Ekonomists un Latvijas kritizētājs Pols Krugmans. Foto: AFP/LETA
Those who regularly read Paul Krugman's blog at the New York Times will be familiar with his strong support for Iceland's way to tackle its enormous financial crisis (a sharp devaluation, capital controls, letting banks go under) and his, well, lack of support for the path that Latvia chose and his post of 28 May is no exception but using what I think is the wrong argument; and given the spectacular data for Latvia in this context this is worth looking at.
He produces a graph like the one below. Latvia's economy peaked in the 3rd quarter of 2007, Iceland's in the 4th quarter of 2007. Letting, in both cases, GDP = 100 for the peak the graph produces the development in GDP after the crisis hit. We see the familiar story of Latvia taking a huge hit, in particular in 2009, and then recovering but GDP today (4th quarter 2014) is still some 6% below its peak in Q3 2007 while Iceland has returned to its GDP level of Q4 2007.
