Friday, March 12, 2010

Bubble is the disease, recession is the cure

By 2010 it was clear that Ireland had far too many houses. A frantic housing bubble had been pushing up prices for years and, as we now know, it had to pop eventually. Now Ireland has 345,000 empty houses and disastrous levels of unpaid debt. The housing bubble was the problem, and if it had subsided years earlier then the country would be in better shape today.

Useful to remember, then, how many high-profile journalists and politicians thought the bubble should expand forever. This is an article in the Irish Independent by Fine Gael TD Brian Hayes in late 2006, criticising then Progressive Democrats leader Michael McDowell for the first signs of what later became economic collapse:
Their influence on economic policy is marginal. This was cruelly exposed this autumn when Michael McDowell huffed and puffed about stamp duty. The effect of his loose talk was to destabilise the Dublin housing market. He is directly responsible for many of his own constituents being unable to sell their houses this autumn.

Hayes, and many other politcians and journalists, blamed McDowell for a blip in the expanding house market because McDowell had suggested reforming the stamp duty - supposedly encouraging potential house-buyers to wait for the next Budget before buying a house. They were disappointed by this because they seemed to assume that permanently rising prices were sustainable and desirable; this kind of ludicrous thinking caused the collapse.

So let's not forget that as Ireland was driving towards its own destruction, some of the dominant voices in media and the Opposition were egging it on, faster and faster over the cliff.

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