Daily Archives: January 4, 2009

So Ireland should be our model? 4

During the debates in the waning days of the last presidential campaign John McCain repeatedly cited Ireland as the example that we should be following for our economic policies, particularly when it comes to business taxes. McCain described the low tax rates that stimulated the Irish economy to huge growth over the last 15-20 years. What he neglected to mention was the with all the tax breaks that businesses get here, they typically end up paying less in taxes than the nominally lower Irish rates.

The real issue though is the premise Republicans and anti-tax types like Grover Norquist rely on that cutting taxes for the business and the wealthy will help everyone. It’s old “a rising tide lifts all boats” argument. The problem lies in the fact only the well-off could afford to buy a boat in the first place. Most people here and in Ireland (and elsewhere) ended up treading water as long as they could while housing prices climbed.

An article on Ireland and the crash its economy experienced in 2008 in the International Herald Tribune looks at what happened over the last two decades as tax policies were changed and the economy boomed. Just as everywhere else it seems that whenever economic growth gets particularly aggressive, greed overwhelms common sense and sustainable growth levels evolve into unsustainable bubbles. At the same time that real estate developers were making fortunes in Ireland, there remained stubborn pockets of urban poverty in places like Limerick.

These chronically unemployed, poverty stricken people were “camped on the beach” as that tide came in and never managed to climb into a boat. Developers who were encouraged to help improve the lot of the people in these urban ghettos decided to go where the real money was. Given the option of almost certain, large short term profits or more moderate and vague, longer term returns, entrepeurs typically opt for the former. This was certainly the case in Ireland just as it has been here in the US where the poor typically end up getting isolated and marginalized.

What all this demonstrates yet again is that we cannot simply rely on private business to do the right thing. Certainly there are those who will do the right thing, but they are the exception rather than the rule. Government policies clearly need to make sure that everyone has a “boat” before the tide comes in. That means that everyone needs to get educated, fed and get basic health care. If we can make sure that everyone has some basic fundementals then those people can be in a position to start to take advantage of economic growth. At that point, the growth might in fact start to become sustainable.