Maybe we Americans can learn from Latvia. Yes, Latvia.
To the geographically challenged, Latvia is a small country (population: 2.2 million) bordering the Baltic Sea with two other tiny neighbors, Estonia and Lithuania. More relevant for our purposes, Latvia has just come through a horrendous economic crisis far worse than anything Americans have yet endured. Unemployment reached 20.5 percent in early 2010; Latvia's gross domestic product -- its output -- dropped 25 percent from its peak. (By contrast, the U.S. decline was 4.1 percent.)
What distinguished Latvia's experience from our own is that, once people recognized the gravity of the crisis, they came together to support the necessary, if harsh, policies to stop the free-fall and restore stability. The economy is now growing again, and although joblessness remains horrific (16.6 percent), it is gradually declining. There is renewed hope. The government that presided over the punishing measures that brought about recovery was re-elected last October with an expanded majority.
The contrast with the United States is stark. Here, there is no agreement on what to do and no large sense of national purpose. Every day, our political leaders haggle and maneuver for narrow partisan advantage, their stature -- whether Republican or Democrat -- constantly shrinking. The rancor over raising the federal debt ceiling is but the latest example.
What explains the contrast?
To be sure, America's leaders have legitimate policy disagreements. How much should budget deficits be cut? When? By tax increases or spending reductions? But Latvia had disagreements, too. The largest involved whether to devalue the currency, the lat. The government rejected devaluation, and though that temporarily boosted unemployment, it now seems the right decision.
The larger reason for the contrast, I think, lies elsewhere. Until 1991, Latvia was an unwilling part of the Soviet Union; its citizens lacked freedom. As the severity of the crisis became apparent, the stakes transcended economics. Latvians worried that, somehow, they might lose their freedom and national identity along with their jobs.
It is precisely this sense of seriousness and threat that is missing in the United States. Our politicians, though routinely issuing somber statements, don't act genuinely worried or scared, as they did (for example) in late 2008 and early 2009 when the economy was in a tailspin. They are in a standard "blame game" mode, signaling that only a turn for the worse -- another economic calamity -- would cause them to behave differently.
The result is that we seem incapable of making changes far smaller than those accomplished by Latvians. Through tax increases, layoffs, salary cuts and other spending reductions, Latvia trimmed its budget by 16 percent of GDP. About 29 percent of government workers were fired; wages for the rest were cut 26 percent.
By contrast, what Americans need to do is much smaller, though high by historical standards. Assuming the economy recovers, the underlying gap between spending and taxes is probably between 3 and 6 percent of GDP, depending on how the calculation is done. We can't agree on how to bridge this gap, even if changes were phased in over, say, a decade.
There has been (it must be obvious) a failure of political leadership. Once the immediate crisis passed, our leaders reverted to partisan form. Decisive action in Latvia helped restore confidence. Government could govern. In the United States, government has drifted. Its inconsistencies and indecision have corroded confidence and compromised recovery.