Ireland's Reality Is Our Reality
December 1, 2010
As the government of Ireland undergoes scrutiny and criticism for its mismanaged fiscal house, the media risks missing the primary lesson, says Emily Skarbek, a research fellow and director of the Center on Entrepreneurial Innovation at the Independent Institute.
Poor public sector incentives drive politicians to enact policies that defy the laws of economics. The political process centers around the delusion that government spending amounts to something other than a zero sum -- and more often negative sum -- game. Markets, private property and economic liberty are the engines of growth. No government can achieve what a spontaneous order of freely trading people can produce.
The reality is clearly visible in Ireland's own history.
- Unleashing markets via economic freedom-enhancing policies led to remarkable growth rates of 5 percent to 9 percent in Ireland's economy in the 1990s.
- In 1986, Ireland's gross domestic product (GDP) per capita was only 63 percent of the United Kingdom's.
- By 1999 it exceeded per capita GDP in both the United Kingdom and Germany.
The rapid growth experienced by the Irish in the 1990s came with low taxes. As low taxes encouraged investment and growth, revenue came rolling into the coffers. The incentives facing politicians encouraged excessive public spending. Government continued to expand -- growing out of proportion to the private market. Public sending took to new levels and the Leviathan was unconstrained despite the insufficient tax revenue to feed the insatiable appetite of the state, says Skarbek.
While the media bashing of the current politicians responsible brings important attention to the issues, the bigger picture should not get lost in the debt reshuffling schemes.
- The bailouts will amount to the state only partially facing up to the realities that public spending cannot produce what the market accomplishes.
- The poor incentives facing politicians need to be addressed to check the proclivity to spend other people's money less prudently than one spends her own.
- Eventually, the U.S. federal government (and some of the states like California) will have to face the same economic reality Ireland now confronts.
Source: Emily Skarbek, "Ireland's Reality is Our Reality," MyGovCost.org, November 24, 2010.
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