The graphs that only tell half the story
This chart is all the rage this week – at least in the United States. It purports to tell the story of how France and Italy aren’t getting their act together, but perennial “model pupil” Ireland is turning the corner because of the massive wage deflation it has engineered – enabling the country to remain globally competitive. Paul Krugman writes an excellent rebuttal to Steve Ratner’s original op-ed, but even it only gets half the problem.
At the heart of the problem for Ireland is still the flows and imbalances caused by membership of the Euro. This means that the reduction in labor costs in Ireland or Spain are delivered from “internal deflation” with corresponding effects on domestic standard of living and unemployment (as with the US, Ireland’s unemployment rate is somewhat flattered by people leaving the workforce for good – in Ireland’s case on a plane).
And if the charts above base their output on GDP, then Ireland’s situation is made all the more miserable – much of Irish GDP is fluffy financial flows that add little to the real Irish economy, which is why GNP is always a tougher number to grow in Ireland.
There can be little doubt that Ireland, like most economies, is in a better place for many people than it was in 2008. But the reason for that is the overarching and very visible hand of the ECB’s backstop monetary easing, not the medicine administered by the troika.
Businesses love to blame poor results on their “environment” and good results on their shrewd insight and sharp execution skills. Politicians are no different. We need smart people like Ratner and Krugman to hold this stuff up to proper scrutiny.