In an opinion piece in The Atlantic, senior economics editor Megan McArdle suggests that Irish austerity is not the failure some economists are purporting it to be.

Economist Paul Krugman has "compared austerity to bloodletting" she says.

"Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks," Krugman said in the NY Times back in March.

". . . Just ask the Irish, whose government -- having taken on an unsustainable debt burden by trying to bail out runaway banks -- tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. "Ireland offers an admirable lesson in fiscal responsibility," declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery," he writes.

"That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland's unemployment rate now stands at 13.5 percent."



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McArdle contests that since then, although Ireland's bonds spiked in the summer, yields have now started falling.

She goes on to quote the Wall Street Journal, which reports that the Irish economy has started growing again.

"The national statistics office said Thursday gross domestic product in the three months to June was 1.6% higher than in the first quarter and 2.3% higher than in the same period of 2010.

"That was the fastest year-to-year expansion since the last three months of 2007, after which Ireland's previously fast-growing economy was felled by the financial crisis and the collapse of a debt-fueled property boom.

"The Central Statistics Office also raised its calculation of growth in the first quarter to 1.9% from the previously estimated 1.3%. The growth was broad-based, including manufacturing, agriculture, transport and communications."

McArdle says she feels "vindicated" for what she wrote last year:

"Related thoughts: whatever events unfold, a lot of pundits who insist on treating whatever has happened in the last five minutes as if they were the final events of the crisis, are going to look like idiots. If Spain ends up in the same place as Ireland, the virulent arguments over Irish austerity are going to look rather silly in retrospect; if Europe's banking system is badly compromised, the model of economic crisis that centers around American bank regulation and monetary policy will be severely compromised; and so forth. Pundits and regulators should both be playing the long game."

Paul Krugmann