Paul Krugman: The Latvia Illusion

The Financial Times columnist Martin Wolf wrote a very good piece recently on attempts to put the Baltic states, Latvia especially, on a pedestal and claim that they prove that austerity works. Mainly he makes points I have made previously: that output is still well below the previous peak, and that unemployment is still very high despite drastic out-migration.

Mr. Wolf adds that in some ways the Baltic states' adjustment was also made easier by the fact that these are very open economies playing catch-up to the West, so that fast export growth was relatively easy to achieve.