I've been meaning to write something about the economic catastrophe in Ireland since I read
," Ian Jack's discussion of the subject in the form of a review of Fintan O'Toole's book
in the Nov. 11
. Obviously I have no expertise in the subject, but Ian Jack's NYRB piece sure rings true, and leaves me feeling I have a surer grasp of the situation than, say,
financial columnist Robert J. Samuelson, whose recent column on the subject, "
," I admit made me pretty crazy.
(In case you too were wondering, let me assure you that the dolt Robert Samuelson is no relation to the great Nobel-winning economist Paul Samuelson, author of the economics textbook that dominated the teaching of introductory economics in this country in the second half of the 20th century.)
Interestingly, it's not, as one might first assume, that the dolt Robert Samuelson is totally ignorant of the facts of the Irish crisis. This much of what he wrote is, it seems, actually true, as far as it goes:
That Ireland, after Greece, has come to grief is ironic. Until recently, it was admiringly dubbed the Celtic Tiger for emulating Asian countries in attracting foreign investment - Intel and others - and achieving rapid export-led growth. From 1987 to 2000, annual economic growth averaged 6.8 percent; unemployment fell from 16.9 percent to 4.3 percent. But then solid growth gave way to a housing boom and bubble whose collapse left Irish banks awash in bad loans.
Unfortunately, "ironic" doesn't begin to cover what happened in Ireland, which might more properly be described as naked colllusion between a network of flagrantly fraud-perpetrating Irish banksters and a criminally complaisant government.
"O'Toole," Jack writes, "divides Ireland's recent economic history into two periods: a period of controlled (some might say rational) growth between 1988 and 1997 and then the madcap Celtic Tiger years that ended in collapse." Even the dolt Robert Samuelson is sort of aware of this. He just chooses to draw a discreet curtain over his awareness regarding what happened in these two periods, and what it says about the experience of the Celtic Tiger.
The tremendous economic turnaround of that first period was real. Of course it's worlds removed from the miraculous Celtic Tiger image evangelized by dimwits and ideological hooligans whose number included American presidential candidate Young Johnny McCranky. Of the 1988-97 period of growth that would almost certainly have been sustainable, Jack writes:
Until the 1980s, Ireland had a miserable record of economic underperformance, unparalleled by any other country in Europe, which made it the despair of its people; no other European country, wrote the Irish historian John Joseph Lee, recorded so slow a rate of growth of national income in the twentieth century. It was the more prosperous parts of Europe, however, that provided Ireland's first way forward. The European Union classified the entire country as a disadvantaged area and poured in money from its regional and structural funds -- nearly €11 billion between 1987 and 1998 -- which O'Toole describes, rightly, as the kind of "classic big government interventionism" that the Celtic Tiger era affected to despise.
The Irish, meanwhile, were intervening themselves. Their government brokered a social partnership between bosses and trade unions and invested heavily in higher education, so that today more than 40 percent of the population aged twenty-five to thirty-four has completed "third-level" (university or equivalent) education, the second-highest rate in the EU. At a time of a prolonged global growth and American investment overseas, Ireland found itself lucky in other ways. Decades of emigration had left it with a preponderance of young people. It had no inheritance of heavy industry -- no steel works or mines to close or subsidize. Feminism arrived, with effects on both the birth rate and the workplace.
The peace process was meanwhile gathering strength in Northern Ireland -- the Provisional IRA declared its cease-fire in 1994 -- and the Catholic Church was losing its grip on morals and behavior. Society grew more secular, open, and tolerant. Gradually, Ireland appeared to the outside investor as a small, hospitable Anglophone country with an educated workforce and relatively low wages. Gross domestic product per capita, which had been two thirds of the EU average in 1986, achieved parity with the rest of Europe in 1997 and rose above Britain's in 1999. By the end of the century, every Viagra tablet made by Pfizer came out of County Cork and Ireland exported more computer software than any other country. O'Toole looks back fondly on this time: "The pall of failure that had hung over the Irish state for most of its independent existence seemed to have been blown away for ever."
But, Jack writes, O'Toole also sees the 1988-97 economic awakening as "a lost opportunity."
When [new Prime Minister Brian] Ahern's Fianna Fáil government came to power in 1997 [Ahern is seen at right resigning in not nearly enough disgrace in April 2008], Ireland had an "optimistic, confident" population facing "incredibly favorable global conditions."
The new government, however, believed it had discovered a quicker-acting formula for wealth creation: tax cuts to stimulate consumption, property to replace manufacturing as the source of wealth, Dublin to become a tax haven for businesses seeking to avoid the more rigorous regimes of London and New York. Ireland turned away from making and exporting goods as the source of its new well-being toward the evanescent world of money and debt. On the one hand, Dublin became the single largest location outside the US for the declared pre-tax profits of American firms. On the other, Ireland's balance of payment figures slid into the red. "Being prosperous would be replaced by feeling rich" is how O'Toole memorably captures the hidden agenda -- hidden, perhaps, even from its initiators. Ireland was far from the only country to embrace it, but by O'Toole's argument the other countries that did (including the UK) had longer and more robust traditions of relatively clean governance and civic behavior.
Thus the ground was laid for what O'Toole calls "a lethal cocktail of global ideology and Irish habits" -- habits or attitudes, that is, born during the unhappiest years of Irish history. These "nineteenth-century revenants" included a primitive land hunger, a political system inspired by the Irish-Americans of Tammany Hall, subversive attitudes to authority born under British rule, and heroic powers of denial ("the unknown knowns"). Revelations of cruelty and hypocrisy had ended the authority of the Catholic Church, but no civic morality had been put in its place and memories of its old instructions, or lack of them, remained. As O'Toole puts it, "Masturbation was a much more serious sin than tax evasion."
Naturally the assumption by people like the dolt Robert Samuelson is that Ireland's economic collapse was caused by the inevitable collapse from a shockingly irresponsible orgy of borrowing. And so, I guess, it was, but not in the way that the usual right-wing apostles of fiscal "austerity" would have us believe. It was, in fact, an out-and-out collusion between a crooked government and crooked banksters, with crooked developers and builders doing the dirty work for them.
But before we come back to how this colossal ripoff was managed, it's important to remember that many of those people who now preach fiscal "austerity" were once the most fervid evangelists of Celtic Tigerism. Ian Jack recalls:
Until the crash, Ireland was an economy to be admired rather than examined, to be emulated rather than avoided. It took a long time for the truth to come out. In February 2008 -- shortly before Scotland's own banks went belly up -- the leader of the Scottish National Party, Alex Salmond, was promising that an independent Scotland would create "a Celtic Lion economy to rival the Celtic Tiger across the Irish Sea." Later in the same year Phil Gramm, economics adviser to presidential candidate John McCain, described Ireland as the "perfect example" of a country that had prospered through tax rates that were among the lowest in the world: "Senator McCain's people immigrated from Ireland along with millions of others because they were hungry. Today…they [the Irish] have overtaken Americans in per capita income."
McCain himself returned to the example in his televised debates with Obama, comparing American and Irish business taxes to show why America needed to cut them. "One of history's weirdest reversals," writes O'Toole: for centuries the Irish had dreamed of becoming Americans, and now some Americans wanted to be more like the Irish -- not the charming, peasant Irish of John Ford's The Quiet Man but the new Irish, with a Mercedes in the carport, a vacation home in Marbella, and corporation tax set at 12.5 percent. Ireland, though it belonged to the European Union and had earlier benefited from EU largesse, began to see itself as an outpost of American (or Anglo-American) free-market values on the far edge of a continent where various brands of social democracy were still the political norm.
Did you get that? "
An outpost of American (or Anglo-American) free-market values on the far edge of a continent where various brands of social democracy were still the political norm."
Low taxes, as suggested here, were a crucial part of the that second, phony-baloney period of Irish economic "growth." In reality, there wasn't any "growth." It was all a charade, in which government policies not only allowed but encouraged the banksters to pump up the economy with staggering quantities of loans for the building of buildings all over the country that never had any possibility of realizing any economic return. In the sense that there were actual buildings built, I suppose you could say that the Irish housing bubble was more "real" than the final fatal acceleration of ours, which was built on the spectacular creation of new "value" in the form of mortgages that had scarcely any value relative to the prices for which they were bought and sold in the form of bundled securities.
But again, that staggering inventory of new buildings, never had any real prospect of being occupied, and for that matter were never intended to be. They were just the way all that created money was pumped into the economy. Of course it was still a form of Ponzi scheme, since as all that money moved from party to party, eventually there had to be a party left holding the bag, in the form of all those empty buildings. O'Toole and Jack offer as an example, the explosion of construction, virtually all of it now unoccupied in the 613-square-mile hard-scrabble county of Leitrim, whose population declined from 155,000 in 1841 ("before the famine and the collapse of its handloom industry") to under 30,000 today, when, Jack writes:
Bright signs stick above the dark hedgerows: "Luxury development of highly distinctive homes" and "€100,000 off original price." Behind each of them lies a cluster of two-story houses with pitched roofs and carports that could just as easily belong in the suburbs of London or New York. Very few are occupied, some are unfinished, dandelions sprout on lawns that have run wild. Who was expected here? They look like houses built for junior executives with two children and two cars, but how many of them could the Leitrim economy possibly have supported even when the boom was at its height? They add another layer of human absence to the fields around them: first, the people who went away; now, the people who never came.
Did anyone really believe there was ever going to be real-world demand for all those houses? Wasn't the ending, as emblemized by the photo at the top of this post, always inevitable? Well, sure, but meanwhile a lot of people pocketed a lot of euros from that pumped-up economy. And as noted, a lot of right-wing economic preachers held it up as an example to be emulated. Eventually the finance minister, Brian Lenihan, offered the piquant explanation that Ireland is a small country "with too many incestuous relationships." Oh, do you think?
In 2006, at the height of the boom, construction accounted for almost a quarter of Ireland's GDP and occupied a fifth of the workforce. Thousands of workers came from the poorer regions of Europe to meet the demand; Ireland, one of the great historical sources of emigration, became a net importer of labor. The migrants rented houses built by an earlier wave of migrants, while they built more houses that their employers hoped would be occupied by the next wave. The increase in debt was terrifying, or should have been (the taoiseach or prime minister, Bertie Ahern, cheerfully remarked, "The boom is getting boomier"). Bank lending for construction and real estate rose from €5.5 billion in 1999 to €96.2 billion in 2007 -- an increase of 1,730 percent -- while house prices doubled in the six years to 2006. Estates for commuters now spread a long way out from Dublin. It cost more to service a mortgage on a house in a muddy field two hours' drive from the city's center, remote from shops and schools, than to pay rent for similar accommodation in a desirable part of the city. And on such mortgages the average Dublin couple spent a third of its income.
There had been warnings. As early as August 2000, well before the peak, a report from the IMF concluded that there hadn't been "a single experience of price inflation on the scale of Ireland's which did not end in prices falling." In 2006, Professor Morgan Kelly of University College Dublin said there could be no "soft landing" for property values that had risen so much more steeply than incomes. Nobody wanted to listen. Prime Minister Ahern mocked Kelly as a moaner, and the press tended to take Ahern's side. More remarkable, as O'Toole writes, was how few mainstream economists came to Kelly's defense:Every historically literate economist knew for sure that the Irish property boom was going to crash…. Yet the overwhelming majority of Irish economists either contented themselves with timid and carefully couched murmurs of unease, or, in the case of most of those who worked for stockbrokers, banks, and building societies and who dominated media discussion of the issue, joined in the reassurances about soft landings.
There were reasons, O'Toole and Jack explain, why so many people with emotional or political stakes in the illusion of the boom were "so stubborn in their refusal to see the blindingly obvious." In the end O'Toole chalks up the phantasmagoric Celtic Tiger "miracle" to the aforementioned "lethal cocktail of global ideology and Irish habits."
The total cost of the bailouts so far authorized or envisaged as "somewhere between €45 and €50 billion," with Ireland's budget deficit rising "from 12 to 32 percent of GDP." According to the now-standard formula, the people who created the problem are to a large extent being paid off -- by Irish taxpayers, of course. And the chorus of Big Money sycophants like the dolt Robert Samuelson tell us that the answer to the Irish blunder is . . . you guessed it,
austerity. Every country, it appears, has its Villagers, and they all seem to have learned the same patter, even as the rich get richer and the rest of us get screwed.
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