Heritage Foundation: Why Can't the U.S. Be More Like Ireland?
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You wouldn't know it from the Heritage Foundation's 2010 Index of Economic Freedom, but the economic "luck of the Irish" ran out in 2008. Not only did the "Celtic Tiger" — as the Irish economy had been dubbed — lose its roar, but now it appears to have been neutered, and is likely never to roar quite so loudly again.
Nonetheless, the conservative think tank rated Ireland fifth in its index — placing it squarely in the middle of the top 10 — while ranking the U.S. eighth. But a closer reading, along with details of some of the other countries on their index, offers telling hints at the modern conservative values informing the Heritage index.
The entry on Ireland begins with the following description of the country's current economic reality.
Though Ireland's dynamic economy has benefited substantially from its openness and flexibility in recent years, the financial sector was affected by the global financial turmoil, and the economy has suffered sharp economic adjustments since late 2008. The budget deficit has been on the rise, putting greater pressure on balancing the government budget. Despite the government's efforts at stabilization, the banking system's health remains precarious. The government plans to buy up non-performing loans, estimated to be equivalent to about 45 percent of GDP.
"Sharp economic adjustments" must be another way of saying what every estimation of the Irish economy states outright: that after the bubble-burst heard 'round the world happened in 2008 — as housing bubbles popped worldwide — Ireland was among the hardest hit. The "openness and flexibility" that made it one of the high-fliers of the boom period came at a high price, causing it to hit the ground harder than other countries. And the damage from that crash may be permanent.
The Tiger Tamed
The "sharp economic adjustments" started when Ireland became the first Eurozone country to enter a recession in 2008 — the first to hit the country in 25 years.
Ireland on Thursday became the first eurozone member to fall into a recession since the US subprime home loan crisis sparked a global economic slowdown, official data showed.
Ireland's economy, rocked by a domestic property market meltdown, entered recession for the first time in 25 years after shrinking in the second quarter of 2008, the Central Statistics Office (CSO) said in a statement.
...The "Celtic Tiger" economy has not experienced a recession since 1983.
Much like the U.S., the Ireland's economic boom was driven by a surge in housing and consumer spending based on credit. In many ways, it could be seen as a microcosm of the challenges facing the U.S. and many other countries.
Economic output will shrink by 9.2 per cent this year and unemployment will spiral to 17 per cent next year, the Economic and Social Research Unit said in its gloomiest ever quarterly report.
It forecasts that 300,000 jobs will be wiped out by the end of next year, by which time living standards will be 15 per cent lower than in 2007.
It also predicts the return of mass emigration — a traditional Irish ailment which Bertie Ahern, the former Taoiseach, pronounced he had cured — as people go abroad in search of jobs.
On top of the housing bubble, Ireland's economy largely relied on exports, 90 percent of which were made by foreign-owned multinationals, attracted by the corporate tax rate that was among the lowest in Europe. The tax rate was sweetened by more lucrative concessions designed to attract multinationals. Indeed, when tax-cutting advocate Charlie McCreevy became Labour Finance Minister in 1997, he soon implemented what some deemed were unnecessary property-tax incentives, along with a 20 percent cut in capital gains tax for property investment. Banking on permanent prosperity, essentially, led to tax cuts that have deprived the country of much-needed reserves, and left it stuck choosing between severe budget cuts in service of the national debt, or investing in programs to keep people working and stimulate the economy.