A bit of background. Ireland was hit hard by the recession, and headline unemployment is currently topping 15%. Perceptive readers take note: This is a bad thing.
In response, Ireland enacted a crushing austerity plan, slashing government payroll and instituting draconian spending cuts. According to the methodology favoured by the right and the ever charming Germans, this should have helped stabilize the economy. Markets would be reassured by Ireland's commitment to tackling it's debt issues, money would be invested, and liquidity would flow.
Alas, such is not the case. Things did not get terribly worse for Ireland, but they didn't get much better, either. Their bonds still trade at rates much higher than Spain, which is in a similar grim situation but didn't care to cut much from the budget at all.
Now, according to cognoscenti like Paul Krugman, there's a simple explanation for this. Savage fiscal austerity only works when you can slash interests rates or devalue your currency. Of course, this isn't much help: interest rates are effectively zero, and not everyone can devalue at once.
McCardle thinks different:
Though meager, they're real. On the same day that the Times was presenting a dire picture of austerity budgets, the Wall Street Journal was running an article suggesting that Ireland may end up a big beneficiary of the cheaper euro . . . a healthy growth rate does seem to at least call into question the notion that failing to do massive stimulus automatically dooms your economy to a tragic combination of stagnation and decay.
We rather like McCardle - she's a healthy dose of sanity in a conservative world that's wandered just a bit far into stark foaming madness for our tastes. But on the face of this, it's just bizarre. Krugman says austerity only works if you devalue your currency, and McCardle retorts that it worked perfectly well for Ireland . . . once they devalued their currency?
And, of course, it's worse than that, because Ireland has no control over their currency at all. They're a member over the Eurozone. If McCardle can prove that the austerity plan has some impact on the trading rate of the Euro, then she's got a leg to stand on. Until then, she's just trawling for Krugman's dataset.
