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Heritage Foundation: Why Can't the U.S. Be More Like Ireland?

In the parallel universe imagined by the Heritage Foundation, Ireland's ravaged economy should be the model for us all. It's about shrinking the government, stupid.

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The government has broad powers to limit citizens' rights and handicap political opposition, which it used. Caning is an allowable punishment for numerous offenses. The following human rights problems also were reported: preventive detention, infringement of citizens' privacy rights, restriction of speech and press freedom and the practice of self-censorship by journalists, restriction of freedoms of assembly and association, limited restriction of freedom of religion, and some trafficking in persons.

Recession to Depression

That was in 2007. By 2009 Ireland's recession had "technically" evolved into a depression, categorized by some as "the greatest decline in economic growth of any industrialized nation since the Great Depression."

From 1995 to 2007, the country's economy grew at a rate of 7.5 percent per year. By the end of 2009, the cumulative decline in the country's GDP was a "staggering" 12.5 percent. The International Monetary Fund forecasted that the country's GDP would shrink a cumulative 13.5 percent between 2008 and 2010, and that losses at its banks would swell to €30 billion ($40 billion USD), while the Economic Social Research Institute (ESRI) predicted a contraction of 14 percent by the end of 2010. The GNP is expected to contract less than previously forecasted. Roubini Global Economics says Ireland is one a few Eurozone countries whose GNP is expected to contract for three more years. So it's not so much that the economy is expected to get better, but that with a little luck it will be "less worse."

Even the 0.03 percent growth in GDP in late 2009 — that technically signaled the end of Ireland's recession — was based on higher profits at multinational companies that "funnel capital through Ireland due to its low corporate tax rate." Money "funneled through" an economy doesn't get reinvested in that economy in ways that might provide greater stability during an inevitable downturn for those who provided the labor in the first place.

Unemployment "stabilized" at about 13 percent, by the end of 2009, according to finance minister Brian Lenihan. However this was due more to a pickup in outward migration and "reduced labor force participation" — meaning that more of Ireland's unemployed had simply quit looking for work and ceased to be counted even as "labor force wannabes." Indeed, a third of Ireland's unemployed are now categorized as "long-term unemployed," meaning they have been out of work for more than a year. Forecasts of double-digit unemployment came true, and those levels will remain into the so-called "recovery" in 2010, according to the ESRI, which forecasted 16.1percent unemployment for 2010, down from 16.8 percent, but with a faster fall likely due to " a faster fall in participation and also a higher rate of outward migration ." A "faster fall in participation" means a number of Irish will simply stop looking for work they've long been unable to find anyway. Migrants, and even some Irish citizens, may "get while the gettin's good" — or less bad.

For those Irish who still have jobs, pay cuts — especially in the public sector — are bitter alternative to layoffs. But it means those who are still employed will have less to spend and put back into the economy, making it unlikely that any increase in demand will speed recovery. It also exacerbates an increase in income inequality, especially among male workers.

Austerity for Ireland

The Irish government has opted for austerity, instituting cuts that have raised the ire of an already burdened public, calling for painful cuts in a number of public services. The reason? Fear that the country's growing debt will put off the foreign investors upon whom the Irish economy is almost completely dependent. Foreign investment in Ireland fell by 5 percent in 2008, accompanied by a 40 percent drop in Irish jobs created by foreign investment, but rallied in 2009. The increased confidence of foreign investors was likely due to the government's emergency budget, introduced in July 2008, which included painful cuts in education funding and health care access (among others) while introducing an income tax on high earners. (Ireland's lowest score from the Heritage Foundation was "Government Spending.")