“Tyler Cowen”:http://www.marginalrevolution.com/marginalrevolution/2010/03/assorted-links-12.html links to a post on a blog that I had hitherto been unaware of, “True Economics”:http://trueeconomics.blogspot.com/2010/03/economics-11032010-replying-to-prof.html (proprietor: Constantin Gurdgiev, Adjunct Lecturer in Finance with Trinity College, Dublin and Chairman of the Ireland-Russia Business Association), asking the question “How much did the Irish government subsidize housing?” I’m writing a review of Fintan O’Toole’s “Ship of Fools” which speaks specifically to this question, and the answer is ‘not very much at all.’
Gurdgiev’s post is both quite mad and oddly charming, combining denunciations of the ‘Stalinesque schemes’ to provide development funds for Western Ireland and a railway link thereto, with quite sincere-sounding suggestions that he wants to engage with his critics. His intent is to rebut Paul Krugman’s “recent column”:http://www.nytimes.com/2010/03/08/opinion/08krugman.html on the Irish economic collapse (Krugman builds explicitly on this “recent report”:http://www.irisheconomy.ie/Notes/IrishEconomyNote10.pdf by three Irish economists). But his post, entertaining though it is, cannot be taken as a reliable guide to housing policy in Ireland, or indeed to Ireland’s economic crisis.
First – Gurdgiev deplores Krugman’s suggestion that:
“Ireland had none of the American right’s favorite villains: there was no Community Reinvestment Act, no Fannie Mae or Freddie Mac.”
Sloppy job. Ireland had one Social Partnership and one ‘last standing Socialist’ Government of Bertie Ahearn [sic – HF]. This dynamic duo presided over the gravy train of Exchequer (and local authorities, semi-states, Quangoes and Social Partners) feeding off the property boom. If this was not equivalent to the Federal and Local Authorities in the US fueling property boom through their policies, I am not sure what is. We had a 20% social housing ‘dividend’ which inflated prices and restricted supply.
Aside from the quite remarkable claim that Bertie ‘I don’t believe in all that socialist stuff. I never met a socialist in all my life’ Ahern presided over Socialism’s Last Hurrah, this is obviously wrong. The reason why the American right harps on the CRA, Fannie Mae and Freddie Mac is because it wants to suggest that the US housing crisis had its origins in efforts to help out poor folk (with some distinct rhetorical undertones regarding the racial identity of those receiving this federal largesse. As Krugman correctly notes, Ireland did not have any equivalent programs. Indeed, what social housing assistance it had was brutally slashed during the boom – the share of social housing in overall new home production shrank from 27% in 1985 to 6% by the early 2000s. The “20% social housing dividend” is presumably a reference to the fact that local authorities could require that up to 20% of housing on new developments be ‘affordable,’ but the ‘could’ and ‘up to’ are rather important here as this requirement “encountered stiff resistance from builders and was heavily watered down in practice”:http://www.irishtimes.com/newspaper/newsfeatures/2008/0524/1211522099973.html (O’Toole suggests that only 2-4% of the total was affordable but his book does not have footnotes – I can’t find any data to support or undermine this figure). Furthermore, the term ‘affordable’ was in practice interpreted expansively.
The rest of the piece isn’t much better:
We topped the cake with a cherry of one Grand Socialist Scheme that envisioned moving people around the country physically – the Decentralization.
This refers to a failed government plan to decentralize some government departments to locations outside Dublin. I’ve heard many descriptions of this initiative – most of them located in the limited gamut between the pejorative and the obscene – but ‘Grand Socialist Scheme’ with hints of forced population transfer … not so much.
Instead of all the American Acts, we had the Social Partners telling the Government “we need more construction for our constituents”. The Government did as it was told and collected tax revenue in sacks.
The notion that Fianna Fail’s weakness for grand construction projects was a result of pressure from the ‘social partners’ rather than the party’s funders and supporters in the building industry is altogether charming.
Prof Krugman says that “What really mattered was free-market fundamentalism.” And refers to Ronald Regan [sic]. Ireland never had a single Ronal Regan[sic] moment in its history. Where Regan believed in the right of people to engage in free enterprise, Irish Government only believed in the right of the State to tax the free enterprise.
This may come as news to ‘Prof Krugman.’ It will also be a surprise to the Heritage Foundation’s Index of Economic Freedom which, as O’Toole notes, ranked boom-era Ireland very highly indeed. This “article”:http://www.capmag.com/article.asp?ID=1781 by Heritage’s Daniel Mitchell in Capitalism Magazine‘s even goes so far as to mention the ‘R’ word:
Thanks to Reagan-style tax rate reductions, including a corporate income tax rate of just 10 percent, Ireland has become the “Celtic Tiger” and is now the European Union’s second richest country.
Gurdgiev is under no obligation to agree with Heritage, Cato, Amity bloody Shlaes or any of the others who held out Ireland as an example of low-tax nirvana. But he does seem to be in a minority of one. I keep on waiting for someone at a credentialled right wing think tank to come out with an ‘Ireland was really socialist after all’ article, but so far, all that I’ve seen is embarrassed silence.
I don’t want to harp too much on this piece – even if the author’s account of the Irish economy is quite batty, he seems sincere and genuine. And he is right that Irish state policy was bloody awful, even if he goes to extraordinary lengths to blame imaginary socialists rather than real businessmen for this defect of policy. But I do worry that someone who didn’t know much about Ireland might click through Tyler’s link (which is ambiguously described, likely because Tyler himself isn’t versed in recent debates over the Irish economy) and take this piece seriously. They really shouldn’t.
{ 21 comments }
Grim 03.15.10 at 8:23 am
But how can you stop them – taking it seriously, I mean ?
After all, Gurdjiev appears to take it very seriously, ie he is very ‘sincere’, and isn’t sincerity – anybody’s sincerity about anything – totally convincing ? And Gurdjiev isn’t any less believable than, say, Palin, is he ?
JoB 03.15.10 at 10:08 am
Moreover, he’s probably factually correct in saying there was no ‘Ronald Regan’-moment in the Irish History. Who can argue with somebody that has the fact straight. And all that ‘Celtic Tiger’ stuff; that was so clearly only about soccer.
And why is Irish soccer not represented in South Africa? Yes, it was the French – cheating. And what are the French? Socialists, of course. And what is cheating? Socialism, du-huh!
Ciarán 03.15.10 at 10:51 am
Gurdgiev does seem to be bonkers but in fairness, the Bertie = socialist thing is (I hope) a sarcastic reference to a November 2004 interview with Mark Brennock this article in the Irish times (behind a paywall unfortunately) where Bertie famously said that “I am one of the few socialists left in Irish politics:”
He elaborated on this seemingly sincerely held if, er, minimalist view of socialism in a Dáil exchange.
theAmericanist 03.15.10 at 12:17 pm
Forgive the OT interjection, but since we were talking about this the other day, when I was asking about the Dubai assassination (some of you were arguing that drone attacks were oh, so different because they’re done by soldiers in uniform) I thought it might be worth noting http://www.nytimes.com/2010/03/15/world/asia/15contractors.html?hp how little open to facts you guys can be.
politicalfootball 03.15.10 at 12:37 pm
It’s not clear to me that Krugman is attributing free-market fundamentalism to Ireland. He’s saying that this is an element that the Irish authors get wrong about the U.S. – not necessarily something they got wrong about Ireland.
jay bee 03.15.10 at 3:23 pm
As someone who has both Crooked Timer and True Economics on my internet “Favorites” bar, Henry, I think you were being a little hard on Dr. G. The rest of his blog can be interesting and thought-provoking and although he does have a tendency to identify socialist state intervention (is there any other kind?) as the root of all evil, I think in the present case that there was excessive sarcasm in tribute to our dear leader, Bertie.
I did think it was fair comment to say that there was no point in Paul Krugman trying to make comparisons between the US and Ireland without recognising the effects of state policy in Ireland. Whether you believe that the mess in Irish state policy was created by the Dr G’s imaginary socialists or the mix or corruption and stupidity described by Fintan O’Toole, the effect in Ireland went way beyond any “regulatory imprudence” that Krugman was shared by the two countries.
The description of the FF’s decentralisation policy as being driven by the Social Partners did make me laugh though. I’ve never seen it as anything other than purely an electoral “stroke” but I suppose Dr G’s is being critical of the cosy consensus and complacency that infected Irish society at large right up the near collapse of the banks. The myth of the soft landing was no more.
Barry 03.15.10 at 3:30 pm
“I don’t want to harp too much on this piece – even if the author’s account of the Irish economy is quite batty, he seems sincere and genuine…”
And very, very wrong on what he’s writing about, to the point where he’s either stone ignorant, delusional or lying?
One of our problems with falsehoods and liars is that we both credit people with sincerity when there is no evidence in favor of that, and credit this alleged sincerity with some sort of virtue.
ajay 03.15.10 at 3:40 pm
socialist state intervention (is there any other kind?)
I hope this is a joke. Si “non-socialist state interventions in business” requiris, circumspice. Start with defence procurement policy and go on from there.
Henry 03.15.10 at 3:54 pm
jay bee – I did make it clear I hope that I wasn’t going after the blogger as being batty in general (I haven’t read enough to form any opinion), but instead the specific argument of the post. He may well be better elsewhere.But on the substantive point – I am not sure that the regulatory screw-ups of Ireland, horrible though they may be, are necessarily that much worse than those of the US – one can plausibly argue that the dire consequences of the Irish catastrophe were limited to Ireland – those of the US had wider repercussions. Either way, I think that the bulk of the Irish problem is a straightforward one of regulatory capture by business interests and figures of greater or lesser corruption, with a side-helping of deregulatory ideology. That’s not an uncomfortable analysis for Krugman.
Barry – I’m getting rather bored with the persistent criticism that no-0ne who you see as being on the ‘other side’ can be credited with good faith. When you want to make this claim in future, I’ll ask you simply to incorporate this claim by reference in future comments on my posts – perhaps simply post saying “Standard Argument Number One” with a linkback to your comment 7 above, for those who have any interest in discovering what Standard Argument Number One is.
Jim 03.15.10 at 4:07 pm
Gurdgiev’s argument that the Irish government’s fingerprints are all over the housing crash might be just a little more convincing if he hadn’t said just three days earlier, while arguing against yet another set of ‘socialists’, that ‘the Government has not contributed’ to the collapse in the construction sector.
alex 03.15.10 at 4:09 pm
Why do people keep their own blogs to act like loonies on, when there are so many other people’s available?
jay bee 03.15.10 at 4:17 pm
Ajay – yes it was
Henry – fair enough. By Dr G’s own standards, that post was a real rant .
Will your review of Fintan O’Toole’s opus be in this forum or elsewhere?
Kevin Donoghue 03.15.10 at 4:43 pm
Henry: …the bulk of the Irish problem is a straightforward one of regulatory capture by business interests and figures of greater or lesser corruption, with a side-helping of deregulatory ideology.
Fair enough, but if we want to understand what’s gone wrong in the last few years we have to ask what changed. Corruption probably peaked during the Haughey era – at least I hope it did – and for as long as I can remember the dominant ideology in Ireland, if you can call it an ideology, has been “fuck the begrudgers.â€
To me it seems that the biggest single change was the creation of the Eurozone. Prior to that, the Central Bank and officialdom generally had a healthy fear of property speculation and the effects it could have on inflation, competitiveness and ultimately the exchange rate. Once we were in the Eurozone these concerns were enveloped by an SEP field. Of course that’s not an uncomfortable analysis for Krugman either, since he warned against the Eurozone, albeit for other reasons. (I must admit my own view, at the time, was that we were better off without the ability to run our own currency – one less thing to screw up – but at the moment Krugman looks more prescient; another triumph for Brad DeLong’s Rules.)
P O'Neill 03.15.10 at 5:45 pm
The Dublin Docklands Development Authority is a nice case study in how the rhetoric of social objectives was used as a veil for big money croneyism.
Henry 03.15.10 at 6:21 pm
jay bee – Elsewhere, all going well. Kevin – I think you could make a good case that the problem was an ever more elaborate effort to square the circle of delivering (a) tax cuts, and (b) increases in public spending while (c ) not running up debt as a %age of GDP – FO’T suggests that the only fix was an overheated property market and government revenues therefrom (Gurdjiev in places is not too far from this analysis himself), leading to a horrible collapse when the market fell apart. This is of course somewhat discomfiting for social partnership (which relied in large part on government increases in pay for civil servants and tax cuts for workers), and which contributed to the fiscal conundrum (along, of course, with the low taxes on business, high earners etc).
Barry 03.15.10 at 7:23 pm
Henry: “Barry – I’m getting rather bored with the persistent criticism that no-0ne who you see as being on the ‘other side’ can be credited with good faith. When you want to make this claim in future, I’ll ask you simply to incorporate this claim by reference in future comments on my posts – perhaps simply post saying “Standard Argument Number One†with a linkback to your comment 7 above, for those who have any interest in discovering what Standard Argument Number One is.”
Well, I’m rather bored with economics writers whose only skill is persisting in being wrong somehow getting column inches, TV time and salaries for being wrong; I guess that we’ll both have to learn patience :)
I thought that comments like “Aside from the quite remarkable claim that Bertie ‘I don’t believe in all that socialist stuff. I never met a socialist in all my life’ Ahern presided over Socialism’s Last Hurrah, this is obviously wrong. ” were strong statements, which implied (truthfully or not) that somebody making them was either ignorant, foolish or dishonest, not that something was debatable. Not to mention that you were were rather against his statement: ‘We had a 20% social housing ‘dividend’ which inflated prices and restricted supply.’. The whole tone of your post was not disagreeing with the interpretation of facts, but of this guy being flat-out wrong about his subject. And at this point, I think that a rough-and-ready Bayesian approach to such writing is merited.
I would note that my statements were “And very, very wrong on what he’s writing about, to the point where he’s either stone ignorant, delusional or lying?” , which gave three possible reasons. And that my second statement was “One of our problems with falsehoods and liars is that we both credit people with sincerity when there is no evidence in favor of that, and credit this alleged sincerity with some sort of virtue.”, which both gave an out (not blaming somebody for falsehoods), while also pointing out that ‘sincerity’ is at best a limited version – being wrong while sincere still makes one wrong. And IMHO the world suffers more from colleagues unduly crediting clearly and persistantly wrong people with sincerity more than the opposite.
And at this late date, after the past few years, sincerity in incorrect right-wing economics is not a default position to take. If *your field* can’t adjust to the realities that millions of people have had to adjust to, quite painfully, then it’s *your field’s fault*.
And let’s check out his blog:
Sidebar links (i.e., recommendations) ‘Ronan Lyons makes the case for flat tax on income in Ireland at around 15-18% ‘ – so he’s a flat-taxer. ‘John Cochrane of UofC responds to Paul Krugman’s infamous article on whether Chicago-school economists failed to predict the current crisis and demolishes Krugman throughly and brilliantly – ‘ anybody who promotes Cochrane is full of it, and by now there is no innocent reason, save dementia.
Barry 03.15.10 at 7:29 pm
Kevin Donoghue 03.15.10 at 4:43 pm
“…(I must admit my own view, at the time, was that we were better off without the ability to run our own currency – one less thing to screw up – but at the moment Krugman looks more prescient; another triumph for Brad DeLong’s Rules.)..”
The problem was that there were two disadvantages that you get in return for that advantage – first, if the other guys screw it up, you’re in for it along with them (trading single-country problems for continental-scale problems). Second, if the others guys are not screwing it up overall, but what’s overall good is bad for you, then you have to eat that, to pay for everybody else’s good times (i.e., the argument against the Euro).
I think that a lot of people are getting both (the first since the Bundesbank isn’t going to prioritize Ireland’s or Latvia’s recovery over more central interests).
hix 03.16.10 at 4:40 am
Ireland is such a small open economy that did profit so much from all the regulation and tax dumping. Its not obvious to me how Ireland could have avoided a housing bubble, or a far above average bust in general without avoiding the boom before. The net effect in Ireland is still very positive.
Zamfir 03.16.10 at 9:29 am
I think you could make a good case that the problem was an ever more elaborate effort to square the circle of delivering (a) tax cuts, and (b) increases in public spending while (c ) not running up debt as a %age of GDP
I don’t think “squaring the circle” is a good term here. Squaring a circle is an impossible feat, but it can be approximated to arbitrary accuracy. It’s not a trade-off, it just takes an infinite amount of steps to completely finish
alex 03.16.10 at 1:37 pm
Yeah, but in the long run we’re all dead; and likewise if we could persuade the bond market to wait an infinitely long time, we could be sure inflation would erode the debts to a healthy level. Or could we?
toby 03.17.10 at 6:21 pm
No, I don’t buy Gurdjev’s assertion that “socialism” is at the heart of the fall of the Celtic Tiger. Henry’s picture of the capture of regulatory mechanisms by predatory captialists abetted by politicians, is by far the truer picture.
So Ahern occasionally delivered one or two “socialist” remarks. They were probably for consumption by the “social partners” and the Labour party. It is a well-known “secret” that strong elements of Fianna Fail and the Unions had visions of a perpetual government under a FF-Labour coalition. Ahern was only gesturing in this direction – such an alignment might be useful sometime in the future.
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