‘Celtic Tigger’ confounds economists’ pessimism of recent past

Several people have laid claim to originating the term "Celtic Tiger". The person who actually first coined the phrase has expressed regret several times, has formally apologised and observed that a leading Irish economist once expressed the fervent wish that Kevin Gardiner "be boiled in his own spit" for coming up with those infamous words in 1994.

This week the Financial Times suggested we should now refer to ourselves as the 'Celtic Tigger', given the extraordinary bounce in the economy that has taken growth to levels in excess of China and just about everywhere else.

If we measured growth in the same way as the Americans do, we could lay claim to a rate of expansion close to 8 per cent. Heady stuff.

Gardiner tells the entertaining story of the origination of Celtic Tiger – and how he has tried to live it down ever since – in a superb new book, Making Sense of Markets. That tale is but a small anecdote in a work suffused with wisdom and common sense.

Mainstream economists will probably hate the book as it contains only words and a few pictures. There is not an equation in sight. That doesn’t mean Gardiner doesn’t understand the mathematics underlying modern economics and finance – he clearly does – but he is utterly underwhelmed by the direction taken by the dismal science in recent decades.

Two main themes dominate the book, both of which are relevant to all of us.

Anyone with savings, particularly pensions, needs to listen to his arguments. And anyone who frets over the oft-heard claim that the future is so bleak that the current generation of children is destined to be the first in history to be poorer than its parents will find solace in his views.

Economics can be highly combative, dry and unintelligible for the uninitiated. Gardiner couldn’t be more different.

He is unfailingly polite and only gently skewers the pretensions of other authors: he correctly notes their tendency to write as if part of a “faction”, something that other critics observe as old-fashioned tribalism, or maybe just ideology.

The tendency to lay claims to certainty, where none exists, is at the heart of these tribes and factions. Gardiner convincingly argues that this “pretence to knowledge”, as Hayek famously called it, is a deep flaw that permeates much of modern finance, from high theory to low personal investment advice.

Time and again we are reminded of the simple fact that the future is unknowable, forecasting is futile. The current fashion for asserting that the economic outlook is certain to be one of low growth and, therefore, pitiful investment returns, is dissected and shown for what it is: just another forecast, one that is as likely to be as wrong as all other such prognostications. The reasons why future growth is argued to be low or absent are taken apart one by one. Debt, demography and the rest of the dreary list are shown to be ill-conceived, poorly thought through and, in Gardiner’s view, probably wrong.

Economists spend a lot of time trying to find the one true model, the mini-economy that reflects the true and unchanging verities of economic behaviour. It is a search for the Holy Grail, with just as much chance of success.

Holy Grail

Indeed, there is probably more chance of the Grail actually existing, still undiscovered, than there is of a single true economic model.

Even if our data became equal to the task, the underlying structures and human behaviours that drive economic activity simply change too often for the idea of “one true model” to make much sense.

Investment advice is riven with unnecessary complexity, is often poorly motivated by a sales-driven culture and is sometimes just wrong. It pretends we know more than we do. Once we admit the limitations of our data and our knowledge of the future, we acquire a necessary humility that is mostly absent from the investment industry. Savers of all kinds who realise this will understand that the objective is “good enough” rather than the unattainable (at least without a lot of luck) perfect portfolio.

The Irish economy has confounded the universal pessimism of the recent past. If Gardiner is only half right, so will the rest of the world.