In a decidedly dour season, Louise’s arrival, via an altercation with an Atlantic City matrons and a pack of “beach lizards,” is something of a delight. Angela’s been looking for an actual kindred spirit all season long, and while Richard’s too melancholic and too damaged to truly lift her up, Louise, who uses the fake names of one of the characters in her novels as an alias, and hollers, “Let ‘em gawk. They’re called knees, fellows!” at her pack of admirers on the beach, appears to be exactly who Angela is looking for. It’s nice to see Angela lit up a bit, galvanized both by overhearing Jimmy’s inept scheming, and by the kiss she shares with Louise at a joyfully bohemian party. And her conversation with Jimmy is bruising. When he asks her why she married him (after evading a question about whether he really loves her), she’s blunt: “Because we have a child together. It’s what society expected from me. Because you kept pushing it.”

And that’s sort of the key to Jimmy’s problems, isn’t it? He’s not a complicated man, and he’s not very good at seeing complexity in other people, or in assessing what people expect of him, particularly his mother. He’ll toss a fellow off a balcony for upsetting his party, incapable of thinking through what it might mean for a long game. In fact, Jimmy doesn’t particularly seem capable of seeing that there is a long game, that his moment of triumph is really Nucky’s victory. Inspired by a lecture from Arnold Rothstein, who tells him that “Some days I make 20 bets. Some days, I make none…so I wait, plan, marshal my resources. And when I finally see an opportunity and there is a bet to make, I bet it all,” Nucky rolls big. He quits his treasurer’s job, retires to private life, and prepares to unleash absolute hell on Atlantic City. “You sure this what you want?” Chalky asks when Nucky tells him to call a general strike and that Nucky will back him. “In about 30 minutes, it won’t be my problem,” Nucky says, relishing the thought of complicating everyone else’s life for a change — and planning a trip to Ireland to enlist Sinn Fein in his campaign.

And he’s not the only one who’s making plans. Nelson Van Alden appears to be rather aggressively breaking bad, though what exactly his motivations are remain somewhat unclear. Whether he’s stealing for his daughter, or out for revenge at a bureau that he thinks has failed him, he’s taking free lunches! He’s allowing questions about their mission to be asked around him! He’s kissing Abigail before leaving for work! He’s advertising his Victrola as a benefit of the nanny job! He’s giving the nanny a full day off a month! I’m joking a bit here, but for this extraordinarily repressed man, these are large steps towards a more open humanity.

One imagines that other characters’ humanity will be tested, too. I have a sense that Margaret’s daughter may not be long for this world — and that the “something” that’s going around may prove to be a more general scourge. And it seems that in addition to an illness, she may be gaining a father — Nucky’s asked Margaret’s children to start calling him “Dad” in the wake of his own father’s untimely death. “Was he that bad, Nucky? Really?” Eli asks at their father’s empty memorial service. “You’ve obviously forgotten key events from our childhood,” Nucky snaps at his brother. But he breaks down tying his father’s shoes anyway. One wonders what he’s learned from his own father, and if he can be a genuine husband to Margaret and father to her children.

It seems that giving birth has liberated Lucy, taken a literal weight off her body, and given her latent cleverness a motivating force. “Of course I fed her,” she snaps at Nelson, who assumes she’s neglecting their as-yet-named child. “What do you think I am?” And she’s blunt with him about the terms of their arrangement, telling him, “This is your baby. You bought it.” She’s more tender than that about the baby with Nucky, though, even if he starts their conversation by forcefully denying paternity. “I look like shit. She’s kind of cute, though. Ten toes and everything,” Lucy explains, setting up the scheme that will lead Nucky to try to blackmail Nelson with the knowledge of his illegitimate child. “Now, there’s someone else I’ve gotta make happy. And she’ll always be mine.”

In a way, there’s something sort of invigorating about seeing Nelson return from the land of hypocrisy to righteousness and stand up to Nucky’s attempts to weaken him further. But I’ll admit enjoying seeing him taken down a peg by Esther Randolph (the marvelously befreckled Julianne Nicholson) first. As the new lead investigator on the Nucky Thompson case, Esther’s a former radical who spent 10 years as “a public defender, representing draft dodgers and prostitutes.” And the collision between someone who’s been brought in to look unimpeachable and a man who thought he was unimpeachable and turned out not to be is inevitable and interesting. She’s less naive that he is — it makes sense that a woman who’s defended her clients against abuses of power would be less sanguine than the righteous man who works within the system. When Nelson complains that “the scales of justice are weighted down with graft,” she just raises her eyebrows and says, deadpan, “My, my. Isn’t that shocking.” But that flexibility also means that she’s prepared to help Nelson navigate his family problems so he won’t be vulnerable anymore.

And speaking of secrets, Margaret, it turns out, is stronger than we knew — if not actually who we thought we knew. “Would you have seen me off to the Magdalen Sisters and broken in the workhouse?” she asks her brother, who blames her for running off with his passage money to America and leaving their dying mother after she became pregnant out of wedlock. “The priests judged it fit correction,” he tells her, safe, if not prosperous, in his conformity. Later, he refuses her help, telling her, “I don’t hate you. I don’t feel much about you at all. I can’t accept the money. I don’t know where it’s from,” though he lets Margaret’s younger sister keep the gift of a novel from her estranged older sister. Who can deny a little girl who, after holding it in, bursts out “Send me books! I like anything with a horse in it!” And later, as if to reaffirm her commitment to make her own way, rather than living by anyone else’s rules, she does what she’s been wanting to do, taking Mr. Slater into her bed, a simultaneous rejection of her old country’s norms and embrace of the people created by them.

If you have Euros, and you want a bank account, you can put your money in an Irish bank. But then again, you could also put it in a Dutch or German bank. And increasingly, nobody wants to keep money in Irish banks where private sector deposits dropped at an annual rate of 9.8 percent in February. Tyler Cowen explains the significance:

This flight of capital reflects a centuries-old economic principle known as Gresham’s Law, sometimes expressed casually as “bad money drives out good money.” In this context, if two assets — euros inside and outside Ireland — are not equal in value in the eyes of the marketplace, sooner or later the legally fixed price parity will fall apart.

If enough depositors fear frozen accounts, the banks will be emptied out, and they also will require additional government bailouts, on top of the bailouts for the bad real estate loans. The banks come to resemble empty shells, conduits for public aid but shrinking and unprofitable as businesses — and, to a large extent, that is already the case in Ireland. Portugal is moving in this same direction, toward being a land inhabited by zombie banks.

It seems like only six years ago that Ireland was the hottest thing in right-wing think tankery.

In a conversation Feb. 13, 1973, with Charles W. Colson, a senior adviser who had just told Nixon that he had always had “a little prejudice,” Nixon said he was not prejudiced but continued: “I’ve just recognized that, you know, all people have certain traits.”

“The Jews have certain traits,” he said. “The Irish have certain — for example, the Irish can’t drink. What you always have to remember with the Irish is they get mean. Virtually every Irish I’ve known gets mean when he drinks. Particularly the real Irish.”

Drunk Irish people are fun! Everyone knows that. Meanwhile note that Irish affection for booze is not just a lazy stereotype, the people of Ireland do in fact have the world’s second-highest per capital alcohol consumption after Luxembourg, a tiny oft-ignored outlier in many ranking lists.

How tight is “that tight”? Well, it’s Ireland tight. Coincidentally, Ireland doesn’t control Ireland’s monetary policy.

It's not the biggest deal in the world, but since I mentioned it once before it's worth noting that Kevin O'Rourke's dispatch from Dublin indicates that the IMF has abandoned its austerity-loving ways, but the European Central Bank is insisting that the people of Ireland indenture themselves to various banks:

The finger of blame was clearly pointed by the Minister of Finance, Brian Lenihan, and several of his colleagues: it was the European Central Bank and the Commission who had vetoed the proposal to force some of the bank losses back onto the bondholders. This interpretation is generally accepted in Dublin, although many observers also blame the Irish negotiating team for caving much too easily into pressure from Brussels and Frankfurt. The implication is that the IMF were the good guys: an unusual position for them to find themselves in, perhaps, and one with political implications in a country whose relationship with the European Union has been uneasy in recent years, and which has conserved close ties with the United States. On Monday night, an opposition spokesman made it clear that he would be much happier negotiating with the IMF, who are reasonable people, than with our European partners. The fallout from this will be toxic.

There are a bunch of reasons for this, but the key one is that if Irish taxpayers don’t fully repay the debts of Irish banks, then that’s going to leave some of the European banks who lent them money undercapitalized and in need of a bailout from taxpayers in the European “core.” The austerity package is a way of trying to make sure the losses fall exclusively on Irish taxpayers, though realistically I can’t imagine this deal being remotely sustainable.

A few links on Ireland. One from Niam Hardiman does a great job of explaining what’s actually happening. Here Barry Eichengreen loses his cool. Tyler Cowen is pithy: “Fiscal union was, is, and will remain a fantasy. The best the eurozone could have done was to abolish national banking systems and have a truly European banking market. It’s too late for even that, though.”

Speaking of the last point, it was observed to me yesterday that in a curious way the creation of the Euro didn’t abolish the Eurozone national central banks. Normally, a country’s “lender of last resort” and a country’s “monetary authority” are the same institution—the central bank. But that’s not the case for Europe. The lender of last resort for Ireland is the Central Bank of Ireland, but the Central Bank can’t print money. Consequently, the Eurozone national central banks (In Ireland, Portugal, Spain, etc.) can actually be subject to runs and liquidity crunches. Which is just to say that Europe doesn’t even have monetary integration in the way we would normally understand it.

Last point would be that as best I can tell public statements from German politicians and commentary in the German press seems to be creating a bit of a dream world in which “irresponsible” Irish business activity is to be contrasted with “prudent” German business activity, and Germans are properly resentful in a nationalistic way about being asked to “bail-out” said Irish. In reality, the Irish government is in crisis because Ireland’s banks are in crisis. Ireland’s banks are in crisis because they invested too much money in property ventures that have gone bust—that’s irresponsible. But the nature of the crisis is that Irish banks owe a lot of money to various creditors, a great many of whom are French and German banks. Which is just to say that French and German banks made, through the intermediary of the Irish banking system, a bunch of irresponsible investments in Irish real state. That’s the exact same thing as what the Irish banks did.

Can Ireland pay what it owes under any policy regime? One reason to doubt it is that as Simon Johnson argues, a lot of Ireland’s GDP is basically tax evasion rather than production:

At least 20 percent of Ireland’s G.D.P. is from “ghost corporations” that have little or no real activity in Ireland. Corporate taxes are set at 12.5 percent, but leading global corporations are able to construct complicated schemes involving other offshore tax havens that reduce their effective tax rates to the low single digits.

The Irish insist that raising the corporate tax rate would not generate additional revenue – effectively acknowledging the point that this part of the economy cannot be taxed as part of the anti-crisis policy mix. You will know that reality has finally set in when all the relevant numbers are presented relative to G.N.P., not G.D.P.

When EU authorities try to press Ireland to raise the corporation tax as part of the terms of a bailout deal, this isn’t really about increasing Irish government revenue. It’s just that the Irish government has, for years, been annoying its OECD peers by operating as a tax haven. Now that Ireland’s in a weak position, people want it to act like a better global citizen. But if Ireland actually can’t pay its debts, the country is arguably better off acknowledging that sooner rather than later. The alternative is to go through a period of EU-sponsored “extend and pretend” in which policy concessions are extracted and then Ireland defaults anyway.

I’m going to agree with Henry Farrell against James Vreeland and say that whatever problems you may have with the IMF’s “conditionality” vis-à-vis an Ireland bailout, their prescriptions are going to be a good deal less austere than what the European Central Bank would prescribe. IMF professional staffers are quite aware of the theory that they pushed austerity too hard in the 1990s and believe they’ve turned over a new leaf*; the conventional wisdom in Frankfurt by contrast seems to be that the problem with the Stability and Growth Pact is that it wasn’t severe enough.** There’s also just the matter of Germans. As Farrell says:

Jim is right to point to the differences between the Strauss-Kahn/Blanchard crowd and the IMF’s Executive Board. And it may be that the dynamics he points to are going to come into play during the monitoring process. But if the IMF is going up mano a mano against the ECB in a fight to see who can out-austere the other, I’d put my money on the ECB. The IMF may be indirectly responsible to Germany, the United Kingdom and France, but the US – which has been quietly expressing its displeasure with the EU’s hairshirts-for-everyone approach to fiscal retrenchment will have some say too, even if it is going to be reluctant to wade too obviously into intra-European fights. And the ECB, whatever the nominal voting system might suggest, is in practice beholden only to Germany, Germany and Germany.

Specifically, though the IMF has a very complicated governance structure the biggest says go to the United States and Japan, neither of which are super-invested in the idea of budget austerity. Germany (and the politically similar Belgian-, Dutch-, and Danish-led voting blocs) still has a lot of influence at the IMF but it’s less than they have at the ECB. Managing Director Dominique Strauss-Kahn (putting the international financial system under the authority of a French Jewish Socialist is like a hilarious joke by the way) also gets a vote on the board.

But this all seems irrelevant in many ways. Ireland doesn’t have enough output to pay off the bad debts of Irish banks and no conceivable budget will change that. Either they need to default, or else there has to be a real bailout where non-Irish actually pay off the debts instead of just loaning money to the Irish government. You can’t make the sums add up.

* Yes, I know, everyone who used to hate the IMF still does. But pay attention, they really have changed.
** This is an insane theory, by the way, several of today’s most-troubled European states had perfectly sound pre-crisis budget policies.

Thomas Friedman, July 1, 2005, “Follow the Leapin’ Leprechaun”:

There is a huge debate roiling in Europe today over which economic model to follow: the Franco-German shorter-workweek-six-weeks’-vacation-never-fire-anyone-but-high-unemployment social model or the less protected but more innovative, high-employment Anglo-Saxon model preferred by Britain, Ireland and Eastern Europe. It is obvious to me that the Irish-British model is the way of the future, and the only question is when Germany and France will face reality: either they become Ireland or they become museums. That is their real choice over the next few years – it’s either the leprechaun way or the Louvre.

Because I am convinced of that, I am also convinced that the German and French political systems will experience real shocks in the coming years as both nations are asked to work harder and embrace either more outsourcing or more young Muslim and Eastern European immigrants to remain competitive.

As an Irish public relations executive in Dublin remarked to me: “How would you like to be the French leader who tells the French people they have to follow Ireland?” Or even worse, Tony Blair!

As I’ve said before, the problem with this kind of punditry is that regulating your financial sector poorly so as to generate lots of bum real estate lending really does seem to be a can’t lose path to growth in the short term. People need to check themselves against knee-jerk praise of leaders who preside over this sort of thing.

A couple of brief points on this. One is that just as with any other time there’s a bailout, it’s always worth emphasizing that though “Ireland” gets some benefit from this, the real winners are those who lent money to Ireland and will now be repaid. Specifically, people lent to Irish banks without doing due diligence on the soundness of the enterprises and without recognizing that the Irish banking sector was too big for the Irish government to bail out. Then the Irish banks got their government bailout and now Ireland is (inevitably) being backstopped by the broader European Union. The political economy of this all works because at the end of the day there’s a lot of German and other “core” banks holding that debt.

Felix Salmon says the package here is actually small relative to the size of the problem. And Ireland as a country is small relative to the size of, say, Spain. It seems to me that there’s simply no way the key vulnerable EU members can repay their debts under currently predicted growth. And there are no policy options available to them that would get growth levels up to something workable.

I guess to put a positive spin on the European policy trajectory, if you keep kicking the can down the road long enough then it’s always possible a “positive shock” of some kind will emerge from abroad. And what’s the alternative anyway to can-kicking? But I get the sense that even more so than on our side of the Atlantic, dialogue around policy options is hobbled in the EU by a reluctance to admit that any major pre-crisis steps may have been mistaken.

One question posed by the ongoing meltdown in Ireland is whether, assuming the Euro survives, it really makes sense for Ireland to have banks at all. Of course Irish people will still want to lend and invest. But that could be accomplished by letting German banks open branches in Ireland. Access to banking services is an important policy priority, but it seems to necessarily entail government exposure to bad bank risk management. The normal best way to try deal with that is through regulation, but a small country in a currency union with much larger countries could deploy the ultimate regulatory solution—no banks! Let someone else do the regulating and the bailing out.

Giving up your ability to conduct monetary policy carries a heavy price, but for a sufficiently small country it should open up the chance to free ride on someone else’s banks.

The simplified political economy story goes as follows. Ireland had low nominal and even lower effective corporate tax rates. It also had low personal taxes, both because of the belief that this would foster entrepreneurship etc, and because the government used to periodically sweeten bargains between business and labor by promising tax cuts (which of course favored the rich more than the poor), inter alia buying off unions who might otherwise have started getting feisty about organizing the unorganized bits of the new Irish economy.

The result was that even with booming economic growth, the government faced a fiscal hole. This hole was filled by taxes on property transactions which, as the property market got ever more bubbly, became an ever more important source of government revenue. This provided the government with an extremely strong incentive not to deflate the bubble, reinforcing the already considerable incentives towards inaction resulting from cronyism between politicians and property tycoons, ideological notions about not interfering with ‘free’ markets etc.

When the bubble burst and the bezzle came into full view, the results were quite unpleasant, as this ESRI graph shows.

As a causal story, I still don’t really buy this. We had property booms in the United Kingdom, in Spain, in the United States, in Iceland, etc. all under different tax trajectories. And I can’t think of any examples of a government anywhere deliberately acting to deflate asset prices. The fact that the Irish government didn’t do so isn’t really a fact in need of explanation.

But I now understand that not only was the property bubble, rather than tax cuts, the driver of Irish growth but it was also the driver of Irish tax cuts.

Here’s Chris Edwards, director of tax policy at the Cato Institute and author of Downsizing Government writing at National Review online in March 2007 about how everyone would be more like Ireland if only they listened to rightwing economic policy:

Ireland has boomed in recent years, and it now boasts the fourth highest gross domestic product per capita in the world. In the mid-1980s, Ireland was a backwater with an average income level 30 percent below that of the European Union. Today, Irish incomes are 40 percent above the EU average.

Was this dramatic change the luck of the Irish? Not at all. It resulted from a series of hard-headed decisions that shifted Ireland from big government stagnation to free market growth. After years of high inflation, double-digit unemployment rates, and soaring government debt that topped 100 percent of GDP, Irish policymakers began to cut spending in the late 1980s in a desperate bid to recover financial stability.

Irish government spending fell from more than 50 percent of GDP in the 1980s to 34 percent by 2005. For Europe that is a triumph of restraint, given that the average size of government across 25 EU countries today is 47 percent of GDP. And Ireland has steadily reduced its tax rates. The top individual income tax rate was cut from 65 percent in 1985 to 42 percent today. The capital gains tax rate was cut from 40 to 20 percent in 1999.

However, the key to Ireland’s success has been its excellent tax climate for business. In 1980, Ireland established a corporate tax rate for manufacturing of just 10 percent. That low rate was subsequently extended to high-technology, financial services, and other industries. More recently, Ireland established a flat 12.5 percent tax rate on all corporations — one of the lowest rates in the world, and just one-third of the U.S. rate.

James D. Gwartney and Robert Lawson writing for Cato back in 2005 said that Ireland should be seen along with Iceland as an important case study in the success of free market economics.

Today of course Ireland is a total disaster. I wouldn’t try to blame their property crash on low tax rates. But by the same token a frightening number of pundits went “all-in” on the idea that Ireland’s conserva-friendly tax policies were behind a boom that was in fact driven by a real estate bubble. There needs to be some accountability for this, because it appears to quite genuinely be the case that relaxed financial regulation is a can’t-lose strategy for (temporarily) attracting financial inflows, sparking an asset price bubble, and boosting growth. But that doesn’t mean countries should do it. And we need a system of international praise and esteem that’s not so blind to these issues.

Those Arabs have an ambiguous form of legal status in which they’re deemed “permanent residents” of the country, paying taxes in Israel, allowed to work in Israel, and entitled to social welfare services in Israel but without citizenship. But in an interesting wrinkle, permanent residents are allowed to vote in municipal elections. In practice, however, they refuse to do so operating under the ideological theory that voting would grant legitimacy to Israel’s claims of sovereignty over the territory.

This in turn has the predictable results of ensuring that municipal services are uniformly provided in an inferior manner in East Jerusalem. The basic dynamic of a poorer section of a city having less political clout and thus inferior schools, inferior roads, inferior transit services, and a less responsive police force should be basically familiar to the residents of any American city. Even the element of de facto ethnic segregation tracking the divide is not uncommon. But you have a very severe case of the illness here in Israel.

I’ve tried to push several Israelis and Palestinians alike on the question of what they thought would happen if the city’s Arabs—who constitute about a third of the population—were to choose to become politically active. Essentially nobody wants to bite at that apple and everyone assures me that it’s unthinkable, is never going to happen, and that they’re not really interesting in rehashing this issue with a foreigner.

So fair enough. But it’s my blog and I’ll rehash if I want to, so I think it’s worth pointing out that the Irish Nationalist movement offers a template for action that’s between non-participation and recognition. In contemporary Northern Ireland, Sinn Fein has members stand for election to the UK parliament and when they win seats they refuse to swear allegiance to the Queen and thus don’t actually serve in parliament while still being able to exist as focal points for representation and political action. What’s more, in pre-independence Ireland I believe the First Dail actually constituted itself by winning seats in the UK parliamentary election and then getting together and proclaiming themselves to be the legitimate government of Ireland.

As you can see from Ireland, budget austerity doesn’t reassure financial markets if austerity doesn’t lead to growth:

The Moody’s agency cut Ireland’s credit rating Monday, citing the country’s swelling national debt, the unpredictable cost of its bank-bailout plans and its weak growth prospects for the next three to five years.

Shares on the Irish Stock Exchange slumped after Dietmar Hornung, Moody’s lead analyst for Ireland, announced that the New York-based agency was dropping its credit-worthiness rating one notch to Aa2. Moody’s previously cut Ireland’s rating to Aa1 from the top grade, Aaa, in July 2009 as Ireland plunged into its worst recession since the Great Depression of the 1930s.

To be clear, I don’t blame Irish policymakers. There are two paths to recovery for countries hit by a sharp negative shock. One, appropriate to small economies with floating currencies is austerity and currency devaluation. The other, appropriate to large economies that can borrow in their own currency is expansionary fiscal policy to bolster growth. New Zealand and Sweden fit the first model. The US and Japan fit the second model. Sometimes you get a country like the UK that seems to be an intermediate case. And then you have the sad case of the Eurofringe—small economies tethered to a German-dominated currency union. Citizens of such countries are, as best I can tell, just doomed. Austerity under these circumstances is self-defeating, but likely less self-defeating than any alternatives. Their only hopes of recovery are either substantial fiscal transfers from economically healthier states, which is not going to happen, or else monetary policy that’s geared to their needs rather than to the needs of Germany, which is also not going to happen.

If you read Jean-Claude Trichet’s recent interview with French newspaper Libération the paper keeps trying to press him on this point and his answers underscore the fact that the Euro is really a political project rather than an economic one. Which is fine as far as it goes, but the fact is that it doesn’t make a ton of sense economically and its architects aren’t doing what would need to be done to make it work.

The United States, however, is not Ireland. We can avoid this fate with fiscal and monetary expansion. People want to lend money to countries that are going to grow.

Liz Alderman reports on the failure of austerity budgeting in Ireland:

“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”

Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession. [...]

Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and Spain. It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier.

Other European nations, including Britain and Germany, are following Ireland’s lead, arguing that the only way to restore growth is to convince investors and their own people that government borrowing will shrink.

As Kevin Drum says, it’s not clear that Ireland had a ton of options because it’s stuck in the Euro. But the lesson is still clear enough—what gives confidence to investors is prospects for growth, and what countries need to do to instill confidence is to adopt pro-growth policies. The United States can get away with more short-term borrowing, and will ultimately have an easier time paying off the debts we’ve already accumulated if the economy grows.

One of the big research projects we’re working on at William and Mary right now is called AidData. It is an online database of nearly a million foreign aid projects from OECD bilateral donors like the U.S. and U.K., multilateral donors like the World Bank, and non-OECD donors like Brazil, India, Chile, and lots of eastern european states. The goal is to make foreign aid more transparent and give researchers more comprehensive data to test hypotheses about foreign aid.

As a few of our research assistants were going through some Irish Aid project records they stumbled upon this 2007 “project” funding a limo for Columbia University Professor Jeffrey Sachs:

Another record from Irish Aid records Sachs’s travel expenses. Even better, Irish Aid categorizes both of these records as funding for “Research/scientific institutions.”

Now, this isn’t any indictment of Professor Sachs. He is, of course, a fine economist. But I’m torn as to how to react. For one, it is really great that Ireland is so transparent. And the nature of international development finance is that lots of people have to travel to lots of far-off places. Further, hiring a limousine for Sachs isn’t really objectionable at all — it wasn’t even that expensive ($180). But, fundamentally, funding for limo rentals is not foreign aid and shouldn’t be reported as Official Development Assistance.

Paul Krugman balances his apologies for European-style socialism with the observation that they don’t get everything right. In particular, before the creation of the Euro, skeptics warned that monetary union would deprive countries of the fiscal and exchange rate policy tools they need to respond to a sharp economic downturn. And now it’s happening:

Was the euro a mistake? There were benefits — but the costs are proving much higher than the optimists claimed. On balance, I still consider it the wrong move, but in a way that’s irrelevant: it happened, it’s not reversible, so Europe now has to find a way to make it work.

That seems right to me. It’s also a reminder, though, that while it’s very fair to loosely equate “Europe” with high taxes, it’s not right to think of the United States and Europe as offering systematically divergent economic policies along the lines of a left-right divide. Thanks in part to the Euro, countries like Ireland are now offering us a case study in a strongly non-Keynesian, real business cycle approach to economic calamity. You do neither fiscal nor monetary easing, have the government slash public expenditures to meet the new lower revenue level, and you wait for cycles of wage and cuts to bring the economy down to a sustainable post-bubble level.