The Luck of the Irish

by Henry on April 29, 2009

From the Irish Times today

IRELAND IS set for the sharpest fall in economic growth experienced by an industrialised country since the Great Depression, the Economic and Social Research Institute (ESRI) says in a report published today. The institute’s spring quarterly economic commentary estimates that gross national product will fall by 9.2 per cent this year. “Our forecasts suggest that Ireland’s economy will contract by around 14 per cent over the three years 2008 to 2010. By historic and international standards this is a truly dramatic development. “Prior to this the largest decline for an industrialised country since the 1930s had been in Finland, where real gross domestic product declined by 11 per cent between 1990 and 1993,” according to the ESRI.

{ 31 comments }

1

Matt 04.29.09 at 3:19 am

Well, if they can do as well as Finland after ’93, they’ll be okay. Do they have an big toilet paper companies that they can turn into cell phone companies, as the Finns did w/ Nokia?

2

Kieran Healy 04.29.09 at 3:43 am

Tom Friedman should be able to get a nice hotel room pretty cheap then.

3

ejh 04.29.09 at 6:18 am

Is Lithuania an industrialised country?

4

john c. halasz 04.29.09 at 6:58 am

Er, “shock therapy” in the former U.S.S.R.? Bet they’re glad they don’t have any “reliable” statistics on that, eh?

5

Chris Bertram 04.29.09 at 8:22 am

I can’t help thinking that Ireland (and Greece, and …) might be better off not being in the Euro (in present circumstances).

6

JoB 04.29.09 at 8:43 am

Chris, come on! East Berlin is certainly worse off for being in the Euro …

7

ajay 04.29.09 at 8:55 am

I’m sorry, but the International League of Headline Writers has banned the use of “The Luck of the Irish” and “Irish Eyes Are Smiling” in any headlines about Ireland, in order to allow recovery of our vital cliche reserves. Please step away from the keyboard and wait to be collected by our enforcement staff. Your previous good record on suppressing cliche abuse will be taken into consideration during the sentencing process.

8

Pete 04.29.09 at 10:02 am

Was “rise in housing asset prices” counted as part of GDP?

9

john b 04.29.09 at 10:17 am

@Pete: short answer: no.

Long answer: no, but the spending derived from equity withdrawal as homeowners borrowed money against the imaginary rise in the value of their houses was.

10

john b 04.29.09 at 10:20 am

And adding to EJH’s valid point about the Baltics, does Iceland not count as an industrialised country?

11

dsquared 04.29.09 at 10:21 am

equally importantly, the rise in house prices convinced people that it would be a good idea to build a hell of a lot more houses, and this construction activity did go into GDP.

What’s the Gaelic for “resorpasso”, by the way?

12

ajay 04.29.09 at 11:48 am

10: Iceland’s GDP hasn’t actually suffered that much, you may be surprised to hear – http://www.forbes.com/feeds/afx/2009/03/06/afx6134622.html

Since the currency collapsed, exports – aluminium, fish, etc – are doing rather well, and imports have gone to almost nothing. So far GDP’s only down by 1.3%
http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=ISK
and it’s forecast for a 10% drop over the next three years – which is bad, but not as bad as Ireland.

I think the point is that Iceland didn’t have a fake construction boom, like Ireland and the US did.

(Typos could be very confusing. To avoid accidentally invading the wrong place, Churchill ordered the word “Iran” to be banned from 1940; all government documents referred to Iran as “Persia”. Could we start talking about “ROI” or “Eire” or something?)

13

Daniel 04.29.09 at 12:08 pm

further to 12, Iceland’s financial services industry boom was very much driven by international expansion, mostly to the UK, which is where it shows up in the GDP statistics.

(“ROI” doesn’t really disambiguate, unfortunately, as Iceland is also a republic. We could try LI (for Lýðveldið Ísland) maybe).

14

Gdr 04.29.09 at 12:13 pm

Churchill ordered the word “Iran” to be banned from 1940

He also required that IRELAND (R) and ICELAND (C) be so distinguished.

15

Joe Wickens 04.29.09 at 12:32 pm

Reminds me of the joke making the rounds shortly after Iceland’s financial descent that asked “What is the differences between Ireland and Iceland?” the answer being one letter and 5 days.

Regards

16

Cryptic ned 04.29.09 at 2:23 pm

Churchill ordered the word “Iran” to be banned from 1940

To prevent confusion with “Eireann”? I guess Churchill would probably pronounce both those words exactly the same.

Could we start talking about “ROI” or “Eire” or something?

Return on investment has been a minor topic of discussion here, yes.

17

Zamfir 04.29.09 at 2:42 pm

And the Eire of the Roi is the Dauphine.

18

Paul 04.29.09 at 2:56 pm

It won’t be the first time that the Irish have been up against it. The “experts” and “suits” helped get us into this mess. I call it a recession despite what the parrots in D.C. may put out. A lot of best sellers will come out of this misery !

19

john b 04.29.09 at 3:59 pm

Ajay – Iceland did have a fake construction boom (there are a lot of half-finished buildings there), it’s just that it was far, far smaller than the fake financial boom. But yup, point taken on the fish ‘n’ aluminium thing.

20

Henry 04.29.09 at 5:36 pm

Chris – this piece makes the case that the euro is the only thing stopping Ireland from going down the toilet completely. There may be counterarguments, but I’m not able to think of ’em.

21

astrongmaybe 04.29.09 at 8:16 pm

Piling on after everyone has pointed out the ropeyness of the comparison…. but I’d imagine Germany between, say, 1942 and 1945 had a fairly steep GDP drop too?

22

Chris Bertram 04.29.09 at 9:16 pm

Well I guess there’s always the “compared to what?” point. If Ireland had got into this position with the punt then things would have been even worse, but then it might not have done. At least the UK has the competitive devaluation option, which Ireland doesn’t have.

23

Henry 04.29.09 at 9:25 pm

This is plausible (although I think that the internal political factors were much more important). And the piece does indeed acknowledge that competitive devaluation would be a good thing. When I get a life again, I want to do a series of posts on Roy Foster’s _Luck and the Irish_ which has a lot of interesting things to say.

24

bert 04.29.09 at 10:18 pm

If Ireland had got into this position with the punt then things would have been even worse, but then it might not have done.

Right. Outside the euro an inflationary housing boom would have fed through to higher interest rates, dampening down all that debt-fuelled craziness. Boom and bust, perhaps, but not armageddon.

25

Jon Livesey 04.29.09 at 11:45 pm

I think the most interesting issue here is how the situation in Ireland has managed to flat-foot the meme-merchants.

I wish I had a Dollar for every time I have read a web-comment in the past decade that amounted to nothing more than “Look how rich/successful/dynamic, etc Ireland is.”

Usually this meme was posted in a very triumphalist tone, as though Ireland’s -heavily subsidized – growth somehow invalidated everything you knew about economics/history/Europe/The Galaxy.

Now the Ireland meme-merchants have gone silent, but pretty soon they will be back with some other empty-headed sound-bite that is supposed to disprove this that and the other for ever and a day, or at least until that one blows up in their faces as well.

26

Britta 04.30.09 at 1:13 am

Hopefully this question is not too random, but what are the material everyday effects for normal citizens of a collapse like this? Breadlines and begging children in the street? More people on the dole? Vague idea of austerity but life as usual? Fewer vacations? I guess my question is, will there be a tangible decline in the standard of living for a significant portion of Irish people, similar to the one that accompanied the depression in the US and Europe in the 30s? (I mean, beyond bankers selling summer homes in Spain or trading down on their Porsches, that sort of thing).

27

mollymooly 04.30.09 at 2:12 am

GDP growth was so high for so long that a 15% decline will only push us back a few years. But it won’t be 15% spread evenly across everyone.

28

ajay 04.30.09 at 9:21 am

26: please, God, not another wave of memoirs.

29

dsquared 04.30.09 at 10:09 am

I think the interesting question is “what year has Irish GDP been rolled back to?” If it’s somewhere around 2004/5 then they’re still well ahead of the game.

It’s pretty unarguable though that the Irish bubble was an artefact of euro membership. The real and substantial improvements were made in the 1990s and had to do with a big one-off shift in female labour force participation. Since euro implementation, what’s happened is that the rental yield on commercial and residential property has tracked the yield on government bonds, all the way down (and given that rents are sticky, the burden of adjustment to the yield has been nearly all on capital values). Any readers with access to the Multex research distribution system can see that I predicted this ahead of time in December 2006, by the way, which was the point at which it was clear that falling bond yields had ceased to support the property market.

30

John Quiggin 04.30.09 at 10:37 am

Iceland looks like a case where there is a big difference between GDP and GNP. Economic activity in Iceland (GDP) may not have fallen that much but (I suppose) the aggregate income accruing to Icelanders (GNP) has been cut drastically by the losses incurred by the banks, and now borne by the Iceland government. For day-to-day macroeconomic management, GDP is more use, but in assessing the impact of the financial crisis, GNP is more relevant.

31

Antti Nannimus 04.30.09 at 7:59 pm

Hi,
This is probably great news for the sales of Guinness Stout and Irish whiskey though.
Have a nice day!
Antti

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