The Big Secret of Poland's Economic Success—and What It Means for Us

Don't forget Poland. At least not its post-crash economy.

The past four years haven't been good ones for the global economy, but they've been a little less bad in Poland. Its GDP per capita, adjusted for purchasing power parity, has increased at an average annual rate of 5.1 percent since 2007 versus 1.4 percent a year for the U.S. over the same period. Now, the U.S. is much richer than Poland, so we would expect the latter to grow faster -- but not this much faster. Even accounting for catchup growth, Poland has outperformed the U.S. by around 1.7 percent a year. In other words, by more than we've been growing, period.

What's the secret of Poland's mini-economic miracle? Matthew Kaminski of the Wall Street Journal interviewed former Polish central banker Leszek Balcerowicz to find out just how exactly the country managed to avoid a recession back in 2009. The answer is ... well, it's completely wrong. Kaminski says Poland's "hard-money policies" from 2001 to 2007 deserve the credit, but doesn't say a word about what happened afterward. That's curious, because the global financial crisis was an equal opportunity destroyer of economies. Avoiding a bubble hardly guaranteed avoiding a recession. So, again, what did Poland do?

You probably know where this is going. It wasn't hard money that saved Poland. It was really, really, really easy money that saved Poland. Just look at the chart below of the exchange rate between the Polish zloty and the euro the past five years. That's a 33 percent drop starting in late 2008.


A nice, big currency depreciation is as easy as easy monetary policy gets. It's what Princeton professor and deputy governor of Sweden's Riksbank Lars Svensson calls a "foolproof way" out of a liquidity trap -- when short-term rates are zero and central banks can't cut them any further. It's what Israel did in 2009 and Switzerland is doing today with its currency peg.

It's not exactly the morality play Kaminski had in mind. In his telling, Poland chose the hard right over the easy wrong -- resisting the temptation to print money or bailout businesses -- in contrast to, say, Ben Bernanke. The ex-Polish central banker Balcerowicz, dubbed the "anti-Bernanke," even criticizes his American counterpart for doing his job, rather than precipitating a debt crisis. It's that old liquidationism that used to flourish on the right back during the Great Depression before Milton Friedman eventually vanquished it.

Well, it's back now, and as incoherent as ever. If you were looking for an example of the virtues of hard money, you'd be hard-pressed to pick a worse example than Poland. It shows that monetary stimulus works, and that more monetary stimulus works better.
They don't realize it, but liquidationists make the best case for bold action and Rooseveltian resolve.