As little as two years ago, Nobel laureate and NY Times columnist Paul Krugman claimed that the austerity measures implemented in Ireland were never going to work. Writing from New York, he argued that "the repeated invocation of Ireland as a role model has gotten to be a sick joke."
Nicholas A. Vardy, Chief Investment Officer at Global Guru Capital, is now questioning whether Krugman and other dissenters of the success of Ireland’s policy of economic austerity should eat their words, as it appears they got Ireland all wrong.
In a column for MarketWatch, Vardy applauds the strict cutbacks made by the Irish government since the Irish economy completely fell apart in 2008, claiming that the country has now shown enough proof of growth to confirm that austerity measures worked.
He says that the Keynesian economics naysayers (those who believe that, especially during a recession, economic output is strongly influenced by total spending in the economy) must now admit the country can be used as an example of austerity in good practice.
“These were the same policies dismissed by Keynesian economists like Nobel laureate and government-spending champion Paul Krugman of The New York Times,” he writes, “as the measures implemented by right-wing ideologues who couldn't even pass an undergraduate macroeconomic theory course at Princeton.”
Describing the doom and gloom of the collapse of the Celtic Tiger in 2008, when the property bubble burst and the bottom fell out of the Irish banking sector, Vardy claims that the story couldn’t be more different in 2015.
Irish GDP is expected to grow by six per cent in 2015, and by another 4.3 per cent next year. Last month unemployment fell to 9.1 per cent and Ireland is also now the EU’s fastest growing member state.
He admits that this turnaround has been bought the hard way, with raised taxes, cuts to public services and a bailout of $89 billion (€67.5 billion) from the Troika (International Monetary Fund, the European Union and the European Central Bank) but it is a far cry from the bleak future envisioned seven years ago. Such was Ireland’s plight at that time that Krugman said, "(t)he best thing about the Irish right now is that there are so few of them."
#Ireland economy growing at 6% annual clip. So much for Paul Krugman's idea that austerity is the highway to hell.— Eric Reguly (@ereguly) September 10, 2015
Paul Krugman speaking sense (not blame) #newsnight - 'this is a shared European problem' - cautionary advice to European govts- incl Ireland— Grainia Long (@GrainiaLong) February 17, 2015
By implementing these harsh measures, however, Vardy feels Ireland have shown “a country can indeed emerge from a downward economic spiral by downsizing the public sector, reducing its fiscal deficit and cutting public debt.”
As an, example, Vardy cites the recent opening of a $107.5 million (€100 million) global technology and innovation center by KerryGold in Naas, Co. Kildare.
He believes that such an investment, one of the biggest made my an Irish company in Ireland in recent years, is a testament to the renewed confidence they have in the Irish economy and disproves the criticism of economists such as Krugman.
He also cites the recent announcement by Irish Finance Minister Michael Noonan as further proof that Ireland is once again on its feet.
“Finance minister Michael Noonan recently announced plans to cut the corporate tax rate from 12.5% to 6.25% for companies that demonstrate that their earnings depend on intellectual property created in Ireland. The emergency tax introduced in 2010 to pay the €64 billion bill for bailing out the banking system has also been cut by 1.5%. Capital gains tax will be slashed from 33% to 20%.”
“In fact, worries are now shifting to whether the new measures will cause Ireland's economy to overheat,” he writes.
“Still, facts are stubborn things,” he continues, addressing Krugman.
“That's why it's now time for the left-wing Nobel Laureate to man up and taste some of that bitter-tasting, austerity-spiced Irish crow.”
Do you agree that introducing strict austerity measures in Ireland was the right thing to do to restore the Irish economy? Let us know in the comment section.