An Irishman Walks Into A Financial Crisis . . .

by Stuart Shapiro

This post is primarily to tout Michael Lewis’ brilliant (and long) piece in Vanity Fair examining the origins of the recent financial meltdown in Ireland.  A sample:

An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, made a back-of-the-envelope calculation that puts the losses of all Irish banks at roughly 106 billion euros. (Think $10 trillion.) At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years. In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed.

But I also want to make a broader point.  While anything as huge as the financial crisis has many origins and many culprits. At its heart it was a failure of the governments to police the markets.  Even a pro-market economist will acknowledge that a functioning capitalist economy depends on a central body to enforce property rights and minimize negative externalities.  While pro-market economists remember this basic precept, pro-market politicians do not always do so.  As you hear about calls to roll back regulation, particularly of the financial sector, try to remember this.  It shouldn’t be hard; we are still paying the price from the last rollback.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.