The ESRI (Economic and Social Research Institute) has been lambasted by a Nobel Prize winning economist this afternoon.

Blogging for the New York Times Paul Krugman says the analysis in this morning’s ESRI report, which calls for €7.5bn in cuts over the next four years  is pulled “out of thin air”.

Krugman is highly critical of the institutes approach, arguing that further cuts may be self-defeating. Krugman is speaking as the government met today at Farmleigh to cut more than €3bn from the 2011 Budget, a move endorsed by the IMF.

Krugman says: “the policy conclusions are not, in fact, derived from the analysis — they come out of thin air. The authors simply assert that more austerity now would lead to a lower risk premium and hence higher growth, based on no evidence I can see.”

He dismisses the report saying it is a “pure appeal to the confidence fairy.”

This is not the first time Krugman has slammed austerity measures in Ireland.  In June, he wrote: “All that savage austerity was supposed to bring rewards… But the reality is that nothing of the sort has taken place: virtuous, suffering Ireland is gaining nothing.” Krugman’s comments had been brought about by an article by a feature in the New York Times about Ireland.