President Obama is in Ireland looking into his family roots. Might he take the time to discover the roots of the Irish economic crisis and what they tell America? The story has been told before, but it’s worth repeating. Unlike southern European countries that overspent in the boom years backed by the Euro drawing in new capital, and unlike Greece which has a broken tax-collection system, Ireland enjoyed a strong fiscal standing before the Great Recession. It was done in by its banks.
Ireland prospered by luring tons of foreign direct investment in the 1980s and 1990s, playing off its closeness to continental Europe, lower tax rates and a highly educated population. The Irish Industrial Development Agency was a model for a governmental economic development outfit. By the turn of the century, Irish leaders realized they would inevitably lose some of their manufacturing and assembly jobs to cheaper countries. So they set up Science Foundation Ireland, with my friend Bill Harris as chief, to turn research into promising ventures. The government’s finances were fine.
What happened to consign the Celtic Tiger to one of the PIGS? Ireland went on a real-estate binge, backed by its major banks with all the dodgy deals, complexity and swindles of its American counterpart right down to poor regulation. When the roof fell in, the Irish government stepped in to save the banks, including Anglo Irish Bank, at a horrendous cost. Now, in exchange for outside help, it has embarked on severe “austerity,” which of course is just prolonging the bust.
I wonder if little Timmy Geithner is on this trip, or Mr. Obama’s chief of staff, who came from JPMorgan Chase? Or any members of Congress who are wholly owned by the banking industry? Wonder how much Goldman Sachs made shorting Ireland? The lesson is that runaway banks, lax regulation and “investments” that no one understands can wreck even the best economies. May the luck of the Irish return.
Today’s Econ Haiku:
Work hard, stay in school
Still, can’t get into the U
Your tax cuts at work