LAST UPDATE | 11 Mar

THE IRISH ECONOMY has experienced two deep crises and two remarkable booms in the past generation. There are several contributing factors, including the extreme openness of our economy, good and bad policy decisions, and a fair amount of luck (mostly good).

Steady and stable growth would have been far preferable, and many of the housing and infrastructural bottlenecks we are experiencing now are a direct result of the investment collapse after 2008.

The extreme volatility of the Irish economy also makes it difficult to keep track of how the economy is performing. Much of the discourse is understandably future-focused, but we perhaps spend too little time getting an accurate picture of where we are now.

Measuring the Irish economy

There are many ways to measure the performance of an economy, though none of them are fully comprehensive. One of the worst measures for Ireland is the most commonly used internationally: Gross Domestic Product (GDP). I have written here before about why GDP is misleading in this country — essentially because the big multinational firms are so dominant and repatriate their profits, which therefore add nothing to our collective living standards. Modified Gross National Income (GNI*) was designed to correct for this and demonstrates that our shared national income is vastly lower once these profits are stripped out.

So is GNI* the best measure for Ireland, then? Yes and no. Another unusual feature of the Irish economy is rapid population growth. The population reached 5.38 million last year, up from 4.55 million in 2010. This is a combination of both immigration and natural population increase and is in stark contrast to the Irish experience for most of the past two centuries. One advantage of a booming population is it will partially insulate us against the global fertility crisis, which has many countries questioning the long-term viability of their public pension regimes.

But any assessment of Irish output growth also needs to take account of this rapid population increase. The pie is bigger than it was ten years ago, but it also has to go considerably further.

Measure GNI* on a per capita basis, and its growth is much less spectacular. Control for the inflation of the past few years, and it looks less impressive still. Beyond the headlines, Ireland is a surprisingly normal Western European economy in terms of our living standards.

The indicators

Last week brought the welcome news that the unemployment rate is provisionally down to 3.9%. This is the lowest level since 2000 and a major achievement. Surprisingly, however, it is far from the lowest rate in Europe. While the average unemployment rate in the EU in January was 5.8%, the Irish rate was only the eighth-lowest across the 27 countries. We are doing very well here, but, again, perhaps not quite as well as we think.

What about inequality? A troubling feature of the Irish economy is that without government intervention our income inequality would be extremely high by international standards, partially because pay in the multinationals is so much higher than in indigenous firms. Fortunately, the state is much better at correcting this than most people believe. After taxes and transfers, Ireland is more equal than the EU average and is surprisingly also more equal than Sweden.

Some of the best indicators of economic progress are actually health measures. I particularly like life expectancy because it is very hard for countries with large income disparities to do well. Severe inequality pulls down the aggregate life expectancy of the many much more than it increases it for the few, because nobody lives long enough to significantly pull up the average. Life expectancy for Irish men is among the very highest in the world, at 80.9, exactly the same as in Norway. For women, life expectancy is 84.2, again exactly the same as in Norway. Spain is the European leader here, with female life expectancy at 85.9.

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Challenges

And what about the areas where we are doing badly? The most conspicuous is obviously housing. Anyone who reads the international newspapers will know that we are far from alone in our housing affordability crisis.

What possibly does mark Ireland out is the underlying cause. Many developed countries have seen price spikes because of artificial land shortages, so land has become an increasing proportion of the total cost. In Ireland, however, the problem seems to be more complicated, with rapid price increases in building and site development costs as well as land.

So how is the Irish economy doing? It really depends on where you are sitting. Getting real-time information from my MBA students is one of the most enjoyable aspects of lecturing at the University of Limerick. These are established professionals with deep sectoral knowledge and have generally benefitted significantly from Ireland’s latest recovery.

For my undergraduate students, however, the housing crisis inevitably trumps almost everything else, and the burden here is being distributed entirely unequally.

Ciarán Casey is an economics lecturer at the University of Limerick. He is author of ‘The Irish Department of Finance, 1959-1999′ (IPA, 2022) and ‘Policy Failures and the Irish Economic Crisis’ (Palgrave MacMillan, 2018).