Chief of Police of Malibu

In his column Europe’s New Boomtown in today’s New York Times, Tierney, a reliably conservative columnist, adulates Estonia’s recent economic success, chalking it up to the laissez-faire economic policies embraced by Prime Minister Mart Laar and inspired by Milton Friedman. 

Now Estonia is a great place–I’ve been there.  It’s beautiful and by all accounts it is an economic success.  But a couple of facts about the country are omitted that might bear upon the success Estonia has had: first in relation to the comment that it used be an "isolated, impoverished part of the Soviet Union".  Estonia, and the Baltics in general (but Estonia especially) was always one of the least impoverished parts of the Soviet Union, with far higher social and economic development than most of what became Russia, Ukraine, or the other post-Soviet states.  Also, although it was isolated from Moscow, Estonians could watch Finnish & Swedish TV even during Soviet times, because they were so much closer to Western Europe than the rest of the country (and they could understand it, too, since Estonian is about the only language related to Finnish in the world).  I don’t think that qualifies as impoverished or isolated–Estonia had an awful lot going for it when it got free of the Soviet Union.

The second important fact omitted is Estonia’s size: Estonia has about as many people as the state of Maine, and is about half the size.  Oftentimes, it is not very difficult to solve social problems when you have so few people and such a small area and so few interests to address.  In fact, I’ll bet that Maine, Vermont, North Dakota, and a lot of other small states could probably solve a lot of their social and economic problems if they weren’t weighed down by the kind of social problems that more complex, populous, and poverty-stricken parts of the country saddle our national government with (including the horrific policies that a certain very large state have thrust upon our country by sending its politicians to populate the leadership positions of our government).

Moreover, the ease of doing in Estonia and its trade openness of Estonia are probably more due to its size than to Milton Friedman.  Geoffrey Garrett and Peter Katzenstein have shown that small, industrial states in the post-war period have, because of their shrimpiness in trade negotiations, been forced to accept much more economic openness than larger states (like Britain, France, Germany, and America), who could get away with maintaining tariffs, subsidies, and regulations that made it harder for international companies to do business there.  Necessity, in many of these states, has been the mother of invention, and they have developed expertise in tiny niche industries, some of which have grown into not-so-tiny niches (cheese in Denmark, private banking in Switzerland, cell phones in Finland & Sweden, and perhaps now Skype in Estonia) focused on services, oftentimes, that they could even begin to export, having developed the ability at home to compete with big international competitors.  At the same time, to help those who lost out by globalization, these countries increased social spending not just for the poor, but for those who might become impoverished because of economic changes, with things like decent pensions for all, decent unemployment benefits for all, education spending that gives everybody great skills, and a national health insurance (which Estonia has–and I’d love to see John Tierney come out in favor of that!).

Finally, Estonia’s government, for all of the tax-lowering excitement that the idea of a flat tax Tierney clearly means to generate among conservatives, actually collects far more in taxes than the US.  Our government collects about 17% of our GDP in revenue, while Estonia collects about 23% of its GDP in revenue.  And in fact, Estonia, according the CIA world factbook, collects more revenues than it spends (a budget surplus–something debt-loving conservatives seem to know nothing about).  This is not surprising considering how much higher taxes must be.

So while John Tierney would like you to think that the US would be as great a place as Estonia if we all just did what Milton Friedman told us, if you look at the facts, you find that what we should do is raise taxes from 17% of economy to 23%, stop running budget deficits, provide single-payer health insurance system so everybody can afford decent health care, and raise social spending overall.  All those ideas I think are great (except perhaps that raising taxes by so much too quicly might cause serious dislocation).  But you’ll never hear them from John Tierney, because like so many conservatives, he loves Milton Friedman and other ideological theorists, but has no truck with getting outside the bubble of his own (and Friedman’s) ideas to look at facts or economic studies based thereon.