Oh dear. Reinhart and Rogoff may wish to avoid ever holidaying in Greece, Portugal, or Spain. Their seminal (and now-disproved) paper – arguing that once a country’s public debt was over 90% of their GDP, there is a strong negative relationship with the country’s economic growth – probably took up a fair amount of the Troika’s discussion time when it was deciding on the measures the peripheral countries needed to take if aid were to come their way.
Of course, Reinhart and Rogoff were not the only ones to argue that high government debt is bad for growth. Over the years, several economists have pointed out that government borrowing can crowd out private investment, and that reducing government borrowing can allow growth to resume. Read more
Last week, the economics blogosphere was ablaze with commentary on an economics paper from 2010 called “Growth in the Time Debt.” The paper was by Carmen Reinhart and Kenneth Rogoff, both of Harvard, and has come to be known as just “Reinhart-Rogoff.” What’s so big about a three-year-old economics paper? Well, most of the current calls for austerity in the U.S. and around the world cite this paper as the major influence in cutting government spending…oh, and the conclusions of the paper turn out to be wrong. Read more
It used to be that Ireland had a bit of an image problem, perhaps not with the rest of the world, but with itself. Irish playwright George Bernard Shaw said, “I showed my appreciation of my native land in the usual Irish way by getting out of it as soon as I possibly could.” For much of the 19th century, following the Great Famine, socioeconomic conditions were such that a culture of emigration took hold in Ireland and its citizenry left in droves for England, the United States, Australia, and Canada. By some measures, this lasted right up into the 20th century, until the Celtic Tiger (a catchy name coined by a Morgan Stanley economist) economy sprang forth and Ireland’s prospects started to look positively dazzling. A number of factors including low corporate taxes, infrastructure upgrades, and education improvement drew businesses (particularly tech companies) to the Emerald Isle.
The new prosperity not only made things better for the average Irish citizen, but even started attracting immigrants from abroad. Incomes rose, unemployment fell…and then in 2001, this economic expansion started to reverse and it appeared that the Celtic Tiger had been declawed. After a bit of a rebound, the global financial crisis struck in 2008 and this cat appeared to have used one more of its nine lives.
However…after some time to lick its wounds, the Tiger is potentially gaining strength. Several factors are combining to make Ireland an attractive investment in my opinion. While Ireland still has a way to go in its recovery, there are several fundamental factors that point toward renewed prosperity.