Think You Have Ireland All Figured Out?

The “road to prosperity” is clear, wrote Pat Toomey in a book published last year. Cut taxes. Deregulate. Get government out of the way and let the free market rip. This isn’t dogma, emphasized Toomey, a former Republican Congressman and former president of the Club for Growth. It’s empirical fact. Why, just look at the miraculous economy of Ireland.

Yes, just look at it.

Once hailed as proof that cuts are the cure for whatever ails the body politic, Ireland is now broke. A burst real estate bubble gutted Irish banks, knocked the economy flat, and crushed the government with Brobdingnagian debt. Unemployment is more than 13 per cent. And thanks to severe austerity measures required by an International Monetary Fund-EU bailout package agreed to this week, things will soon get worse.

Does this give Pat Toomey pause? Does it make others wonder if Toomey is perhaps excessively confident in his judgments about prosperity and how to get there? Apparently not. On Nov. 2, the voters of the great state of Pennsylvania chose him as their senator, and no one expects Toomey to be anything but sure of himself when he arrives in Washington.

Unfortunately, this story is all too typical.

All through the 1990s and most of the last decade, Ireland, the formerly sleepy and stagnant European backwater experienced stunning economic growth. Emigration became immigration. Major corporations set up shop. Ireland became the “Celtic tiger.”

What caused the transformation? Cuts, said countless people on the right. Cuts to government spending. Cuts to income taxes. But most of all, cuts to corporate taxes. If only the United States would cut corporate taxes to Irish levels, wrote the Cato Institute’s director of tax policy studies on St. Patrick’s Day, 2007, Americans would be “enjoying Irish-level growth rates by next St. Paddy’s Day.”

Understandably, Ireland’s collapse has given many on the left a certain schadenfreude. This “is what the conservative agenda looks like, played out to the end,” wrote NDP strategist Brian Topp. British writer Johann Hari suggested Naomi Klein take her “masterpiece” of a book, The Shock Doctrine, on an I Told You So tour of Ireland.

I wonder, though, if both sides haven’t made the same mistake.

What was the evidence that made free-market enthusiasts certain that Ireland had proved cuts are the “road to prosperity”? It was simple: Ireland made big cuts; the economy boomed; therefore the cuts caused the economy to boom. Of course there were more rigorous analyses, but most cases made by activists really were this straightforward.

See the problem? The shaman shakes his rattle over a sick man; the man gets better; therefore rattle-shaking cures illness. This is the logical fallacy known as “post hoc ergo propter hoc” (after this therefore because of this). It’s a simple mistake. And people fall for it all the time.

Particularly when it suits their ideological tastes.

Note that Ireland did much more than cut tax spending and taxes. It joined the European Union and got huge subsidies for infrastructure. It invested heavily in education. It adopted the euro. It created the “social partnership,” which sees government, labour and business negotiate collective agreements at the national level. And a long, long list of other policies.

But those were seldom mentioned when free-market activists touted Ireland. Instead, they plucked out the few policies that fit their ideological assumptions and declared “post hoc ergo propter hoc!”

Which is exactly what leftists are doing now. Ireland cut government and taxes; Ireland crashed; therefore cuts to government and taxes caused Ireland to crash. No mention of the policies that don’t fit that narrative, and no analysis more rigorous than “post hoc ergo propter hoc.”

The problem here goes straight to the heart of social science: If we take logic and evidence seriously, figuring out what causes what is incredibly difficult.

Consider Barack Obama’s stimulus program. The Obama administration, and many bright economists, said that it would reduce unemployment by a couple of percentage points to a certain level. But unemployment blew right past that level. Those who opposed the stimulus – including many other bright economists – said “aha! It didn’t work!” But supporters responded that the stimulus had indeed worked: Unemployment would have been even worse if not for the stimulus.

So who’s right? With these facts alone, we really don’t know. It wasn’t a controlled experiment. We can’t compare the results with an alternate reality in which there was no stimulus.

Acknowledging these deep uncertainties doesn’t lead to nihilism. It just means we have to make more effort to gather and think about evidence – while being especially cautious of explanations that happen to fit our ideological predispositions because that’s when our critical faculties go down and we fall for the “post hoc” fallacy and other simple mistakes.

But mostly it means accepting that we know less than we think we know. And being suspicious of those who are sure they know so much more.