Daily Archives: May 12, 2010

Let’s Deport Poor People! A Modest Proposal for Latvia’s Unemployment Problem (with apologies to Jonathan Swift)

By Marshall Auerback

In 1729, Jonathan Swift wrote an essay — “A Modest Proposal” — suggesting that the impoverished Irish ease their economic troubles by selling children as food for rich gentlemen and ladies. In that spirit, we would like to assist all governments who claim to be broke and therefore cannot deal with the persistent problem of unemployment. Latvia clearly shows the way.
On June 2009, the newly appointed Latvian Prime Minister, Valdis Dombrovskis made a national public radio address and said that his country had to accept major cuts in the budget because they would allow the country to receive the next installment of its IMF/European Union bail-out loans. He said the country was faced with looming “national bankruptcy” and then proceeded to ensure the validity of that claim, by implementing the economic equivalent of carpet bombing, in effect turning the Baltic republic into an industrial wasteland via the most virulent form of neo-liberal economics.

Having broken free from the chains of the former Soviet Empire, Latvia promptly surrendered its currency sovereignty by pegging its currency against the Euro. What this means it that it has to use monetary policy to manage the peg and the domestic economy has to shrink if there is are downward pressures on the local currency emerging in the foreign exchange rates. So instead of allowing the currency to make the adjustments necessary, the Latvian government handled the “implied depreciation” by devastating the domestic economy (public sector pay has been cut by 40 per cent over the last year, whilst the economy has contracted by almost a third).