Doomsayer rewrites ‘riches to rags’ tale

THREE years ago he described Ireland as a “riches to rags” story. Now one of the world’s foremost economists hails our increase in exports and growth — albeit in typical tongue-in-cheek style.

In his widely read blog, Paul Krugman, a New York Times columnist and Nobel Prize winner, describes Ireland as doing “better than feared” and says this is leading international investors to conclude that, unlike Greece, it will avoid default on its international debt.

Ireland, he says, is “achieving a significant amount of ‘internal devaluation’ via deflation, which is leading investors to mark up the possibility that it might actually avoid default”.

However, Mr Krugman questions whether our recent rise in exports justifies the Government’s austerity measures. He also blames the decision three years ago to guarantee the Irish banking system for the draconian spending cuts and tax hikes.

“Given the commitment to the euro, Ireland had to engage in some kind of austerity program, although it wouldn’t have been as draconian if not for the decision to socialise all the of the banks’ debt,” he says.

He also takes issue with successive governments relying heavily on international pharmaceutical companies as a spur to growth.

“Pharma accounts for a large share of Irish exports — but it makes a much smaller contribution to the Irish economy,” he says.

“Partly that’s because pharma uses a lot of imported inputs, so that it has relatively low domestic content. Partly that’s because pharma is very capital-intensive, employing very few people — and the capital is foreign owned, so that the contribution to gross national product, which deducts income paid to foreigners, is smaller than the contribution to gross domestic product, which doesn’t. Indeed, Ireland is one of those countries where you really want to track GNP rather than GDP to get a sense of how the country is doing.”

Mr Krugman’s latest assessment is in marked contrast to the doom he forecast three years ago.

In 2008, his prediction our economy was far bleaker when he wrote: “Ireland appears to be really, truly without options, other than to hope for an export-led recovery if and when the rest of the world bounces back.

“On the eve of the crisis Ireland seemed to be in good shape, fiscally speaking, with a balanced budget and a low level of public debt. But the government’s revenue — which had become strongly dependent on the housing boom — collapsed along with the bubble.

“Last September, Ireland moved to shore up confidence in its banks by offering a government guarantee on their liabilities — thereby putting taxpayers on the hook for potential losses of more than twice the country’s GDP, equivalent to $30 trillion for the United States.”