Comment: Twenty odd years ago, most commentators were pessimistic about the Irish economy and its prospects. Then the Celtic Tiger appeared out of a clear blue sky and everything changed. The pessimists sloped off, their tails between their legs, writes Michael Casey

The economy took off at a pace that made our heads spin. We are now in the very top international league in terms of national income per head or the number of Mercedes per 1,000 adults, or whatever measure takes your fancy.

I will return to the causes of the miracle on another occasion. (Much nonsense has been written about the causes and, indeed, about whether the miracle really happened at all.)

The issue that concerns us today is whether the pessimists were completely wrong and, the other side of that coin, whether the pendulum has swung too far to the side of optimism. Bear in mind that most professional pundits work for banks and/or stockbrokers. (When was the last time a stockbroker advised you not to invest?)

Government spokespersons are also cheerleaders for the economy and very effective ones too in this age of spin and PR. In a country that depends so much on inward investment and imported technology, it has become unpatriotic to raise questions about our success.

One can be dismissed as a crank or even a pinko. It is far more cosy and comfortable to join the chorus of self-congratulation.

Well-founded optimism is beneficial, of course: it imparts a useful dynamic to economic life. Animal spirits may not last indefinitely, however, and confidence can easily slide into complacency. It is vitally important to do some contingency planning, even on a purely hypothetical basis. In other words, what do we do if and when the music stops?

So strong is the Pollyanna mood of the country, that there is no plan B, either at national or industry level. The belief that nothing can go wrong is worrying. Any of the following can go wrong - at different times, or all together.First, high-tech investment in Ireland by the US could slow down for a whole host of reasons, such as competition from EU accession countries, India, Brazil, etc, further loss of domestic competitiveness, international tax retaliation, home-grown industrial relations problems, a sudden change in the nature of technology, shortage of science graduates, lack of R&D, growing US isolationism, etc. (Some time ago the rise and rise of Sinn Féin was put forward as a factor that might scare off US investment. The events of recent weeks would seem to mitigate that particular risk.)

Second, the inflated property market could experience a sharp correction - to the cost of borrowers and banks alike. This could remove a large element of the feelgood factor in one fell swoop. Remember, we have no interest rate instrument to facilitate a soft landing. The abatement of construction activity from present frenetic levels is a separate though related risk, which would have direct effects on unemployment.

Third, investment in plant and equipment soared during the Celtic Tiger years, when the rate of profit yielded by such investment greatly exceeded the interest rate and the cost of borrowing. It was virtually impossible not to make a handsome net return even from poorly conceived investment. Huge fortunes were made. But what if this situation goes into reverse, ie the rate of return falls and the interest rate rises?

This, in fact, is likely to happen; indeed, most commentators believe that interest rates could well double in the next couple of years. The bank will not be slow in passing them to their customers. In real terms interest rates could more than double in Ireland.

Fourth, loss of competitiveness is at a critical stage, especially in relation to Irish-owned firms. The exceptional profits made during the Celtic Tiger years are keeping these firms going, but this cannot continue indefinitely. What if costs keep rising and the euro appreciates even more against the dollar?

What if more that one of the above go wrong at the same time? Can we really see agriculture or the service sector coming to the rescue? It is probably true that Irish companies have learnt something from the US multinationals (though the linkages have never been fully forged) but not nearly enough to drive the economy if the multinationals decide to locate elsewhere. The concept of value-at-risk (used in banking circles) could usefully be applied to the economy. In other words it is not enough to focus on the bottom lines - it is necessary to examine the risks in achieving the profits or the growth rate. Is anyone measuring or assessing the risks at national level?

We still cling to the model of low corporate taxation to attract foreign investment and technology. It has worked for a number of years. But does that guarantee success in the future - a future that will undoubtedly see enormous changes in the global economy?

Will the model work for the next 10 years...five...three...? Should we not be thinking of a new model, a plan B, just in case?

The author is the former chief economist with the Central Bank.