Consolidation for dummies

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Atis Bille 19.02.2011. 17.24

Dear Prof. Hansen,

your suggestion to take legal action in case of malfeasance of the commercial banks is a good idea, and a good place to start would be investigations into whether banks adhered to Latvian consumer law on disclosing risks to lenders. And then the only just response to their “stupid mistakes”, as you put it, would be to let THEM bleed, and not the whole society. Crooks are the banks AND the government rescuing them by implementing murderous (in the classical sense) austerity, which constitute genocide by specific UN definition.

In order to develop human capital a state has to INVEST into the education. The Bank of Latvia has to provide interest free money for that, which they have NEVER done for the last 20 years.

The important thing concerning labor taxes is WHO pays them. I must admit, I find the Swedish progression somewhat romantic, but the intended effect is still that half of the society does not pay any labor taxes at all (legally!). That is the way how to create sustainable employment. Latvia, if it sustains its 57% labor tax, which is payed by ALL (flat tax), will never be competitive internationally. And prices — of course they should be viewed in relation to the wages. Important is to have them reflect actual necessary cost of production (e.g. VAT 15%, the EU minimum, reduced rate 0%). This, of course, requires basing the tax system on land rent and monopoly rent of public utilities.

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Dzintars > Atis Bille 21.02.2011. 11.40

Ehh…

Bank of Latvia cannot provide interest free loans (or loans with interest for that matter) towards education. It is not part of their mandate as stipulated by the Law on the Bank of Latvia.

http://www.bank.lv/en/about-the-bank-of-latvia/law-on-the-bank-of-latvia

I look forward to see any progress re legal action vis-a-vis the banks. As mentioned I don’t buy your narrative but I am certainly in favour of turning every stone in search for relevant information.

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Atis Bille 18.02.2011. 14.20

Dear Prof. Hansen,

I fully agree with you about the necessity to differentiate between bad foreigners, i.e. those who knowingly and willingly destroy young and in capitalist subtleties unencumbered national economies by generating unproductive investments in the form of financial bubble, resulting in debts that cannot be payed, and the other ones – like yourself – who aggressively and in pleasant Orwellian manner deliver the message advocating the crooks. Fortunately, then there are those who honestly want to help – and are able to see the national perspective of Latvia.

But I certainly disagree on your interpretation of the rtfl.lv piece. Sweden has substantial track record in spending (not saving!) itself out of the financial crisis by investing in it’s real economy and public infrastructure, like any sovereign nation should do. Sweden’s economic doctrine is far away from Latvia’s neoliberal free market fundamentalism. It’s a democracy where two basic doctrines of how economic development should be conducted have found a most successful compromise: mixed economy. Latvia still can and has to learn much from the “old Europe” re how effective capitalism works. This is the only way for the EU country to join the “inner circle” of social democratic economies distinguished for their high wages, low prices, low labor/capital taxes, and high living standards.

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Dzintars > Atis Bille 19.02.2011. 15.02

Dear Armands Strazds

If you think the Swedish (or other) banks are crooks you should bring them to court to have it sorted out there. That’s entirely up to you.

But I think it is unfair that you allege that I deliver a message that advocate those crooks, using your formulation. I have not in any way or form been whitewashing the banks – I am quite sure they made mistakes, some of them very stupid; I don’t think they were crooks (and perhaps you should produce evidence of that they were?!?) and I also don’t believe the rtfl/Urbanovics narrative that they were the only ones to blame for the current crisis. That is just a convenient voter-appealing populist stance.

But the irony of it all is that when it comes to outcomes I don’t think we are that far from each other at all: I am keen to see this country achieve standards of living similar to the Nordic countries (or more; I don’t mind), I think that a welfare society is a predominantly good thing (OK, less bloated than in my home country, but…), I believe in Keynesian demand management (but also its limitations: long run budget constraints exist) and indeed Latvia has much to learn from e.g. Sweden.

It could for instance start by realizing that in terms of creating human capital it is way, way behind but that argument seems to fall mostly on deaf ears here.

PS Sweden enjoys high wages and high living standards (basically because it is roughly the same thing) but not low that labor taxes and not low prices (the latter one I don’t understand the meaning of???)

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Atis Bille 18.02.2011. 11.34

Dear Prof. Hansen,

unfortunately, you won’t find the answers on why the consolidation à la Latvia is wrong, and a genocide against Latvian nation, in your Econ 101 workbooks. I suggest looking at the daily politics: Latvia and Sweden at Historic Crossroads | http://www.rtfl.lv/news/

Best regards,
Armands Strazds

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Dzintars > Atis Bille 18.02.2011. 13.10

Dear Mr Strazds

You are certainly right that the link you provide cannot be found in econ textbooks and I am extremely thankful for that since econ textbooks are supposed to provide analysis and arguments, not slander and allegations.

The short version of Mr Urbanovics’ piece on rtfl.lv is this: “The Swedes are to blame, Latvians did nothing wrong”. Preposterous – but obviously striking the usual nerve: Foreigners are to blame for all our woes because we are innocent…. Very much, as a matter of fact, like his “analysis” on your web page dating from 31 August 2010.

I don’t personally think that the Swedish (or other foreign or Latvian) banks are without responsibility of what has happened but to allege that they bear the sole responsibility is ludicrous and sacks of populism.

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streiks 18.02.2011. 09.36

“So could we please ensure, for the good of Latvia (pun indeed intended!), that such voices remain marginalized?” — I am thrilled to hear that we have finally established Ministry of Truth here in Latvia, with Mr Hansen as chairman.

Having said that, I would strongly disagree with the above assessment. Latvia, among other things, is far from being competitive and the EIU still, rather correctly, warns that the Lat could be devalued.

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vitinija 17.02.2011. 16.05

Point “5)… b) Latvia has been able to sell 10-year lats government debt for less than 7% interest rate, twice as high as for Germany, yes, but way lower than e.g. for Greece…” is something like small lies.

Latvia indeed sold some 10 year bonds 2 weeks ago but total amount was only 10 million lats. Total demand from banks was below 30 million lats. The only way how to increase this demand for Latvia’s debt will be to raise interest rate. So – 7% is not real figure.

And this economist avoided some other facts. E.g. Latvia was, according to the data by Davos forum, the 54th most comepetitive economy at the start of Dombrovskis government and during the last 2 or so years Latvia has steadily lost its competitiveness and now it ranks only as 70th most competitive economy in the world. Innovation indicators of this country are miserable – Latvia is only the 77th most innovative country in the world.

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martins_kibilds > vitinija 17.02.2011. 20.05

You mean that Dombrivskis is the cause why Latvia has lost its competitiveness? Sorry, you can do better than that.

By the way, can somebody translate this article and send it to Mr. Lembergs (as he cannot read English).

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simpsons > vitinija 17.02.2011. 20.36

The bonds were denominated in Lats and with maturity of 10 years! Surely the bond buyers asked few percentage points also for the possibility that Ls might be devalued by the next government or one after that. After all, there are quite a few active politicians around advocating the devaluation.

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a_oleinika > vitinija 18.02.2011. 02.08

Atmiņā nāk Kalvīša teksts: “Man bija plaukstoša ekonomika; tad mainījās valdība, un pēc pāris mēnešiem ekonomika tika nolaista uz grunti.” (Brīvs atstāsts.) :D
Vai Jums tomēr nešķiet, ka Kalvītis ir muļķis! (Vai vismaz demagogs neveiksminieks.) Un imitēt viņa “argumentus” ir ļoti vāja prakse.

Neesmu ekonomists, bet vai 10 miljoni jeb viena trešdaļa (10 miljoni no aptuveni 30) nav tīri ok mazai valstiņai neapskaužamā stāvoklī? Jautājums nav retorisks, patiešām to nezinu; bet kā vērotājam no malas tik kategoriski apgalvojumi uz šo ciparu bāzes neizklausās pārliecinoši.

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AUTOEXEC.BAT > vitinija 18.02.2011. 14.22

Minkens …. Latvia was, according to the data by Davos forum, the 54th most comepetitive economy at the start of Dombrovskis government and during the last 2 or so years Latvia has steadily lost its competitiveness and now it ranks only as 70th most competitive economy in the world. Innovation indicators of this country are miserable – Latvia is only the 77th most innovative country in the world.
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Key words – “according to the data by Davos forum” … who’s the f…ng Davos Forum, Ministry of Truth ? And finally – when Dombrovski’s government took the lead ? Exactly at the time when we were sitting in the biggest shit and all the previous “stability gurus” simply ran away from any further responsibility, correct ? So, that’s just logical that “lose of competitiveness” happened during years 2008 end – 2010 first half, what else you could expect ? Is it something new that different “rating agencies” are usually far behind the time in terms of data they are using ? Sometimes even completely dumb, they were taking soviet time data only some 10 years ago, why would they be really better now ?

P.S. if you want you can always find some shit about anyone, just search Google :))

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Anta Laurāne 17.02.2011. 12.48

Wish there were more voices of reason like Mr Hansen. Too often Latvian politicians and policymakers get carried away by wishful-thinking and mediorce economic arguments just to make situation(s) seem easier. Especially now when LV is so close to becoming a success story (at least internationally) in dealing with harsh economic crisis and an economics text-book example of viability of internal devaluation way. Finding additional 50 m LVL for 2011 budget and further consolidating 2012 budget should be easy in view of all that has been achieved so far, but it does require more of strong leadership and a better understanding of “debt dynamics” by wider circles.

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ligakrastina 17.02.2011. 09.54

Thanks, not everybody is dummy. It is not 100% right to compare us to Germany, taking their strong manufacturing and exports. How about Argentina for dummies?

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kmstraumane > ligakrastina 19.02.2011. 17.37

kinda past Argentina-like dangers. Krugman can choke on his article :)

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