There’s a visible push to claim that recent Irish experience — somewhat better-than-expected growth in the second quarter, rising exports — vindicates austerity policies. Here’s a new piece on export growth, trumpeting a rise in pharma exports.
So, some cold water. First of all, eventual recovery after years of Depression-level unemployment is a strange definition of success. But there’s also a specifically Irish twist. Pharma accounts for a large share of Irish exports — but it makes a much smaller contribution to the Irish economy. Partly that’s because pharma uses a lot of imported inputs, so that it has relatively low domestic content. Partly that’s because pharma is very capital-intensive, employing very few people — and the capital is foreign owned, so that the contribution to Gross National Product, which deducts income paid to foreigners, is smaller than the contribution to Gross Domestic Product, which doesn’t. Indeed, Ireland is one of those countries where you really want to track GNP rather than GDP to get a sense of how the country is doing.
And here’s how it’s doing:
Success!
To be fair, Ireland is doing a bit better than feared; it’s achieving a significant amount of “internal devaluation” via deflation, which is leading investors to mark up the possibility that it might actually avoid default. I should also make clear that given the commitment to the euro, Ireland had to engage in some kind of austerity program, although it wouldn’t have been as draconian if not for the decision to socialize all the of the banks’ debt.
But the idea that Irish experience is vindicating the demands for austerity, because real income, which bottomed out 18.4% below the previous peak, is now only 15.7% below that peak …
