Hi John, congratulations on the article! It appears that the Celtic Tiger was made of nothing more than (fiat) paper.

I and some friends have been managing a website and message board where we’ve been discussing the economic situation in Ireland, and your input would be very welcome.

By the way, I don’t know if you noticed that Ireland was ranked 4th in the 2009 Index of Economic Freedom published by the Heritage Foundation. They write:

“Ireland’s dynamic economy is open to global trade and investment, and its efficient business environment continues to attract significant foreign investment. Financial freedom and freedom from corruption are high. Financial markets are transparent and open to foreign competition. Property rights are protected by an efficient, independent judiciary. The corporate tax rate is a competitive 12.5 percent.”

Cheers,

Graham.

Graham,

I read the same thing about Ireland,so I’m now sad to read about what’s really going on.

Here in Quebec, I pay 40% taxes on a $30,000 a year gross income. And I don’t feel like a top earner.

Add to this 40% our 15% sales tax, plus permits, licenses, property taxes, deductions, mandatory government “insurances” of all sorts etc.

A person earning a gross $30,000/year ends up having to live off $14,000/year all the while saving for retirement and paying for his family etc.

No wonder Quebec is a poor province, I bet I would pay less taxes and be richer if I moved to Ireland.

Next time, please write an article on Quebec, after all we have a provincial debt of $150 Billion for just 7 million people.

And the government is planning to spend another $30 Billion to revamp our “roads” since there is more potholes than asphalt on most of our holes..err I mean roads.

That’s $21,400 debt per individual, including kids, newborns, elders etc. Everybody included.

In all accounts, Quebec is worse off than Ireland.

In Quebec there is a strong incentive for provincial politicians and bureaucrats to mismanage and hamper the economy. The more they knock private enterprise on its back, the more that their province will qualify for federal equalization payments. Because these payments are made to the provincial government and not to the individuals whose incomes were harmed by the bad policies, it means that incompetence and corruption at the provincial level are rewarded with cold, hard cash.

Exactly the same dynamic exists at the municipal level in Canada w.r.t. provincial and federal subsidies, and it exists at the global level w.r.t. government-to-government aid such as IMF bailouts. There’s gold in them thar ruinous economic policies.

Perhaps a similar dynamic exists in Ireland w.r.t. EU subsidies?

Returning to Canadian policy, this federal equalization money is given to qualifying provincial governments (in something like 8 of 10 provinces) with virtually no strings attached. The only 2 provinces which traditionally paid into the program were Alberta with its oil wells and Ontario with its large industrial base. In a period of low oil prices and if Ontario Premier McGuinty succeeds in driving out the last few unsubsidized manufacturing companies (something he appears to be determined to accomplish) it looks like Quebec’s strategy of milking of the federal program is going to turn out to be a loser in the long term. Those secure jobs and indexed provincial government pensions may turn out to be neither.

You should comment on:
1) The recent public pensions levy.
2) Ireland barely has a military or military expenses.
3) Given the sorry state of things in UK, Ireland would be able to poach quite abit of business from UK if they lowered taxes. UK on the otherhand has very expensive tastes like Trident submarines.

ireland may be straight-jacketed, but it’s nowhere near as bad as it was in the fifties. my mother always regales me with stories of the irish slums. ‘reckons they were as bad as those in india around the same time.

I live in Ireland, so I think I can shed some light on this.

John Engle is correct to notice the vast amount of state spending and intervention in Ireland. It is indeed vast, welfare especially so.

For example, dole here is ~204 euros per week, that’s $264 per week, and that does not include benefits for housing and rent that make accommodation effectively free. That $264 is more-or-less beer money. A person who works a minimum wage job makes only ~50 euros per week more than the dole.

The Heritage foundation are also right in their own way. If you forget about taxation and planning regulations the private sector in Ireland is very free. That is not the problem, the problem is the size of the state sector.

The biggest similarity between Ireland and the US is one Krugman fails to note – central bank behaviour. Both the Fed and the european central bank (ECB) have been pushing rates down to foolishly low levels. In the past few years the ECB have been setting rates low to suit the struggling continental european economies, German, France and Italy. Ireland though has not been struggling, so the ECBs 2% rates turned a period of growth in Ireland into a bubble. A bubble centred on house prices.

The free-ness of Ireland’s private sector served to make the boom more damaging. In France (and some other european countries) there are “anti-speculation” laws that prevent homeowners from making profits on the sales of their houses if they sell them within five years of buying them. This is to prevent what American’s call “flipping” (of course it prevents much more). This and the general malaise of their economices protected their housing markets from the bubble that affected Ireland.

That’s my interpretation of the situation anyway.

I live in Ireland too, I moved here about 3 years ago.

While I would also like the public sector to be smaller, it’s still much better than in other European countries.

Taxes aren’t that bad here. You can avoid paying too much relatively easily (compared to other countries I used to live in), especially when you’re an expatriate. I saw a billboard a while ago where the revenue office (that’s the guys that collect the taxes here) asked people to claim tax credits and pointing to their website. It sounds kind of funny, collecting taxes so that you can tell people how to avoid paying taxes, but it could be much worse.

Also people tend to be more skeptical about government. One of the bumper stickers here said: “The politicians are like diapers. You need to replace them often and for the same reason”. In some other countries people tend to see the government as the messiah.

One thing that I wasn’t expecting when I moved in here is that the level of certain services is very low (in Dublin even). Online banking sucks. Broadband is overpriced and slow. Cell phone coverage sucks. It would be too simple to blame it on government regulation, maybe it just has been growing too fast in some areas and the others haven’t caught up yet.

Seeing how other European countries are handling the recession, I think Ireland will be able to recover faster in comparison. It could be much worse.

Jimmymac. Certainly you are right, many of the services you mention have been in state hands for a long time. In Ireland statism was very prevalent in the past.

However, I don’t think that means that Austrian economic has nothing to say about Ireland, far from it.

In the past the state intervened greatly in private industry and private life. During this period Ireland was poor and unsuccessful.

In the late 80s and 90s things changed. The state remained large and continued to redistribute on a large scale, especially using welfare. However the state significantly reduced its interference in private industry and reduced the taxes private industry faces to very low levels (12.5% corporation tax).

There then followed a period of strong growth. Then Ireland joined the european single currency. There then followed a fiat money induced boom that is now turning to a bust.

Peter Surda: I agree Ireland is better than most of the rest of Europe. That is hardly a glowing endorsement though. When I lived in the UK I paid a similar amount in taxes.

Undoing Socialism
Wednesday, April 22, 2009

Ireland Allows Keynesian Imperialism To Enslave It.

Ireland has forgotten its classical liberal roots. It was victimized by the imperialism of Britain and never gained back its authentic heritage.

Proof? Keynesianism. That’s right! It has adopted the system of the exploitation of people that was fabricated by ‘Lord’ Keynes (a British citizen, a British title, and a socialistic imperialist). The consequence of Keynesianism is to create two classes of people – the political class and the victims of their parasitism. The political class are those who serve the imperialistic designs of the destroyers of the classical liberal cultural roots (your version of domestic enemies).

The rampant use of alcohol in Ireland keeps the populace dumbed down so they are easily lead along like sheep by their ‘leaders’ who are ego-driven interventionists molded by Keynesian propaganda.

Will Ireland return to its glorious roots? Not without fortitude and untainted intelligence. Toss away the drugs of the overlords! Educate yourselves about classical liberalism!

> I don’t think alcohol has anything to do with this, the irish have always been drinking more than most others. It simply doesn’t correlate with this crash.

It correlates with the rain, that’s what it correlates with . There’s nothing to do outside when it rains almost every day of winter and autumn.

> Ireland Allows Keynesian Imperialism To Enslave It.

It’s ironic that I’ve met nobody in Ireland who understand this. Everyone sees it as benevolent. Not a policy “both populist and elitist at the same time”.

It’s strange trying to persuade people of this while being an Englishman in Ireland.

While I appreciate and agree with many of the points in this article there are some glaring oversights, primarily that of realising that Ireland has started to make some socially painful adjustments that are for the common good.

Progressive taxation has been widened to include the whole tax base, up until 2009 about 40% of the people in the workforce paid zero tax, now there are levies that affect you no matter what you are paid, that was a vital step because the exclusion of such a large segment of the population meant that there was an unusually high reliance upon the top tier of income earners.

As well as this there are levies being placed upon the public sector, and in the next budget large labour cuts in the public sector are likely, the failure here was the lack of counter cyclical planning and using what amounted to ‘front loaded’ transactional revenue raising via ‘stamp duty’ to fund public sector growth.

These problems are not unique, comparatively the USA has a bigger issue with the number of local government employees and the UK announced yesterday that the funding required for their Public Sector was 28bn – when they had been counting on a figure more in the region of 16bn.

So when weighing things up side by side I don’t feel that Ireland is in a hole too deep to get out of. The rise in unemployment is also largely concentrated on emigrants who are leaving or re-pricing their labour. Deflation is a national fear but I can tell you from an employer perspective it’s good, we are getting more competitive, the cost of business is dropping quicker (for now) than the level of sales, and while we do have a difficult situation to face we are at least getting on with the heavy lifting.

Some of the statements in the article are also factually incorrect and or lending heavily to interpretation.

For instance ‘The government intends to guarantee bad mortgages and has called for banks to institute moratoriums on house payments.’ This is in reference to borrowers of two banks who were re-capitalised, there is a new code of conduct for lending institutions when it comes to dealing with people in arrears and in fact it sets out quite clear rules on repossession (we don’t have a ‘foreclosure’ equivalent here) and that kind of transparency on the rule of law when it comes to not servicing your debt protects the banks from lenient judges and also the borrower from banks moving on them too quickly.

Contrary to the keynesianism suggested, as we don’t control our money supply we cannot take many of the measures being mooted in the USA and UK.

Interesting reading nonetheless and I’m a fan of Mises and this website in particular but this article has as many failings as it has valid points.

Some serious problems in the discussion here. I just wanted to clear some of these issues up.

As regards unemployment, it’s not simply amongst immigrants. In fact, their presence has had a depressing effect on wages. Unemployment is spreading throughout Irish society.

Minimum wage does indeed need to be reduced, and I’ve written some commentary about that very issue. I don’t see the Irish Government having the leadership to make such a move, though.

As regards the problem with Irish Government spending, it arose primarily during the boom. In the early years, Ireland was extremely competitive – with business friendly regulation, well-educated and cheap labour. But Government spending rose on par with tax revenue. This was the major problem. When high costs in Ireland made the economy uncompetitive, firms started leaving and tax revenue fell. But it was much harder to reduce spending, especially in areas like health. Ireland had literally created hundreds of thousands of jobs (in a tiny economy) in the state health industry without any notable increase in productivity.

This has required a massive increase in tax rates, which is stifling the economy as John notes. Ireland’s government isn’t spending its way out of the recession because it has to keep fiscal policy under control to appease lenders.

Meanwhile, Ireland has to wait for wage levels to fall of their own accord, because it has no control over monetary policy and can’t initiate a devaluation of the currency. The UK’s ability to do that is what allows them to maintain some semblance of competitiveness and keep manufacturing jobs in that country.

Irish wages though aren’t falling fast enough, and the self-correcting mechanism will demand a long period of painful unemployment until the economy becomes competitive again. It’s the Government’s fault for financing wage inflation in the bloated public sector, which now weighs down the entire economy.

spending -raised on par with tax revenue.
unemployment amongst immigrants only?
money supply? that’s the cause!

The antipodal opinion and a call from the heart for Keynesian Rescue can now be found in the Independent of London:

http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-cameronomics-have-been-tried-in-ireland–and-the-result-1868347.html

Hello Ari Timonen

“Secondly if “increased government involvement” brought the recession then why countries like Finland, Sweden or Norway didn’t have a financial sector meltdown even though all of those countries regulation is much tighter and public sector more massive (not that I like it). ”

It is a matter of fiscal and spending policies. Sweden did many of the misstakes Ireland has made through the years. Our financial sector did fell apart because of credit expansion and massive public spending.

Admirable blog!