It has become clear to all but the very few that the heyday of Ireland’s economic success of the past decade has come to an end. More than ten years of sometimes rapid growth in economies over Europe produced the illusion among speculators and investors of financial and economic invulnerability. So advanced was this delusion or group hysteria that Gordon Brown, the then Chancellor of the Exchequer of Great Britain, announced in the March 21st 2007 Budget Statement that Britain would “never return to the old boom and bust.” The “old boom and bust” to which he was referring was the Austrian School of Economics’ theory of business cycles through which there is a localised rise in an economy due to the increased demand on certain traded commodities predictably followed by an economic downturn as a result of falling demand due to unrealistic prices. It would be wrong to single Brown out, as this sense of false optimism was evident over the whole of Europe and North America. Such delusional optimism during years of economic success is a phenomena described by John Kenneth Galbraith as he describes the sense of optimism in the United States of America the year prior to the Great Crash. He reflects on the words of Will Payne who wrote in the January 1928 issue of World’s Work that the investor was better off than the gambler, because the gambler wins at the cost of another where in investment everyone gains. Galbraith commented that “all people are most credulous when they are most happy (The Great Crash 1929: the classic account of financial disaster, 1954).” It is certainly the case that the financiers and political leaders of Europe and North America had a great deal to be happy about in 2007. Nevertheless, the same rules of the business cycle applied then as they did on the eve of the Great Depression.
As the rule of the business cycle states, it was the case that most of the European economies success was created by an over reliance on the localised rise in demand for property. This was particularly true in the case of the Republic of Ireland. A sharp rise in demand in the mid 1990s for property in Dublin drove property prices upwards and simultaneously generated in increase in the construction industry which fueled employment. Increased employment in turn heated the economy by increasing spending and demand. These factors had a knock-on effect laterally across the Irish economy. By early 2004, after the first dip in the economy, the resurgence of the market led to the construction industry, which typically employed young unskilled men, constituting just over twelve percent of the national gross domestic product. The old adage about too many eggs in the one basket should have been warning enough to the policy makers of Ireland, but it was clear by this time that Europe, along with North America, was already in the grip of a heightened false optimism. Property prices continued to increase due to demand and increasing speculation in the property market. In tandem with this increase in the market, developers were increasingly granted permission, often through corruption, to continue building; thus further increasing employment in the sector and stimulating the greater inflation of the wider economy. It is estimated that some ninety thousand new homes were completed in Ireland by 2006, in comparison to about one hundred and sixty thousand in the United Kingdom; a country with over fifteen times the population. In 2007 the property market had become the staple crop of the Irish economy. Inevitably, however, supply tended to demand and the grossly inflated prices were being called into question. As early as June 2005 the Economist was warning of the dangers of Ireland’s excessive property values.
Property values were not the only values that were in severe danger of being lost during this time of apparent economic prosperity. Despite David McWilliams’ arguments to the contrary, it was clear on the ground that the gap between the rich and the poor in Ireland was widening. McWilliams argued, using Eurostat figures, that Ireland’s inequality standing in Europe was “just above average,” and that since the 1960s Ireland had grown “more equal” in the twenty years to 2006 (Friedman the Free Thinker). In this analysis he failed to account for the astronomical growth in wealth which had occurred in the sixty percent of the population between the twenty percent at either extreme of the wealth spectrum in Irish society. A report published in the Guardian (October 7th 2004) by Angelique Chrisafis noted that the housing boom had left many people financially unable to gain a foothold on the property ladder, and that overall the growth in the economy in isolated areas of the population (middle class families) had left the elderly, disabled and the young at particular risk of real poverty, while economic immigrants often lived in appalling conditions. She quoted a European report which found one fifth of the Irish population to be living on or below the European poverty level: “taking home less than 60% of the average wage.” The OECD put the Irish poverty level at about fifteen percent. The truth is that for the majority of the working population of Ireland between 1994 and 2008 the ‘Celtic Tiger’ had little or no material benefit. This conclusion gives the lie to the claim of the Irish government that the ordinary people of Ireland were living beyond their means. It is clear that there were people who were living in excess of their means, but by no means was this the ordinary working person.
Now in the aftermath of a complete failure of the Irish economy the government has one single objective, and that is to repay the staggering national debt accrued over the ‘years of plenty.’ In times of such economic crisis it is in the interest of international lenders to call their debtors to account. The Irish economy has been weighed and measured in this recent analysis, and it has been found wanting. This gap between what the state owes to international lenders and what the state actually has to pay the debt with is called the national deficit. It has been conservatively estimated that the national deficit of Ireland by the end of 2010 will be calculated at around twenty four percent of gross domestic product, which is a figure in the region of forty billion euros. Taken together with the public expense of paying for the toxic loans of Ango-Irish Bank, and the recapitalisation of Allied Irish Bank and Bank of Ireland, this deficit to gross domestic product ratio rises to somewhere in the region of one hundred and nine percent. In short this means that for Ireland to be a viable European economy the state shall have to pay out nine percent more than the entire nation can earn at one hundred percent tax. Of course these debts can be worked out over a period of time, but this is not to be understood as an indefinite period of time; lenders would like to receive debt repayments. Naturally this leads the government to implement austerity measures upon the Irish people, of whom the working majority had no part in the creation of the problem. It has become apparent from the previous budgets of this crisis that the Fianna Fáil government intend targeting the working taxpayer, the economically vulnerable and the unemployed to make up for this, not unsubstantial, shortfall. In the final analysis it is evident that those on the losing side of the growth in the gap between rich and poor in Ireland over the past twenty years will be made to suffer austerity to protect the minority of high-income earners who wrecklessly mishandled the money of the state and bought the poor for silver, and the needy for a pair of sandals (Amos 8:6). The writing is on the wall.
Jason Michael McCann