What America can learn from Ireland’s meltdown.

By Brian Kaller

COUNTY KILDARE—From Foreign Policy to CBS News, mainstream American voices are now speaking openly about the possibility that the country is headed for a long decline. Depressing though such a discussion might be, it’s necessary. But equally important is the question of how a nation in the midst of catastrophe can rebuild.

For both of these purposes, it’s useful to have a test case—a country culturally similar to America that has experienced a variation of our boom and bust. Take, for example, my adopted country of Ireland.

Ireland has long been famous for being poor and oppressed, from 1729’s “A Modest Proposal” through the Famine and the Irish Revolution to 1995’s Angela’s Ashes. Tens of millions of Irish descendants around the world have felt sympathy for and solidarity with their distant cousins—their suffering gave us underdog status, a colorful past, and lent gravitas to our St. Patrick’s Day celebrations.

But in Ireland itself these cultural symbols have been a lived reality. My wife’s family remember a time when Ireland’s per capita GDP was almost the lowest in the Western world, higher than Puerto Rico’s but lower than Gabon’s, and when not all their neighbors had electricity or indoor plumbing. The country produced one of the highest ratios of Nobel Prize winners per capita in the world, but social life remained parochial and Dickensian, “backward” by American standards. Divorce, for example, remained illegal until 1995. Ireland was an anomaly on the world stage, cosmopolitan but agrarian, a European Third World country.

Once a few computer companies began moving here in the early years of the Internet boom, however, the economy roared to life, overthrowing everyone’s expectations. One by one, tech companies set up shop outside Dublin and Cork—Intel, Dell, IBM, Hewlett-Packard, Microsoft—drawn by low corporate taxes, a convenient time zone, and an English-speaking workforce. In the space of just 10 years, a country smaller in size and population than South Carolina became, according to some estimates, the world’s number one exporter of software.

As the “Celtic Tiger,” Ireland rose from 22nd in per capita GDP to fourth place in international rankings. Unemployment fell from almost 20 percent to 4 percent, and by 2005 an Economist study ranked Ireland as the best place to live in the world. Tens of thousands of Irish emigrants returned home, and Eastern Europeans flooded in to fill service jobs until almost 10 percent of residents were foreign-born.

Inevitably, the country developed a new class of rich and stylish entrepreneurs with their own national business celebrities, fashion magazines, trendy watering holes, and conspicuous consumption. Ireland had arrived like Cinderella at the ball.

But most of the Irish I talk to have mixed feelings about the Celtic Tiger: no one regrets making more money, building new homes, or taking annual vacations. Some have misgivings about what the new stresses and two-salary households did to families, what the construction boom did to the landscape, or what greed did to this very traditional society.

The most common complaint, though, is that the ruling party, Fianna Fail—rhymes with “tall,” but looks like a bad pun—squandered the boom years, failing to develop the country’s infrastructure as Americans did during their postwar peak. In my Missouri hometown, I could walk to a two-story library and a public pool, both open 12 hours a day, both built in the 1950s. Here the nearest library remains two small rooms alongside a gas station, the nearest public pool is small and far away, and both are open about 12 hours a week.

The boom that kicked off in the 1990s led to a real-estate bubble, and villages within commuting distance of cities quickly acquired acres of suburban developments, their populations as much as quadrupling in a decade. These towns and housing tracts rely on the same narrow, winding roads that have been in use for centuries. Prosperity brought Ireland all of the sprawl but none of the highways to which Americans are accustomed. We live 40 miles from Dublin, a half-hour drive on American roads but a three-hour round-trip bus commute each day for us.

Nor can we work from home—we don’t get the Internet. A 2005 report ranked Ireland 25th out of 32 nations in Internet service, as opposed to economically poorer Northern Ireland with 100-percent coverage. Meanwhile, near my office in the shabbier part of Dublin, abandoned buildings have the same broken windows they had before the boom; some of them have willows growing through their cracked bricks. For all the wealth the Celtic Tiger acquired, very little of it went into what Americans once called internal improvements.

By the time the banking crisis hit in September 2008, Ireland had a real estate bubble three times the relative size of America’s. Perhaps hoping to keep it afloat, that year the leaders of Fianna Fail took a bold step. On Sept. 20, Taoiseach (TEE-shak, or prime minister) Brian Cowen announced that the government would guarantee 100 percent of all bank holdings in the nation.

Not all deposits up to 100,000 euros, as the FDIC once did with dollars. Not just low-risk deposits, or 50 cents on the dollar. The government promised to back everything owed by all six Irish banks for the next two years—nine times the national debt.

The announcement shocked European leaders, concerned that their own countries’ investors would flee to Ireland. Less than a week later, the British press reported that investors were pressuring Prime Minister Gordon Brown to duplicate the Irish assurance. Brown demanded, in the words of the Daily Mail, that Ireland “stop trying to poach UK customers.”

Economists like MIT’s Simon Johnson maintain that this is when, and why, European countries began offering reckless guarantees to keep their investors home—first the UK, then Germany, the European Union itself, and finally, across the ocean, the United States. Ireland had started a stampede at a moment of crisis. No other nation completely backed all holdings as Ireland did, however, and none of those countries had such an extraordinary bubble supported only by the paychecks of a country with half the population of the Chicago area.

Last October, Financial Times columnist Wolfgang Muenchau called the Irish decision “one of the most catastrophic political decisions taken in post-war Europe.” Even as he wrote, the two-year guarantee was coming due.

The week before Thanksgiving, the Irish economy unraveled. In the wet darkness before dawn, as our double-decker bus hurtled over the winding country roads near our home, my neighbors and I listened to the news over the tinny speakers: a team of international financial advisors had flown in for an emergency government meeting, and no one knew why.

By the end of the day, it was reported that the Irish government was asking the European Union and International Monetary Fund for a bailout. The next day, Friday, we found that our bank’s value had plummeted, and we withdrew our funds to be on the safe side. Saturday more than 100,000 people took to the streets of Dublin to protest the bailout—a proportionally-sized American demonstration would comprise the entire population of Virginia.

Monday the government split, as the Green Party announced it was abandoning Fianna Fail’s coalition, forcing a new election in a few months. Since then, Fianna Fail—the party in power during the boom and bust—has slumped in the polls, falling behind not just the other major party but one of the minor parties. It would be as if the Democrats held power for 25 years, then suddenly were eclipsed by the Libertarian Party as well as the GOP and ran neck-and-neck with Ralph Nader.

That Tuesday the offices of two Dail (Irish Congress, rhymes with toil) representatives were vandalized. On Wednesday the government announced its new budget, cutting government pay and social services and hiking taxes.

Over the last four months the country has settled somewhat—our jobs are safe for now, and except for snowstorm interruptions our utilities still work. Most people I talk to remain angry, wishing their country had simply defaulted like Iceland. I took my six-year-old to Dublin recently to see a panto, a musical play for children but laced with double entendres and political jabs aimed to parents. I suspect this one, “Aladdin,” contained more than usual, including this line: “Look, princess, our treasure is gone! Brian Cowen must have been here!”

Ireland, of course, had circumstances unique to itself: a historically poor country that won the lottery and didn’t spend it wisely before disaster struck. America’s story is very different.

But the recessional plays for every nation sooner or later. I talk to many people who grew up in Ireland’s poverty, in Europe’s postwar famine, behind the Iron Curtain, or in the Third World. They have seen many crises in their lives—devaluations, coups, civil wars, fuel shortages, and famines—and, yes, it can happen here. The age of abundance might already be coming to an end.

The modern world, and the U.S. above all, has had a fortunate stretch of cheap energy, stable climate, skyrocketing wealth, rapidly improving technology, and—since the end of World War II—relative peace between superpowers. This has been enough to make us forget that even citizens of the First World not so long ago lived in largely self-sufficient agrarian communities not very different from those still fresh in minds of the Irish.

Today we have a world that runs on fossil fuels, especially oil—and oil production has stalled for the last six years and might begin its inevitable decline soon. Coal and natural gas will last longer, but they too have diminishing returns and eventual limits. Between them these resources not only move our cars and planes but supply most of our electricity, the plastics that make up our consumer goods, and the fertilizers that grow our food. All that in turn supports other facets of our society: banks, farms, factories, roads, telecommunications, police, and other near necessities. It’s a system that could fail in many places. But Americans have enjoyed these amenities their whole lifetimes, and through no fault of their own have lost the ability to live without them.

In this area, our Irish neighbors have an advantage, even if they don’t realize it. People here grew their own food, made and fixed their own belongings, and scraped by recently enough that older people remember how to do such things. Families are closer, literally and figuratively, and many of them include farmers. Some people here still know how to garden, forage, dig peat out of the bog for fuel, and handle animals—enough of a critical mass to teach others quickly. The lives of people here might stand up to more punishment than Americans can handle, in the same way that the stone bridges near our house still take daily traffic after 250 years and will continue to do so long after today’s shopping-mall infrastructure has crumbled. Transition to a post-crash life will not be pleasant, but here, more so than in America, it will be possible.

Friends of ours here describe how, as children decades ago, they walked miles to barter with neighbors—say, trading beans for flour. Such everyday acts would require substantial adjustment for many Americans. To begin with, children would need to be capable of walking for miles; for safety, they would have to know most neighbors along their way. They would have to be able to grow or make things to barter, and their parents would have to know what to do with beans and flour.

People adapt quickly, of course, and some Americans heeded the warnings in the oil and financial shocks of the last decade, taking crash courses in the skills their grandparents practiced. One danger, though, is that they might glean the wrong lesson. Americans tend to look at declines and crashes in one of two ways. Some react with indignation to the idea that their nation could experience an autumn, even a temporary malaise. Others view crashes as sudden, absolute, and imminent, the next one sure to reboot their lives and sweep away everything they don’t like about society and government.

Serious crashes can happen, of course, and our technology does not make us immune to them. There is a reason Ireland has so much open country and so many ruins; in an earlier age of railroads and mass communications, one crop failed, and a third of the island’s eight million people died or fled. We Americans have lived for decades at the other extreme of prosperity. Most nations live somewhere in-between—which is where the U.S. is likely to find itself sooner rather than later.

At some point America will witness a crash much worse than the Great Recession. It might feel like the end of the world, and some people, raised on two decades of apocalypse porn, might believe it to be so. But as the long-suffering Irish have discovered, the day of a crash will also be a day when bedtime stories need to be read, animals need to be fed, and chores can’t be put off until the next news report. The crisis will pass, and permanent things will remain.

Brian Kaller has written for Energy Bulletin, Front Porch Republic, and the Dallas Morning News. He and his family live in rural Ireland.

 

The American Conservative needs your support to make articles like this possible. Please subscribe or make a contribution today.