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Here's my simplified story about the Irish economy:

  • During the late 80's and early 90's there were a sequence of changes - tax cuts from very high rates (marginal of 90% at one stage!), the maturation of Irish infrastructure with the help of EU transfer payments, that sort of thing - that freed up the market economy to be reasonably efficient.

  • We started playing some catch-up on the rest of Europe - the whole EU solidarity thing worked, leading to pretty fast growth from a very low base. Not a bad thing.

  • The next ten years of FF-led government was an unholy mix of neo-liberals and populists who wanted to buy power by any means. What followed was a festival of tax cuts and selling the family silver - privatising assets - in order to fund tax cuts. The property boom was encouraged and fanned when it looked like flagging so that further giveaways could take place.

  • Meanwhile, the neo-liberals almost entirely captured the media. Ireland is best viewed as a regional UK media market, with three Irish TV stations and tens of UK or US ones, with UK newspapers and tabloids selling well. Labour ended up believing they couldn't be too lefty if they wanted to get votes because the conventional wisdom, locally and internationally, was entirely against them. Every other day there were reports of how wonderful the rest of the world thought the Irish model was. Ireland was the shining poster child, the richest country in Europe (note that income!=wealth).

  • Complaints (mentioned by Labour) about inequality, about the fragility of the tax system, about the dangers of pro-cyclical policies were all poo-pooed, with the Taoiseach of the time saying that the unbelievers should go kill themselves.

  • Then the economy started to slow and the financial meltdown happened and the government and the financial regulators couldn't bring themselves to understand exactly how badly they screwed up. They went from being the smartest guys in the room to being a crowd of feckless paddies again and they have no idea how to deal with that except more of the same: cut, cut, cut and be good little boys and girls and don't let any banks die or the serious people will be upset at them.

  • Bank guarantee, etc.
by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 10:07:54 AM EST
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