Lessons From Latvia

Lord Keynes writes:

With the Republicans basically preparing to destroy the US economy over the debt ceiling, we might wonder what severe austerity means in human terms. For this, we can go back to 2009 and review the wonderful “achievements” of austerity in Latvia, as displayed in the video below, where an unusually extreme form of it was imposed on the population.

At one point Latvia’s unemployment rate hit 20.1% (December 2009), and by some reports was 22.9% in January 2010, the worst in the EU (it is unclear whether this is data from the Latvian State Employment Agency which provides the official registered unemployment rate, or a better estimate). In the first quarter of 2011, the unemployment rate was 16.9%, and the reported registered unemployment rate as of July 2011 was a lower but still disastrous double-digit figure of 12.4% (and that might, at any rate, be an underestimate).

GDP growth in Q1 2001 was a miserable 0.2%. All in all, a wretched result after the level of suffering that was inflicted on the country.

The export-led growth that the country has experienced in 2010–2011 could have been achieved by currency depreciation, which would have allowed a space for stimulating the domestic economy as well.