Oh Paulie Krugnuts, you've done it again!
At the Atlantic, Megan McArdle checks in on Nobel laureate Paul Krugman's dire warnings about the Republic of Ireland's recession-era decision to slow its growth of public sector debt. Once again, the hysterical New York Times columnist has predicted an Armageddon that failed to happen.
Krugman has had his Irish up about non-Keynesian "austerity" for some time. As with the "drastic cuts" in government spending we hear about without seeing on this side of the pond, Irish austerity was in fact merely a downward adjustment in the rate of public spending growth, not an actual cut in year-to-year spending, as we can see on page 5 of the Emerald Isle's 2011 budget summary [pdf].
Nevertheless, the show of restraint was enough to make Krugman in March of this year decry "savage austerity measures on ordinary citizens." In June of 2010, Krugman not only misread the Irish economy but foiled the elasticity expectations of W. B. Yeats' meter in a blog post with the disgracefully tin-eared title "A Terrible Ugliness Is Born." That one wept for "virtuous, suffering Ireland," which was "gaining nothing" from efforts at budget reform – reform that Krugman compared with "bleeding the patient," who "has nonetheless gotten sicker."
Now the savage beauty of the terrible austerity has been born, and begorrah! Ireland's bond yields are dropping rapidly, in spite of Krugman's sarcastic dismissal of the idea that international debt markets would reward the country for its fiscal restraint. McArdle quotes more good news from the Wall Street Journal:
The national statistics office said Thursday gross domestic product in the three months to June was 1.6% higher than in the first quarter and 2.3% higher than in the same period of 2010.
That was the fastest year-to-year expansion since the last three months of 2007, after which Ireland's previously fast-growing economy was felled by the financial crisis and the collapse of a debt-fueled property boom.
The Central Statistics Office also raised its calculation of growth in the first quarter to 1.9% from the previously estimated 1.3%. The growth was broad-based, including manufacturing, agriculture, transport and communications.
A few years ago there was a joke circulating about the difference between Iceland and Ireland: One letter and six months. OK, so it wasn't the funniest joke of all time, or even of 2008.
But the interesting thing is that these two supposedly catastrophic European economies have recovered to the point that it's no longer easy to remember which one was supposed to be already in trouble and which one was headed for the cliff.
In the current issue of Reason you can find my column on Iceland's recovery. That E.U. non-member had a special advantage built into its recession: Iceland's financial sector and its central bank were effectively wiped out; its government was unable to enact emergency economic measures; and the country was too small and unaffiliated to be victimized by any "rescue" packages from the international financial community.
'This kind of brute force deleveraging is sadly unavailable within the European Union, but the Irish example shows there is still some advantage to be gained from responsible leadership – provided the leaders are willing to ignore quacks like Paul Krugman, the Doctor.