Tuesday 21 April 2009

It has stopped now.

Over the weekend I've had a discussion with my dad about the controversial Krugman-comment that sparked a series of newspaper articles on the subject with a number of Austrian economists and politicians critisizing him. Now, the reason why I felt a bit squeamish about the whole affair at first was because he admitted that he had not looked at the numbers specifically, and then there was the thing where he talked about Eastern Europe as a block rather than a number of individual countries with their specific problems.
What was not mentioned, or at least not prominently, was the fact that this actually started a couple of months ago with an IMF-report warning about the risks resulting from the engagement in countries that seem to be struggling. Whatever Dominique Strauss-Kahn meant when he spoke about a "silver lining on the horizon", he also said that he believed Austria was not in greater danger than other countries engaged in the CEE-region (yet failing to mention that Austria's exposure is considerably higher than that of any other country).
"Bankrupcy" was certainly a very nice and attention-grabbing term to throw around in this particular situation, but what surprised me about the reaction was how far it deviated from a simple "it is not that bad". Actually, it sounded more like an "Everything is just fine. And even if it wasn't, we would not say so because that would be bad for the country." Here is part of finance minister Pröll's reaction:
"Was hinter solchem "Bashing" stehe, könne er nur indirekt ableiten: Der Finanzminister erinnerte daran, mit welchem Argwohn und Neid in den vergangenen zehn Jahren die Osteuropaexpansion der Österreicher beobachtet worden sei, gerade von Ländern, die selber diese Entwicklung verschlafen hätten. Das könnte da mitschwingen."

Die Presse: Pröll: "Wirtschaftskrieg am Rücken Österreichs", 15. April 2009
Assuming that Krugman's comment was sparked by his jealousy at Austria's economic success over the past ten years seems quite ridiculous to me. In the discussion, my dad likened this to the situation of a patient in a hospital: a doctor who only gives the most realistically negative prognosis isn't really helping the relatives. In economics, talking about a down-turn is like a self-fulfilling prophecy as investors run like little children from the evil monster. But over the past months, while all those horrible numbers rolled in, I felt as if the public in Austria was still cushioned from reality, lulled in calming comments and the cheerful optimism only a bank executive can have days before accepting billions of bail-out money, while doing so basically saying "we didn't really need it, but since it was up for grabs, we took it anyway". I am not saying that we should all lie awake and fearfully wait for the next catastrophe to happen (I can do that on my own, without being part of a crowd), but it might just be a good idea to demand to be told about what might happen if things get worse. Krugman called that fuzzy feeling of nothing bad is ever going to happen to us "undeserved contentment". Damaging this would not necessarily be a sacrifice to the goddess of pessimism, but a bit of down-to-earth realism.

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