Fallacious Reasoning

by Leveret

In The Standard LPRENT gloats over the Prime Minster’s past praise of Ireland’s economic model.  In ridiculing the PM, not once is Ireland’s membership in the Eurozone broached.

This is a form of the fallacy post hoc ergo propter hoc whereby it is assumed:

  1.  X occurred and then Y occurred.
  2. Therefore, X caused Y.

In the mind of LPRENT

  1. Ireland lowered its corporate tax rate and then it needed a bailout.
  2. Therefore, the tax rate caused the bailout.

Wishful thinking, I surmise.

About a month ago, Allister Heath succinctly explained the root of Irish woes:

There is a crucial aspect of the Irish crisis that everybody appears to have forgotten, which goes a long way towards explaining Ireland’s problems: its membership of the dysfunctional single currency, an institution it should never have joined. Ireland, like Britain, had its economy deformed by debt — the result of year after year of dangerously cheap credit, aided and abetted by central banks. Ireland’s cheap money came from the European Central Bank, which kept interest rates even lower than the Bank of England, thus guaranteeing an even greater boom and subsequent bust. Even in January 2006, when many of the stupider lending decisions taken by Irish banks were being planned, eurozone interest rates were only 2.25 per cent. This arguably made sense for Germany, but was absurdly low for Ireland; it could have done with 9 per cent.

 I am assuming Mr Key has never advocated our entering the Eurozone, but am open to correction.

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2 responses to “Fallacious Reasoning

  1. I don’t think that I mentioned the eurozone once or the tax rate. The only mention of tax was in the quoted speech by John Key in the included old post by Steve Pierson.

    My part of the post was about the type of economy that Ireland had grown over the last decade which was almost entirely set up as a service sector (financial and otherwise) for Europe.

    Both my post and the reprinted one by Steve were ridiculing John Key for thinking that

    a. NZ could emulate the natural advantage of Ireland proximity to Europe.
    b. That we should emulate such a fragile type of industry

    I’d suggest that your problem is that either you didn’t read the post, or you read what you wanted into it, or that you’re too stupid to understand it.

    Perhaps you’d care to tell me which?

  2. Thanks for this. You can call me stupid for disagreeing with your reasoning if you like.

    First, nobody has ever advocated New Zealand creating an economy “entirely” reliant on the service sector. Opportunity may exist for development in the area, yes. However, even if we put your Muldoonist yearnings aside, it safe to say that agriculture will remain the bedrock of our economy for decades to come.

    Second, Ireland’s tax competition wasn’t at all central to my counter-argument. It has been central to Eire’s performance, however.

    Did you mention the Eurozone? No – but that was the bloody point.

    Project all you want, the chief reason for Ireland’s collapse isn’t that its competitive advantage disappeared overnight (though it was facing increasing competition, for example from the Philippines). It was that it’s economy became distorted by interest rates being dictated to suit the needs of Germany and France. In the aftermath of the subsequent bust, Ireland is going to be forced into raising its tax rates by its new European masters and may subsequently lose Google et al.

    New Zealand, on the other hand, still retains sovereignty over monetary policy and I fail to see why that is not worth at least a mention – which was, after all, my point.

    Remind me, which party has recently mused about compromising the independence of the Reserve Bank?

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