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How Hungary’s economy went from “unorthodox” to “wow”

| June 2, 2017

Today’s mainstream economics is indoctrinated, according to a prominent Hungarian economist, and that is why 90 percent of economists did not foresee what was coming in 2008.

It is that kind of group think, says Dr. László György, chief economist at the Századvég Economic Research Institute, a think tank close to the Hungarian government, that condemned as “unorthodox” the economic recovery measures that the Orbán Government pursued in 2010. György’s comments were published in a recent interview (available in Hungarian here).

An important part of that story should not be forgotten. The accepted wisdom of mainstream economics led to the financial crisis of 2008. As the crisis ran its course, Hungary, nearly bankrupt in 2008, was treated to a “by the book” program of the EU and IMF. The Orbán Government’s determined resistance to those measures, a resistance heavily criticized at the time, helped the country avoid another failure.

Today’s headlines about Greece are still about “agony” and an “urgent need” for another bailout, despite the fact that the world economy is on a growth path today.

Hungary, the country that narrowly avoided a Greece-like crisis following the 2008 collapse, is a completely different story. At the end of the first Orbán Government (1998-2002), the country’s debt-to-GDP ratio was at 55 percent. In the following eight years, under Socialist-led governments, it climbed to 81 percent. At the end of 2016, six years after Prime Minister Orbán was elected to a second term in 2010, and a third term in 2014, the debt-to-GDP ratio had dropped to 74.1 percent. Strict budgetary control made it possible for Hungary to exit the EU’s excessive deficit procedure in 2013, for the first time since the country joined the European Union in 2004.

Real GDP “growth” was at -6.6 percent in 2009 after the crisis, according to Eurostat. For the next budget, the government is realistically planning for 4.3 percent growth.

Employment trends in the country are breaking records. When Prime Minister Orbán, in the campaign before the 2010 election, promised the creation of one million jobs over the course of ten years in a country of less than ten million, he was ridiculed by the mainstream economists and was labeled a populist. Almost seven years into this project, the number of new workplaces is reaching 700 thousand, and it’s not so laughable anymore. Even the harshest critics began to see it was more than a campaign promise.

The list goes on. Net wage share has increased by 6.15 percent over the last six years, a fact that even triggered a ‘wow’ from renowned economist Dean Baker, said Dr. György in the interview.

It’s clear that there are a number of reasons for Hungary’s economic recovery, but the spotlight should be on the way policy-makers think about post-2010 economic policy. Recall the times when Hungary’s ‘unorthodox’ stance was equivalent to the ‘devil’s path’ in mainstream European media.

The critics have fallen silent since the Hungarian economy began to yield such strong numbers. Indoctrinated economics is the past. Finding real solutions to real problems is the present. And this is exactly what Prime Minister Orbán’s government is doing. This is the story of how Hungary went from an “unorthodox” economy to a “wow” economy.