What we can learn from the Irish

Good Krugman column today.

It's about how the global financial crisis affected Ireland and the mistakes that nation made. It's very instructive. Krugman, a Nobel Prize-winning economist, knows his stuff.

Here's an excerpt:

"But the most striking similarity between Ireland and America was 'regulatory imprudence,' the people charged with keeping banks safe didn't do their jobs. In Ireland, regulators looked the other way in part because the country was trying to attract foreign business, in part because of cronyism: bankers and property developers had close ties to the ruling party.

"There was a lot of that here too, but the bigger issue was ideology. Actually, the authors of the Irish paper get this wrong, stressing the way U.S. politicians celebrated the ideal of homeownership; yes, they made speeches along those lines, but this didn't have much effect on lenders' incentives.

"What really mattered was free-market fundamentalism. This is what led Ronald Reagan to declare that deregulation would solve the problems of thrift institutions -- the actual result was huge losses, followed by a gigantic taxpayer bailout -- and Alan Greenspan to insist that the proliferation of derivatives had actually strengthened the financial system. It was largely thanks to this ideology that regulators ignored the mounting risks."