Monday, November 22, 2010

Erin Go Broke

CNN: "Ireland requests billions in euro loans from EU"

Dublin had long publicly insisted it would not seek an external bailout, despite widespread concerns that a ballooning budget deficit and wobbly banking sector would further cripple the Irish economy.
According to this NPR story, the Irish are deeply humiliated that their once-robust economy is now forced to take an IMF bailout. It's funny how one day you're on top of the world and the next you're having terms of surrender refinance dictated to you.

On a totally unrelated note, can Republicans reign in spending to reduce the budget deficit? History is not kind and we're focusing on the edges:

Then the senator tells them what his party is going to do to bring the runaway federal budget under control. "We will vote to freeze and cut discretionary spending," he vows. What is important is not so much what is said but what is omitted. The four biggest items in the federal budget are Social Security, Medicare, Medicaid, and defense. And those programs escape any mention from McConnell.
Robert Samuelson hit upon our national denial in "The Politics of Avoidance":

It's scary. From 2006 to 2035, federal spending goes from 20 percent of GDP to almost 29 percent. Social Security, Medicare and Medicaid (including Obamacare) account for all the increase. The reasons: More elderly people and climbing health costs. In 2035, the 65-plus population will be 93 percent larger than in 2010. Paying for bigger government would require a tax increase of about 50 percent. If we want to avoid a tax increase -- while honoring existing Social Security and health care benefits -- we'd have to cut all other programs by about 80 percent.
In other words, there is simply no way to avoid the fate of Greece and Ireland without addressing our spiraling debt and there's no realistic way to do this without paring entitlement spending. The sooner we can acknowledge this, the better for the country.

Related - Opinion Journal: "Higher taxes won't reduce the deficit."

13 comments:

Blarney Rubble said...

Remember long ago, when conservatives were touting Ireland's "successful" austerity turnaround? Of course, the world was very different then.

Bram said...

That was before austerity turned into a spending spree and gigantic real estate bubble. Irish politicians decided to channel Barney Frank and guarantee all mortgages. Thanks to their brilliance, Ireland now owes the banks more than their GDP.

We are with the government and here to help.

Leppy Kahn said...

We are with the government and here to help.

Shrewdly-chosen quote. Mr. Ronald Reagan, the very finest example of austerity policies.

Anonymous said...

Bram: "That was before austerity turned into a spending spree and gigantic real estate bubble."

Errr, Bram, that was this past summer. Paul Krugman's "instantly discredited" analysis of the subject ran 4 months ago.

http://vikingpundit.blogspot.com/2010/06/krugman-smacked-down-like-welshman-in.html

Bram said...

Leppy, "Auserity" is a term that gets thrown around a lot and doesn't really mean much. But, I'm pretty sure it doesn't mean assuming the losses for poorly managed banks to the point that the entire nation is bankrupt.

Leppy Kahn said...

Bram, the supposedly successful result of Ireland's cutback policies were being cheered by conservatives as the economic model for what we in America should be copying THREE TO FOUR MONTHS AGO.

For the moment, we shall ignore that Ireland's national economy bears only sporadic similarities to our own, and that any solutions that arise (if any) may not be easily transferable from one country to the other.

Today's point is, what has changed about Ireland's economic policy since the summer of 2010? Your side doesn't get to be right then AND right now. Especially given your side's analytical track record on the matter -- though I do hate to dwell on this -- just THREE TO FOUR MONTHS AGO.

Eric said...

As confused as I may have been about Ireland's vitality, what is Krugman's excuse? After all, if I thought that Ireland's economy was recovering, Krugman's position was - for Ireland then and America now - is that the bondholder's backlash is a myth.

That is, he thought austerity measures were unneeded when, we know now, they needed to be much more drastic before all of Europe demanded a restructuring.

My fear is that - as unlikely as it might sound for an economy as strong as ours - the accumulation of debt might overtake us at our most vulnerable moment.

NYT said...

That's just not true. It's not what Krugman wrote, and it's not what's happening with Ireland's bondholders. The country isn't being hammered because all of Europe doesn't see drastic enough budget cuts. Ireland's being hammered because those cuts haven't had any substantial effect, and aren't expected to.

Krugman, April 2010:
"For now, the United States isn’t confined by an Irish-type fiscal straitjacket: the financial markets still consider U.S. government debt safer than anything else. But we can’t assume that this will always be true... And if we push that ratio [government debt to GDP] another 30 or 40 points higher — not out of the question if economic policy is mishandled over the next few years — we might start facing our own problems with the bond market. Not to put too fine a point on it, that’s one reason I’m so concerned about the Obama administration’s bank plan. If, as some of us fear, taxpayer funds end up providing windfalls to financial operators instead of fixing what needs to be fixed, we might not have the money to go back and do it right. And the lesson of Ireland is that you really, really don’t want to put yourself in a position where you have to punish your economy in order to save your banks."

Krugman has also compared Ireland and Spain, which faced similar crises for similar reasons, yet responded differently. Writes Krugman, "Since austerians were claiming bond market approval as a sign of its policy success, it is worth pointing out that dutiful Ireland looks as if it’s entering a runaway debt spiral, while malingering Spain is looking considerably better."

The June 2010 Krugman column that immediately preceded what's looking a lot like an Irish dead cat bounce argued against austerity as a substitute for stimulus spending:
"Rather than being rewarded for its [austerity] actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession... [Ireland] now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier."

$$$ said...

That's just not true. It's not what Krugman wrote, and it's not what's happening with Ireland's bondholders. The country isn't being hammered because all of Europe doesn't see drastic enough budget cuts. Ireland's being hammered because those cuts haven't had any substantial effect, and aren't expected to.

Bram said...

Ireland had a non-sensical disjointed economic policy "THREE TO FOUR MONTHS AGO". I'm not sure who you think was applauding them for their overall approach THREE TO FOUR MONTHS AGO.

While their low corporate rates attracted lots of foriegn investment, their banking and real estate policies were idiotic - even worse than our own idiotic Fannie and Freddie nonsense.

Anonymous said...

Holy mackerel, Bram, make some profitable use of the Google.

There was a wave of rightwing applause (and jeering) in June and July. It was largely prompted by some positive economic indicators out of Ireland which were released one day after a Paul Krugman New York Times column that was skeptical about Ireland's prospects.

Anonymous said...

So you are suggesting that a wild Kenseyian style spending spree would have saved Ireland when real estate bubble popped? You truly believe that three months of spending like a druken Krugman would have mattered (other than putting them a couple hundred billion more Euros in the hole)?

Wild Kensey said...

I believe it. But then again, what do I know? I waste my time reading about actual economic successes through history, and not the buzzwords on Frank Luntz cheat sheets.