10 3 mins 6 yrs

So tell me, is this article accurate? If it is, or if it isn’t lessons can be learned.  The question is will they be?

What Paul Krugman Got Wrong About Ireland’s Economy

New York Times columnist Paul Krugman once commented derisively on Ireland’s ongoing economic recovery: “It seems obvious to me that Ireland keeps being proclaimed a success because it’s supposed to be a success: they did the austerity thing forcefully, with a minimum of complaints, so there must be a pot of gold at the end of that rainbow, right?”

The answer, according to recent data, is “Yes, there was a pot of gold—or at least broad prosperity—at the end of that rainbow.” Undoubtedly, the Celtic Tiger is making a roaring return.

Credit for the recovery goes to the very policy choices derided by Krugman—downsizing of a bloated public sector and efforts to reduce the fiscal deficit and public debt. As a result, Ireland has regained its fiscal health and become the first country to exit a European Union bailout. According to the latest economic data, Ireland has become Europe’s fastest-growing economy, attracting jobseekers from all around Europe.

In fact, as documented in The Heritage Foundation’s Index of Economic Freedom, over the past two years the Celtic Tiger has reversed six years of decline in its economic freedom and reclaimed a place as one of the world’s 10 freest economies. With the economy buttressed by institutional strengths such as strong protection of property rights, efficient business regulations and competitive tax rates, the government’s fiscal restraint has been just what was needed to unleash faster growth.

Even the International Monetary Fund has joined in the praise, saying in a recent report that the Irish recovery remains strong and the economy is “starting to fire on all cylinders.” In an International Monetary Fund economic conference entitled “Ireland—Lessons from Its Recovery from the Bank-Sovereign Loop,” a member of the executive board of the European Central Bank remarked that “the Irish economy has been an outstanding success over the last years and months.” The official warned against complacency but lauded the flexibility that has become the key component in Ireland’s success and helped it cope with shocks.

Perhaps it is time for Krugman to reconsider his claim that “the repeated invocation of Ireland as a role model has gotten to be a sick joke.” It looks like the joke is on him.

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10 thoughts on “Ahhh Some Good News ?

  1. Ireland has become Europe’s fastest-growing economy, attracting jobseekers from all around Europe

    We have been through this movie before. The reason Ireland is booming again is the same reason it boomed before. We have the wrong Interest rate. The difference this time is we have the wrong exchange rate too. As an export led economy selling mainly to the UK and the US the weakness of the euro is good for us but if we had control over our interest rates we would be raising them. We can’t and the boom will become a bubble and the bubble will burst.

    Meanwhile all the austerity has had very little impact one way or the other. The debt is still huge and growing.

    http://www.tradingeconomics.com/ireland/government-debt-to-gdp

    We can hope that the proceeds of the bubble pay some of it off before the next bust comes.

  2. //The debt is still huge and growing.//

    Henry, the debt of all developed countries – UK, US, Germany – is huge and growing. Ireland’s is growing at a relatively slow rate, at least.

    Ireland’s recovery is IMO due to the fact that the Irish are not afraid of hardship and are used to working hard. Also, the Irish manufacturing sector and exports were always in a healthy state. Then again, we also have the rampant UK economy next door to help us.

    Ireland will never sink by itself. But if the UK, US and EU economies hit the rocks, Ireland will also never be able to keep itself afloat.

  3. Troll,

    The article is spot on. Ireland is recovering very well and it is because of the hard choices and hardships undertaken by the Irish people. Austerity was crap but it worked.

    The danger now is that the govt go on a splurge with an election looming next year. They need to resist the urge to slash taxes, increase spending and do what govts tend to do in an election year. As Simeon says, we have no control over our interest rates anymore – which should be high now we are booming again – so personal taxes need to remain high for the moment (sadly) to keep everyone in check.

  4. Ireland will never sink by itself. But if the UK, US and EU economies hit the rocks, Ireland will also never be able to keep itself afloat.

    Indeed. Let’s hope neither of them ever join the eurozone.

  5. Noel,

    All hail the bouncing dead cat. I’ll happily eat my words if there is a sustained recovery in the eurozone.

  6. The world economy is very sluggish.

    Which makes it unrealistic to expect that isolated parts of the world such as the EU or USA can just stand up and have a wonderful economy by themselves.

    Doesn’t work that way. It is all connected.

  7. Sustained recovery = the rich getting richer more quickly.

    For everybody else, increased debt, joblessness, and real prices. Tha’s how it is in a country where money enters the economy as debt.

  8. the boom will become a bubble and the bubble will burst. Meanwhile all the austerity has had very little impact one way or the other. The debt is still huge and growing.

    Exactly.

  9. We have the wrong Interest rate … the boom will become a bubble and the bubble will burst.

    What mad economic idea is this?!

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