In Billy Wilder’s classic movie “One, Two, Three” James Cagney plays a hard-charging marketing executive coaching his clueless son-in-law on the correct answers to give during an important job interview. The son-in-law is told to describe the current international situation as “serious, but not hopeless,” but during the job interview he mangles this and describes it as “hopeless, but not serious.” The interviewer is impressed with his originality and insight. The same mangled answer might apply to the current Irish economic situation: hopeless, but not serious. The corner has been turned. The Irish economy will now experience a slow, steady recovery as the IMF-guided programme unwinds the deep structural flaws that developed in the Irish economy during the credit-fueled bubble of 2002-2007.
Recall the DEW conference “Responding to the Crisis” held in January 2009. As the collective presentations made clear, the Irish economic situation at that juncture was serious AND hopeless. Ireland had a hollowed-out tax system that was entirely unaffordable, a too-high minimum wage and too-generous social welfare system that made active labour force participation uneconomic for a large segment of the population, an overpaid and too-large public sector, and a dangerously pro-cyclical method of taxing property via transactions. The speakers spoke convincingly, but offered no politically feasible way to restructure the deeply flawed economic system.
Our political and business elite, with the help of our European partners, have now muddled their way to a solution. An unaffordable bank bailout has left the state at the edge of default, and led to an IMF-EU rescue package. The discipline provided by this rescue package allows the political elite to overcome the political infeasibility of appropriate restructuring. The restructuring programme implicitly described in the January 2009 DEW conference is now politically feasible.
The role of Irish economists now is to just help everyone calm down and get on with the business of economic restructuring. We can expect the usual noisy demonstrations from those offering Alternative non-alternatives, but if the electorate is sensible they will ignore them and their sound and fury will soon fade away. There are also lots of positives in terms of cultural/social/environmental rethinking as Ireland emerges from this unfortunate credit-fueled-bubble episode.