an even higher proportion of tax burden and to incorporate newer environmental regulations.  


          I'll put it this way, growth in government perpetuated by both parties has led us to this atmosphere of hyper-politicization.  When government usurps the lifeblood of a nation in ever-increasing amounts the people have no choice, but to argue over how it is spent.  This is not a fight over a specific program, but a clash of reality and the ideologies that grew government for the last 100 years.  The palatable national stress is the due to our collective cognitive dissonance!  If taxing, rampant spending, printing money out of thin air, and economic oppression continues our republic will fall.  

          Albeit China has decades of economic and democratic growth to undergo before it can claim real international leadership it will nonetheless overtake the Unites States in GDP around 2015.  The effect it will have on our politics, the radicalization of both parties, cannot be understated.  The far right will attempt to posture and cajole the American public into thinking we are in a new Cold War and the far left’s argument will in some sick way be vindicated, that in fact large government can bread success and growth.  Both as history has shown will exacerbate our insecurity of being second place.




...notice how I didn't mention anything about what to cut?  Just cut, cap and balance like Americans and people all over the world do everyday.