QuotePoland's Economy Is No Joke
by Peter Schiff, Euro Pacific Capital | January 15, 2010
Watching the world's leaders stumble their way through the economic crisis, it often feels as if political success and economic understanding are mutually exclusive. Even the Chinese, who over the past generation have engineered a dramatic turnaround from their Maoist economic nightmare, show a remarkable willingness to pursue a monetary policy (a currency peg to the U.S. dollar) that yields no benefit to their citizens. Amid this morass of economic quackery, it is refreshing to see a clear ray of sanity emanating from one country: Poland.
Last summer, I was invited to speak at the Economic Forum in Krynica, a resort town in Southern Poland. I was amazed at the level of economic activity and civic spirit that was on display throughout the country. I also was fairly surprised that my economic views, which are routinely ridiculed at home, have much wider support among the Polish economic officials who presented at the conference.
This common sense understanding was showcased in an opinion piece published this week in the Financial Times by Polish Finance Minister Jacek Rostowski. Contrary to the public flogging of the free market currently underway in Washington, under the auspices of the Financial Crisis Inquiry Commission, Rostowski explains how governments caused the Crash of 2008 by removing the necessary element of fear from the markets. He states that this was symptomatic of the "deep Keynesian project," in which governments over the last half century have looked to smooth the economic cycle through periodic floods of monetary expansion and government spending. I couldn't have said it better myself.
A product of the Solidarity movement that opposed the Polish Communist Party in the 1980's, Mr. Rostowski, like many of his colleagues in the current Polish Administration, is intimately familiar with the hazards of central economic planning. He has seen this movie before, and he knows how it ends.
Instead, Poland has enacted economic policies that are informed by a belief in Austrian School (read: free market) economics. After the downfall of the Communists in 1989, Rostowski was part of a group that called for "shock therapy": the rapid privatization of state-owned enterprises and the dismantling of price and currency controls.
In 2007, the center-libertarian Civic Platform party was put in power, with Rostowski as Finance Minister. Along with Prime Minister Donald Tusk, he has continued the process of transforming Poland into a laissez-faire paradise. Not accidentally, Poland is the only EU member state that showed positive GDP growth in 2009, at 1.9%. Also its public debt, at roughly 55% of GDP, compares favorably with its neighbors - and with the United States.
A top priority of their administration was reduction of the income tax. The previous system, with three-tiers of 19%, 30%, and 40%, has been reduced to two tiers: 18% and 32%. In addition, the system's minimal use of deductions and credits makes it radically simpler than the U.S. income tax.
In the meantime, Civic Platform is continuing its move toward privatization. Recently, Poland held an IPO for its state-owned power utility, Polska Grupa Energetyczna. According to a news report, "The sale brought in $2.1bn, pricing at the top end of the bankers' guidance range, and becoming Europe's largest IPO of the year." The government has used these revenues to fund its budget and keep taxes in check. More importantly, it has returned capital to the marketplace to be used in the most efficient manner.
Civic Platform also understands that regulation hurts small business disproportionately by raising barriers of entry. Fortunately for Poland, a multi-year program of deregulation has been a boon for small businesses, and has given the country the most entrepreneurs of any state in Europe. This may explain the country's resilience in the face of the global economic crisis.
Poland's current growth is also fueled by an influx of foreign investment. To encourage such inflows, Rostowski has laid out a specific plan to adopt the euro as the country's currency by 2015. While I have never been crazy about the euro concept, as opposed to a gold standard, the effort indicates to foreign investors a desire to control inflation. Assuming the block is able to stick together, the European Central Bank is considered a reliable enforcer of strict monetary policy. Poland's zloty rapidly devalued after it was allowed to float, and though the rate of inflation is declining, it remains high. Eurozone membership will impose external discipline on the Polish government, even if Civic Platform loses power.
Anecdotally, I can attest that these people are hungry for free markets. My visit to Krynica was a breath of fresh air, and a startling reminder of how far America has strayed. If the Polish people can hold onto the traumatic lessons of communism, and continue undeterred down their current path, then this battleground of the 20th century may be the paragon of the 21st.
Copyright © 2010 Peter Schiff
What do you guys think of this analysis? The guy does seem slightly off the charts (gold standard, anyone?) so not sure if he is some sort of a lunatic or not.
He's a broker who if you had invested money with you'd be out on your ass now. Apparently he got alot of his beliefs from his dad who is a tax protester. Which means he's insane has has been convicted of tax evasion.
QuoteEurozone membership will impose external discipline on the Polish government, even if Civic Platform loses power.
Like Greece! :w00t:
Yeah, the Polish people are hungry for free markets. If you take away their free healthcare I wonder how hungry they would be to pay outrageous insurance costs, free market-style?
QuoteAnecdotally, I can attest that these people are hungry for free markets. My visit to Krynica was a breath of fresh air, and a startling reminder of how far America has strayed.
America = fail? :(
I hope Poland gets invaded.
Quote from: Ed Anger on January 17, 2010, 07:36:34 PM
I hope Poland gets invaded.
I'm pretty sure whoever was up next is late.
Quote from: Valmy on January 17, 2010, 07:31:35 PM
QuoteAnecdotally, I can attest that these people are hungry for free markets. My visit to Krynica was a breath of fresh air, and a startling reminder of how far America has strayed.
America = fail? :(
Maybe the Tea-Party types and Libertarians can move to Poland. Though sending all our undesirables to Poland does have a bad feel to it.
Quote from: Valmy on January 17, 2010, 07:31:35 PM
QuoteAnecdotally, I can attest that these people are hungry for free markets. My visit to Krynica was a breath of fresh air, and a startling reminder of how far America has strayed.
America = fail? :(
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Schiff was an economic adviser to Ron Paul's 2008 presidential campaign. That alone should be enough to suspect he's mad as a hatter... but in addition we have the astounding affirmation
Quote
I also was fairly surprised that *MY* economic views, which are routinely ridiculed at home, have much wider support among the Polish economic officials who presented at the conference.
Astounding not only due to that "my", but because one would think Polish officials, if they in fact supported his economic ideas, they wouldn't be working towards joining the Euro but returning to "sound money" based in gold... and, well, at least here I have to agree partially with him. Gold coins aren't sound, but can be quite noisy (I will never understand how human beings supposedly rational can still say that our money should be based in the number of metal ingots, yellow or not, that we can hoard... ) and there is another nice piece of contradiction between Poland being in the Union and wanting to integrate even more and Schiff's views, because the least that can be said is, he doesn't love the European Union (inefficient state regulations, interference with economic freedom and all that 'Austrian' crap)
In other words, the man has chosen Poland because these days the country presents quite good economic statistics, and then proceeds to straitjacket the facts to say those good results are due to Poland following *his* ideas... when that's completely false.
Wasn't there someone on Languish who supported Ron Paul's views on economy? :unsure:
For the record, he is also wrong on the regulation thing - in Poland, financial markets are quite heavily regulated - it's certainly not the Baltics, and (while I do not have direct knowledge of the US system), I'd wager a guess that our level of regulation is higher than that in the US.
Quote from: Martinus on January 18, 2010, 02:59:27 AM
Wasn't there someone on Languish who supported Ron Paul's views on economy? :unsure:
There are a bunch of nut jobs here so more than likely.
Quote from: Martinus on January 18, 2010, 02:59:27 AM
Wasn't there someone on Languish who supported Ron Paul's views on economy? :unsure:
Almost certainly. Though I'm not sure anyone here goes so far as to be a Ron Paul supporter (though I wouldn't be surprised), there are many who are sympathetic to some of his idea. That said it's also likely that not all of his ideas are bad. It would seem strange for a person to only have bad ideas.
I do recall Hans praises the flat tax idea and in particularly the czech republic. I don't know if the Czech Republic actually has a flat tax or if the economic growth he claimed that it spurred it was real. If I recall I countered that Russia had similar growth rates and they are becoming rapidly less economically free. This was back when Hans would periodically post topics like "This economy is smoking!".
Ron Paulites should be dragged through the streets attached to the back of my minivan.