The Irish economy is currently experiencing a fall in unemployment not seen since the late 1990s. There are obviously many factors that are different but a comparison to the late 1990s is not entirely without merit. In fact, at 6 per cent, the current growth rate of full-time employment is the fastest growth in that indicator since 1999.
Like now, the economy of the late 1990s had gone through a period of rapid growth and the question arose of "what is in store for the Celtic Tiger?" A common view was that after growing at 8 per cent or above for a number of years, the economy would return to its long-run average potential growth rate which is usually put between 3 and 4 per cent.
Although based on sound analysis, that growth would slow because of the real and financial constraints that an economy faces, these predictions were wrong. They were wrong because we cheated the financial constraint through credit expansion and we cheated the real constraints on what the economy could produce by importing labour.
An economy cannot grow above its long-run potential growth rate for ever. If something cannot go on forever; it will stop. The credit-fuelled growth came to a shuddering halt in 2008, by which time significant imbalances had built up and we went through a painful process of reducing our reliance on borrowing and saw a return to outward migration.
So what is now in store for the Irish economy? Just like the late 1990s, there are very few danger signs and maybe a prediction of a return to average growth rates of between 3 and 4 per cent is appropriate. But the Irish economy doesn’t do moderation. In only 18 years since 1960 has the economy recorded growth of between 2 and 5 per cent.
Most forecasts, including those of the Department of Finance, endorsed by Irish Fiscal Advisory Council , say annual growth will average about 3.5 per cent over the next five years. And most analysts with an eye on the UK exit from the EU or the US administration of President Donald Trump would see risks to the downside of these forecasts. But what about the things we can't see?
The economists of the 1990s didn’t foresee the wall of credit or influx of migrants that enabled the excess growth of the 2000s. Could the pressures of unsustainably high growth build up in the Irish economy again? The nature of the Irish economy is one in which imbalances can emerge very quickly.
Housing output has been below the equilibrium level of about 30,000 units for a number of years. Housing output needs to rise and current forecasts imply that output will rise in steady increments to reach 30,000 units by 2021. However, that would only be enough to cover ongoing demand; it would not be sufficient to meet the excess demand that has built up over the past few years. To clear that, annual output will have to rise above 30,000 units for a period.
Where are the workers to build these houses going to come from? Are former construction workers now working in other sectors going to move back to construction? How will they be replaced in the sectors they leave? Will this lead to upward pressure on wages eroding competitiveness?
Or maybe we can import the workers through inward migration? But that in itself leads to an increase in housing demand which is the problem we are trying to fix with increased supply in the first place.
It possibly requires contractionary measures elsewhere to make the resource room to ensure the growth is sustainable.
When the lending stopped in 2008, it wasn’t just housing investment that fell; it was consumption too. And we simply didn’t have the capacity in reserve in either the public or private sectors to replace that with resources from elsewhere. This was poor economic management but it is easy to say that in hindsight.
So if this is a risk we again face, what can we do about it? The Irish economy does not need fiscal stimulus. Growth is running at close to 6 per cent, unemployment is falling, investment is rising, consumption is rising. There is no case for fiscal stimulus.
The alternative, running a surplus to help offset the macro problems of the future, is not easy when people have problems now. But it is a choice we have to make.
Providing public services and supports on the basis of volatile corporation tax receipts, historically low interest rates or one-off asset sales is not the way to ensure their consistent provision. We know only too well the huge problems that basing government spending on unsustainable revenue sources can create. This is a history lesson we cannot forget, and one of the reasons for the creation of the Fiscal Council is to institutionalise the memory of the crash. Even if you forget, we won't.
We can build 40,000 houses a year, motorways between our regional cities, urban rail connections in the capital, and the rollout of broadband across the country. We can reduce taxes and increase social transfers and public sector pay. We can spend all the benefits of the surge in corporation tax, ultra-low interest rates and the proceeds from the sale of the banks. They are our choices to make. But we cannot do so and expect to enjoy the benefits of prudent economic and budgetary management.
No lobby or special interest group sees their request for support as being the one that pushes the economy into the red. And they are right; but we have to watch the totality of what we are doing. If we try to do too much and fly too close to the sun, we will fall to Earth.
The biggest threat to the Irish economy may not be the decisions of Teresa May or Donald Trump; the biggest threat to the Irish economy are the choices we make ourselves. Let's make a better fist of getting it right this time.
Seamus Coffey is chairman of the Irish Fiscal Advisory Council and a lecturer in economics in UCC