Irish giant Kerry Group Plc KRYAF, +1.45% is well known in the Emerald Isle for its ingredient-and-flavors business. Back in September, the company celebrated the opening of a €100 million global technology and innovation center near the town of Naas, just outside of the Irish capital of Dublin. The opening of Kerry Group's new facility marked one of the biggest investments made by an Irish company in Ireland in several years. It also marked a return of confidence in both the Irish corporate sector and the entire Irish economy. Most importantly, it offered concrete evidence for the success of Ireland's policy of economic austerity. These were the same policies dismissed by Keynesian economists like Nobel laureate and government-spending champion Paul Krugman of The New York Times as the measures implemented by right-wing ideologues who couldn't even pass an undergraduate macroeconomic theory course at Princeton. Surveying the Irish economic landscape from his perch on Columbus Circle on the Upper West Side of New York City, Krugman confidently asserted as recently as two years ago that "the repeated invocation of Ireland as a role model has gotten to be a sick joke." The Irish patient recovers Back when the Kerry Group announced its big investment in the new facility in 2012, Ireland’s economy was still wading through a recessionary bog that was the worst in the country's recent history. The fallout of the global crisis in 2008 had infected Ireland acutely. The country’s soaring property bubble burst. The entire banking sector collapsed. The Irish patient was in critical condition The contrast with today could hardly be greater. The Irish economy has not seen such an explosion of activity since the boom days of the "Celtic Tiger." With GDP expected to grow at a Tiger-like 6% this year, and another 4.3% in 2016, Ireland today is the European Union's fastest-growing member state. Unemployment has dropped from a peak 15.1% at its peak in early 2012 to 9.3% last month. And with a stock market that has doubled in value in the past five years as measured by the iShares MSCI Ireland Capped ERF EIRL, -0.74% Irish eyes are indeed smiling. But those smiles came only after a round of some painful — and severely criticized — Irish austerity measures From boom to bust During the late 1990s, Ireland had transformed itself from a virtual economic also-ran into Europe's answer to the "Asian Tigers." It did so primarily via the pro-growth cocktail that included a low corporate tax rate of just 12.5%. That made Ireland a magnet for foreign direct investment, and the result was a booming Irish economy that was the envy of Europe. Caught up in the fever of economic growth, the Irish government encouraged a debt-fueled property boom that caused the price of an average house to jump more than 4.5-fold between 1997 and 2006. Flush with cash, the government then went on a spending binge. From 1997 to 2008, investment in Ireland's health service soared by five times. Public-sector employment jumped, even as pay doubled. The eventual collapse of this deadly mix of the property boom and unrestrained government spending sent Ireland's boom into a bust almost overnight. The Irish economy collapsed in 2008, with gross domestic product (GDP) declining more than 14% in the next two years. Anglo Irish Bank, the most aggressive lender during the boom, had to be nationalized as property values halved. And finally, the government's budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3% of its GDP in 2008. The austerity rebound To combat the decline, the Irish government bit the bullet and swallowed the bitter medicine of economic austerity. The then Irish Premier, Brian Cowen, launched the biggest assault on public services ever seen in western Europe. The government raised taxes, cut salaries in the public sector by up to 20% and then even went to the "troika" in 2010 of the International Monetary Fund, the European Union and the European Central Bank for a €67.5 billion ($89 billion) bailout. Later, in March 2013, Ireland successfully raised money in international financial markets, selling a new benchmark bond for the first time since November 2010. That was the beginning of the current boom, of which the Kerry Group's expansion is just the latest example. Should Paul Krugman eat crow? The Irish austerity (along with those of the less-publicized Baltic states) show that a country can indeed emerge from a downward economic spiral by downsizing the public sector, reducing its fiscal deficit and cutting public debt. Once economic growth kicks in, a lot of formerly seemingly intractable economic problems miraculously solve themselves. Even Ireland's debt is falling at a much greater rate than predicted just two years ago by the International Monetary Fund. The country's debt-to-GDP ratio has fallen from a peak of 125% of GDP to just 108%, and should soon fall below 100%. The good news is that the Irish government is doubling down on its business-friendly policies. Finance minister Michael Noonan recently announced plans to cut the corporate tax rate from 12.5% to 6.25% for companies that demonstrate that their earnings depend on intellectual property created in Ireland. The emergency tax introduced in 2010 to pay the €64 billion bill for bailing out the banking system has also been cut by 1.5%. Capital gains tax will be slashed from 33% to 20%. In fact, worries are now shifting to whether the new measures will cause Ireland's economy to overheat. That's a high-quality problem to have, given where the country has come from. And even today, Krugman and other Keynesians will argue that Ireland "had it easy," explaining away the reviving Celtic Tiger's economic revival with its undue reliance on exports, and a collapse in the value of the euro. Besides, just between you, me and the four walls, who really cares about what goes on in Ireland? After all, it's a tiny country, and as Krugman put it in 2010, "(t)he best thing about the Irish right now is that there are so few of them." Still, facts are stubborn things. And Paul Krugman was clearly wrong about the Irish economy and the success of its austerity policies in pulling its economy out of a tailspin. That's why it's now time for the left-wing Nobel Laureate to man up and taste some of that bitter-tasting, austerity-spiced Irish crow. More from MarketWatch