Irish austerity creates a perfect example of failed trickle-down economics
by David Atkins
Ireland, the poster boy for laissez-faire boom and austerity "recovery" economics, is now a basket case of Gilded Age plutocracy. Fintan O'Toole explains in the New York Times:
Everyone wants Ireland to be a good-news story, proof that a willingness to take the pain of prolonged austerity will be rewarded in the end. Ordinary citizens are hungry for some hope. The government, in the words of Deputy Prime Minister Eamon Gilmore, was “determined that Ireland would be Europe’s success story.” An influential board member of the European Central Bank, Jörg Asmussen, says, “The Irish program is a success story.” Chancellor Angela Merkel of Germany praised Ireland as an example of how crisis countries could turn themselves around.There's much more as well, including the fact that austerity didn't (predictably) even solve the Irish debt problem.
The only problem is that, for most of us who actually live here, Ireland’s success story feels less like “The Shawshank Redemption” and more like “Rocky.” We haven’t been joyously liberated; we’ve just withstood a lot of blows. We’re still standing, but we’ve taken so many punches that it’s hard to see straight.
Yes, things are finally looking up, but the hopeful vision is clouded by two nagging questions. Did they need to be so bleak for so long? And has the harsh medicine actually cured Ireland’s ills?
For conservatives, in particular, Ireland is the Tyra Banks of nations: a model country. The only problem is that they can’t quite decide what Ireland is a model of.
For a long time, when Ireland was booming, it was the perfect face of light regulation and low taxes. (With impeccably bad timing, Senator John McCain cited Ireland’s low corporate taxes as a model for the United States in his presidential election debates with Senator Barack Obama in 2008 — just as Ireland was sliding into crisis.) Now, with Ireland tentatively emerging from its long slump, it is being cited as the great exemplar of the virtues of austerity.
As the German finance minister, Wolfgang Schäuble, a fiscal hawk, put it in October: “Ireland did what Ireland had to do. And now everything is fine.” Ireland was a success story when it was partying wildly and it is a success story when it is the Grim Reaper of international economics. Binge or purge, we can do no wrong.
We Irish are eternal optimists, but Mr. Schäuble’s belief that everything is fine is a rare example of a German outdoing us in irrational exuberance. It is certainly true that, if you were to walk around the rebuilt Dublin docklands, with their shiny European headquarter offices for Google, Twitter, Facebook and Yahoo, and their slick cafes and hotels, you might conclude that if this is what an Irish crisis looks like, an Irish boom must be quite something to behold.
The supercool new Marker Hotel and apartment complex, which opened its doors in April and cost 120 million euros ($163 million), could be in Los Angeles or Dubai. It looks down on the buoyant American architecture of Martha Schwartz’s Grand Canal Square and a plush Daniel Libeskind theater. In a country wrecked by a spectacular property bubble, house prices in Dublin have begun to soar again, rising 13 percent in the last year.
But Ireland has two economies: a global one dominated by American high-tech companies, and a domestic one in which most Irish workers have to make their living. The first is indeed booming. Not least because of those low corporate taxes, large global corporations find Dublin convivial for reasons other than its pubs and night life. The sheer scale of Ireland’s dependence on this kind of investment for its exports can be judged by the fact that Irish gross domestic product took a serious hit in 2013 when Viagra (which is made by Pfizer in County Cork) went off patent in Europe. Broadly speaking, however, the global side of the Irish economy has remained robust.
But home is where the heartache is: in the domestic economy outside the gated community of high-tech multinationals. Outside Dublin, property prices are still falling. Wages for most workers have dropped sharply. Unemployment remains very high at 12.8 percent — and that figure would be higher if not for emigration. There’s always been a simple way to measure how well Ireland is doing: Go to the ports and airports after the Christmas vacation and count the young people waving goodbye to their parents as they head off to the United States, Canada, Australia or Britain, where they have gone to find work and opportunity.
Other people protest in bad times; the Irish leave. And they’ve been doing so in numbers that haven’t been recorded since the 1980s. Nearly 90,000 people emigrated between April 2012 and April 2013 and close to 400,000 have left since the 2008 crisis. For a country with a population about the size of Kentucky’s (about 4.5 million), that’s a lot of people.
There’s no great mystery about why they’re going: They don’t believe in the success story. A major study by University College Cork found that most of the emigrants are graduates and that almost half of them left full-time jobs in Ireland to go abroad. These are not desperate refugees; they’re bright young people who have lost faith in the idea that Ireland can give them the opportunities they want. They just don’t buy into the narrative of a triumphant rebound.
But make no mistake: the powers that be are going to try to pretend that all is well in Ireland. They have to in order to maintain their credibility.