
The economic return of Iceland has proved that the joke was on Ireland - JumpCrisscross
http://www.independent.ie/business/irish/dan-white-the-economic-return-of-iceland-has-proved-that-the-joke-was-on-us-3327164.html?ftcamp=crm/email/20121219/nbe/AlphavilleHongKong/product
======
martythemaniak
Pretty much proving today's field of Economics to be a bunch of quackery.

In every respectable field of study there are certain basic scientific
expectations - supporting your positions with evidence and data, reversing
your views when your theory has been disproved etc. At the onset of the 2008
crisis, some people very accurately predicted the type of crisis it was (a
financial panic) and recommended policies that were tested and proven to work.
The mainstream camp however, thought otherwise and most of the world followed
their advice.

With 4 years of data we now know who was right and who was wrong, and yet that
has done almost nothing in the field of Economics. Few high profile economists
have reversed their deeply flawed views and the views of those baked by data
and correct predictions are _still_ not taken seriously. It's as if the LHC
found the Higgs, yet most physicists still denying it exists - the situation
really is THAT absurd.

Economics is deeply corrupted by politics and the financial interests of its
practitioners. If the quacks and charlatans aren't purged soon, the either
field will be discredited. You can't practice alchemy or voodoo and expect
people to treat you like a scientist.

~~~
paulsutter
Could someone help me out why this Middlebrow Dismissive Comment has been
voted up? It contains no information, takes no position, and merely lobs
cynical derision at everyone.

Marty's other comment in this thread was cogent and interesting, comparing
Iceland's actions to earlier crises Sweden and Argentina. But this comment,
useless.

What am I missing here?

~~~
eupharis
It makes a great deal of statements, and does take positions. Factual
positions no less. For example:

"At the onset of the 2008 crisis, some people very accurately predicted the
type of crisis it was (a financial panic) and recommended policies that were
tested and proven to work."

Position taken. Factual assertion made. Is this true or false?

"The mainstream camp however, thought otherwise and most of the world followed
their advice."

Position taken. Factual assertion made. Is this true or false?

"With 4 years of data we now know who was right and who was wrong"

Position taken. Factual assertion made. Is this true or false?

"Few high profile economists have reversed their deeply flawed views and the
views of those baked by data and correct predictions are still not taken
seriously. "

Position taken. Factual assertion made. Is this true or false?

"Economics is deeply corrupted by politics and the financial interests of its
practitioners."

Position taken. Factual assertion made. Is this true or false?

Everything I have seen over the past few years indicates to me his assertions
are true. In particular the case of Iceland and Ireland.

~~~
paulsutter
"some people" recommended "policies that were tested and proven to work"? --
What people, what policies? What position has been taken?

"mainstream camp thought otherwise" - otherwise to what?

"and followed their advice" - Really? So how is it that Ireland and the US and
Iceland all responded very differently, if everyone followed the same flawed
advice?

"we know who was right and wrong" - Much to my own surprise, we see that most
of the solutions have worked to some degree, and the widely predicted great
disaster has not occurred. Really the jury is still out.

~~~
ChuckMcM
Well the writing is somewhat turgid in its use of nominalizations and the
passive voice but that really doesn't mean its saying nothing. It just makes
it a bit harder to read.

~~~
michaelt
When I read martythemaniak's comment with its talk of "some people", "the
mainstream camp" and "high profile economists" it's unclear who these groups
are.

Monetarists? Keynesians? Advocates of lower government spending? Advocates of
tax increases to cut government debt? Or tax cuts to spur growth? Advocates of
higher government spending? Spending on bailouts? Countercyclical government
spending on infrastructure projects? Academic economists at universities, who
don't put their money where their mouth is? Big city financiers, who got us
into this mess? Government economist-politicians, who have to be perpetually
upbeat to try to keep the market confident? 'The Stock Market' which isn't
even a person? Bloggers and columnists? Advocates of lower interest rates?
Higher interest rates? Republicans? Democrats?

Needless to say, as I didn't know who was being talked about I couldn't derive
much meaning from martythemaniak's comment.

~~~
ChuckMcM
I don't disagree with you, it is a sloppy way to write, but quite common when
the writer has a lot of emotion and not a lot of patience to go cite the
specific conversations.

So lets take one example and work through it, martythemaniak's wrote:

 _"At the onset of the 2008 crisis, some people very accurately predicted the
type of crisis it was (a financial panic) and recommended policies that were
tested and proven to work."_

Using the search terms "Iceland Bank Reform" lead me to a whitepaper [1] from
Mercatus which goes into great detail about the controversy around the
decision to eliminate debt, it cites several economists and papers, both from
the time period and the present looking back. A similar search for "Ireland
banking crisis" leads to a similar set of papers where people discuss how to
pull Ireland out of the mud.

So what does this say about Marty's writing style? and our reading of it? Well
it says Marty throws out his emotional angst over this (perhaps he advocated
the debt canceling path for Ireland, I don't know) with his comment that "some
people" recommended things known to work, clearly at least a few of those
people were advising the Icelandic government as they implemented those ideas.
If we're engaged readers we do our own legwork, we can attach names to those
people. It's more work for us, and perhaps less satisfying that way.

The comment was accused of not saying "anything" when in fact it did say
things. What it did not do was to lay out evidence for the claims made,
Further, the use of the passive voice made pulling out the information which
would help the reader research the claims more difficult.

So there are at least three things going on here, one an emotional rant from
someone who believed in strategies that Iceland implemented, but were widely
criticized in other economies, feeling vindicated. Second, a quickly thrown
together narrative about the tunnel vision which lead to this situation. And
finally, a turgid writing style which imposes an unnecessary burden on the
reader trying to understand the meaning or substance behind the rant.

[1] [http://mercatus.org/publication/iceland-and-ireland-
banking-...](http://mercatus.org/publication/iceland-and-ireland-banking-
crises-lessons-future)

------
nikster
Iceland did what any sovereign nation should do in that situation. They fixed
it, and importantly they did it not by bailing out the bad guys but by taking
everything from them!

Iceland also apparently knew that so-called investor confidence is a joke as
far as countries are concerned. A few years on, who is even going to remember
this? Of those who remember, who is going to think this might happen again -
particularly since iron clad policy was put in place to prevent it from
happening again.

Maybe Irish and Greek politicians are just too chicken to do the right thing.
Or, and I think thats unfortunately more likely, they are fighting for vested
interests of a few that pay them money rather than their country or their
people. Iceland stands out in that the politicians acted in the interest of
the people.

~~~
rayiner
There are more than 50 US cities bigger than the whole country of Iceland. I
think the kinds of conclusions you can draw from Iceland's experience is a bit
limited.

~~~
maxxxxx
"But we are so much bigger" seems to be the standard excuse for the US not
looking at what other countries are doing successfully and learning from them.

~~~
anigbrowl
You assume scale invariance. There is abundant evidence that this is not the
case in the field of economics.

~~~
maigret
If the argument that scale hurts (all small western countries are very rich,
but big countries complain "we're too big because we can't do that and that),
then the obvious solution would be to split up. For me it seems just too easy.
I think the reasons are more related to the culture than to the size.

~~~
jmaygarden
How does splitting up a country seem easy? It didn't go so well for the US in
the 1860's. Over 600,000 people died.

~~~
maigret
Right - the process may get ugly.

------
zmmmmm
I wonder though if this is something that can only work on a small scale.
Iceland has only 320,000 people, which means that even as huge as their debt
was, the economic ramifications of their default were quite small on a global
scale. It seems to me that the effects of this kind of thing would scale up in
a highly non-linear way and you can't just assume that an economy 10x the size
will behave the same way a smaller one would, let alone the US or other major
economies. For example, the primary reason Iceland is doing OK now is that the
rest of the world economy (despite being in extremely poor shape) managed to
survive, so Iceland's export industries have somewhere to export to. If the
whole world economy had collapsed Iceland might be in the worst shape of all.

~~~
martythemaniak
Iceland did what numerous other countries have done in the past to deal with
the same situation, including Argentina in the 2000s, Sweden in the 90s and
the US during the 30s.

~~~
philwelch
The US during the 30's ended up remaining in a deep depression that didn't let
up for well over a decade, something that casts doubt on any of the actions
the US government took during the time.

~~~
yxhuvud
US during the 30's started off trying to use austerity. That is what made it
longer and more painful.

------
Symmetry
The financial types might have been giving bad advice, but that wasn't
necessarily mainstream economics - and seems like it might have been a bit
self-interested too.

"Iceland did almost everything right. They stiffed the bank creditors to avoid
aggravating the moral hazard problem, just like the textbooks recommend. In
the eurozone the bank creditors are being bailed out. They relied of fiscal
policy to address S/I and debt issues, and let monetary policy address AD,
just as the New Keynesians were recommending in the 1990s. In the eurozone
they combined tight money with reckless deficits. And now Iceland is growing
fast and the eurozone is stagnating."
<http://www.themoneyillusion.com/?p=14895>

------
guylhem
Maybe a simpler explain was that Ireland was in deeper trouble, part of it due
to being bound to a currency which could not depreciate, since most of the
"weight" was outside Ireland, in a german speaking country of continental
europe. (and which is being far too patient with some creditors that are
showing less willingness than Ireland)

EDIT: oops bad proofreading, a word was missing. It is "in deeper _trouble_ "-
fixed that

~~~
mpweiher
Not sure how Ireland was "in deeper": they were under no obligation to make up
for the private losses of the banks.

How did being part of the Euro require the Irish state/tax payer to bankrupt
the state in order to bail out the banks, or rather, their creditors?

~~~
drucken
Because as part of the Eurozone your national bank and sovereign state has
monetary and fiscal obligations to the ECB and Eurozone creditors.

From a naive perspective, reneging on any of these obligations would put your
Eurozone membership at risk.

In practice, the situation is almost the reverse. It is/was far easier to
maintain the status quo as long as possible to enable the use (abuse?) of
monetary policy transmission mechanisms of the ECB and other EU state bailout
facilities than to take unilateral action like elective default.

Elective default would have meant any Eurozone state would almost certainly be
required to leave the Eurozone, including rescinding ECB support and incurring
the huge upfront cost of reintroducing their own currency.

TL;DR. Comparing Iceland's situation directly to any Eurozone state is an
economic fallacy, especially since the Eurozone has no mechanisms at all that
support leaving it (e.g. transition to a parallal ECU2-like currency while
retaining access to ECB or other Eurozone facilities).

~~~
mpweiher
"Because as part of the Eurozone your _national bank_ and _sovereign state_
has monetary and fiscal obligations to the ECB and Eurozone creditors."

But the point was that these were _private_ bank debts, not debts of either
the national bank or the state. Once they the state took on those debts, yes,
there were obligations.

~~~
drucken
It's effectively the same under ECB's monetary policy mechanisms. Those bank
debts are used as collateral for borrowing from the ECB or the Eurozone inter-
national bank payment processing system (called TARGET2) or Eurozone
creditors.

Imagine if Iceland could only issue debts, both public and private in US
dollars. That, its interest rates were set by the Fed. That, its banks could
tap short and medium unlimited liquidity against this collateral. That, its
USD payments went first through a US-based payment processing system. But only
if you never default on this collateral.

Then, you would have something similar to the situation Ireland faced.

It is true Ireland could have tried to hold out for an externally-led, Greek-
style debt restructuring, though I suspect it would have been harder for them
due to the private bank debt transfer. But even that still is not elective
default to their own currency with full debt control. Therefore, not the same
as Iceland.

~~~
mpweiher
"[Public & Private bank debt] effectively the same [under TARGET2]"

Interesting assertion, as it would mean there effectively are no private banks
and "too big to fail" is enshrined in basic EU mechanisms, and independent of
size -> automatic bailouts all the time.

Are you referring to Sinn's analysis? While that's an interesting read (intro:
<http://en.wikipedia.org/wiki/TARGET2>), it doesn't seem to quite support such
a staggering claim.

However, I do see that European politicians are acting this way, so that
supports what you are saying, but they actually have to act to do so, which
contradicts it.

Certainly the rest your text simply assumes the equivalence of public and
private debt, rather than showing that this is the case.

" _you_ never defaulted on this collateral" -> There are two different "you"
in this case. So what happens if one of these two "you" does default?

You are implying that the default of one "you" automatically means the other
"you" never gets money again (the bond vigilantes and all that), but as the
fine article showed, the same was said for Iceland and it didn't happen.

I know you claim that there is only one "you", but I just don't see that in
your analysis (or in what Sinn wrote).

"It is true Ireland could have tried to hold out for an externally-led, Greek-
style debt restructuring" -> again, that only applies _after_ taking on the
bank debts.

------
retube
Oh for fucks sake. How many times does this bullshit get promoted. Iceland !=
Ireland! Or any other distressed european nation for that matter. It's FUCKING
TINY. Population: 320k. GDP: $14bn, or 1/1000 that of the US, or 1/100 that of
a peripheral european nation. The impact of Iceland defaulting on it's debt
does not compare to a "full-sized" nation. </rant>

~~~
talmir
We may be small but we are wiry ;)

But honestly, when I read a lot of what the foreign press is saying about us
Icelanders it almost seems like they are telling a fairytale. We are being
used as an example for some mythological "We should have done that!" type
thing. There are no delusions here that what we did would never work for a
larger country, and what we did was indeed morally questionable.

But it is fun reading about the miracle of iceland on the net tho :)

------
jval
<http://en.wikipedia.org/wiki/Moral_hazard>

The only thing worse than making a mistake is failing to own up to it and
suffer the consequences. The entire Western world, not just Ireland, is a
victim of this.

~~~
taligent
It is naive to apply this to the current situation. Financial institutions
aren't people and most importantly they aren't normal businesses. They make up
the core infrastructure that every business and consumer needs just like
power, water, electricity etc.

Every time someone says "just let them fail" ask if they would they say the
same thing if it was a water company that needed bailing out.

~~~
ihsw
The water company is based on a real, tangible resource. Stock markets and
financial instruments are tools of imagination based on speculation and
'confidence.'

~~~
taligent
No. Financial institutions do a LOT more than just speculate and invest.

They also handle and manage capital for everyone from consumers, businesses,
enterprise to other banks. And capital is every bit a tangible resource as
something like electricity is.

I personally was outside the Northern Rock branch in the UK when it went
under. Over 3/4 of the people in line were scared and worried senior citizens.
People forget that financial institutions affect EVERYONE.

~~~
toyg
There is institution and institution. The problem with Northern Rock and
friends was exactly that they were playing recklessly with "senior citizens'
money"; in a better world, that sort of reserve would be handled by a
different entity with stricter, more conservative policies than you'll find in
a "grow at all costs", ambitious little company.

------
jmspring
Pretty sure most of the decisions of western nations (US/UK in particular)
decisions were not based on purely economic reasons. I suspect those in power,
the background, and their political ties (big banks) played more into the
decision makings rather than pure economics.

Geitner, Bernanke, etc. are all big bank people. Krugman and other
"independent" (yes, I know there are caveats) economists had other ideas.

~~~
Tichy
At the end of the lenders chain there are some rich people who want to get
their money back and who have ties to the government. The whole thing is
basically a scam to relieve the average population of their riches. At least
that is my impression of the affair...

------
JohnsonB
Makes sense, it is not irresponsible to refuse to entertain debts to shady
creditors. One is responsible for the fate of one's investments, but _not_
when the investment itself is betraying certain ethical and business standards
that would be impossible to consistently audit of every investment one made.
So unless future investors in Iceland are planning to skate the line between
legal and illegal, there's no reason to doubt the future economic potential of
Iceland.

~~~
tsotha
>Makes sense, it is not irresponsible to refuse to entertain debts to shady
creditors.

It's not irresponsible to refuse to _borrow_ money from shady creditors. But
no matter how you dress it up refusing to pay debt freely taken on is theft.

~~~
b1daly
It is not theft by any legal or everyday definition I have ever heard. Even if
it were illegal, the crime would not be called theft. Are there any types of
debt in the US in which a default is considered considered illegal?

Among the many differences between a loan and a theft, is that the transaction
is entered into by the choice of both parties. Whether it is a true free
choice is another question, as is the issue of fraud in creation or discharge
of the obligation.

~~~
tsotha
>It is not theft by any legal or everyday definition I have ever heard. Even
if it were illegal, the crime would not be called theft.

I wasn't talking about legality. Clearly what Iceland did was legal. It's
still theft if you can pay the money back and you don't.

>Are there any types of debt in the US in which a default is considered
considered illegal?

As a matter of fact, yes. Student loans are not dischargeable in bankruptcy.

>Among the many differences between a loan and a theft, is that the
transaction is entered into by the choice of both parties. Whether it is a
true free choice is another question, as is the issue of fraud in creation or
discharge of the obligation.

Which all amounts to rationalization in this case. This isn't a case of
someone being forced to take on debt by a loan shark.

------
hobb0001
> Would-be investors in Icelandic bonds focus most of their attention, not on
> what happened in the past, but on what is likely to happen in the future.

Once you understand that, you basically understand the entire financial
industry. It has no memory. Hell, it barely even has any perception of the
present.

~~~
alan_cx
Yeah, I wonder about that too.

If a country defaults, and tells the banks(who ever) to sod off, why cant it
then funnel the money it was spending on servicing these debt(s) in to beefing
up its own economy again? Could it not then become an attractive investment to
those same banks it dumped on? Since all businesses care about is future money
and profit, then surely the defaulting country is back in favour again,
assuming it can deliver some sort of surplus or profit?

Its just a reset. The country blue screens, reboots and every one is happy
again.

------
thwest
Argentina is also a fine case study for telling creditors to take a hike.

~~~
reinhardt
Wondering if Greece could/should be next.

~~~
thwest
I believe they would have to leave the Euro and return to a national currency.
But that is certainly a better prospect than the austerity project Germany and
France are wishing upon them.

~~~
mahesh_rm
Greece is paying, as Italy and Ireland are doing. Not sure for how long and
what will happen, though. Whenever, back in history, populations are pissed
off the hard way for reasons they are not accountable for or not even
understand, bad things happen. I don't know what's the feeling up in Ireland,
but for what I see in Italy and Greece, there will be sooner or later a
breaking point.

~~~
taligent
Sorry but the people are the reason Greece/Italy are in the mess they are in.
Tax evasion and corruption is rampant at all levels especially amongst the
rich. Many in Europe believe that the people are simply getting what they
deserved.

~~~
mpweiher
The problem is that the ones paying for it are not the tax evaders and corrupt
politicians that caused the mess.

And as usual, it is easier to divert blame to "evil foreigners".

Not that there isn't internal dissent: [http://www.euractiv.com/euro-
finance/greek-journalist-acquit...](http://www.euractiv.com/euro-
finance/greek-journalist-acquitted-tax-e-news-515805)

~~~
tedunangst
Tax evasion was basically 100%. Sure, it's easy to say "I'm only cheating a
little, blame the big cheaters" but everybody was in on it. The ones paying
for it _chose_ to be unaware of what was happening.

~~~
mpweiher
Yes, as far as I know this is correct. In fact, reports by the monitors said
that there wasn't even a capability to actually collect taxes in the tax
collecting agencies, apart from no willingness and no real idea of how/why.

------
klausjensen
If you are curious about the Icelandic economy, the lessons learned, fact and
fiction, you should follow the blog "Icelandic Economics" by Olafur
Margeirsson. He writes interesting, fact-based posts on the Iceland Economy,
like this one on the recovery: [http://icelandicecon.blogspot.no/2012/07/is-
iceland-ok-now-e...](http://icelandicecon.blogspot.no/2012/07/is-iceland-ok-
now-economic-figures.html)

I have no personal involvment in the blog or they author, am just a follower.

------
Beltiras
The opening statement is a crock of bull. Creditors were not told to take a
hike. The creditors became the owners of the banks erected to maintain the
banking system. I'm sure they took a haircut of some sort and the capital
controls forced them to maintain their assets in Iceland, but to the
population at large it does not feel like the banks lost at all. They have
been profitable EVERY QUARTER since then. The new banks got a firesale deal on
the paper assets and have been making out like gangbusters.

I hate how the Icelandic Economic Wonder is held up as a model for others.
Monetary policy is crap. The Fed (or our anemic facsimile thereof) blindly
believes in the disproven assumption that interest rates control inflation (at
least for microeconomies).

Meanwhile wages are stagnating, unemployment is high, social programs are
under siege EVEN with the most left leaning government we have seen EVER in
the history of Iceland. Mortgages are adjusted with the CPI but wages are not.
I for the life of me can't see why the higher price of tomatoes or ketchup
should raise my debt with the bank.

I have much more to say on the issue but need to maintain my anger below
flashpoint so I can do some work. Christmas is coming.

------
solutionhn
Imagine that 200 people are living in a town with minimum rules that can
barely ensure they don't kill each other. Everything else is up to individual
whims and fancies. Most of them have enough power to threaten others and there
is no leader than can rap them when they fall out of line.

Maybe we should look at things in this lens instead of our commonly held views
at the individual level to make sense of various things to take the right
decisions.

------
damian2000
This has some parallels in the ability to declare personal bankruptcy; to
start anew. Unlike the US, many countries still don't allow this and hold past
debts over you forever. In Victorian England, there were special debtors
prisons and workhouses where you had to spend x years literally working off
your debt.

------
barking
In ireland, owe the bank thousands and it's your problem, owe the bank
millions and it's not the bank's problem

------
mbesto
I don't understand how Economics is considered a science. It doesn't follow
one of the underlying principles of the scientific method, mainly: _If an
experiment cannot be repeated to produce the same results, this implies that
the original results were in error._

~~~
pjriot
I highly recommend:

[http://www.amazon.co.uk/What-Thing-Called-Science-
Third/dp/0...](http://www.amazon.co.uk/What-Thing-Called-Science-
Third/dp/0335201091)

You'd be surprised how difficult it is to nail down what constitutes a
science.

------
Tycho
I imagine there's a tipping point with countries defaulting whereby suddenly
the entire complexion of the sovereign debt market changes radically and every
nation needs to rethink its fiscal policy. Maybe Ireland could do it, but if
say Spain were to follow suit...

------
damian2000
I think Greece could have taken a lesson from this too - in my view they would
have been better off allowing their currency to devalue and just write off
their debts. But they are probably past the point of no return now in terms of
being able to do that.

~~~
jussij
Probably one big difference is the types of economies involved.

From what I have read of Iceland, it's export driven, so a low dollar (i.e.
krona) is a blessing and leads to prosperity.

Greece on the other hand is a net importer so a low dollar means poverty and
misery.

Edit: Added krona reference.

~~~
damian2000
But isn't tourism a huge part of their economy... i.e. foreign tourists
bringing in foreign currency which would be great when the local currency is
low?

~~~
jussij
It is, but overall their economy is a net importer:

Economy of Greece - <http://en.wikipedia.org/wiki/Economy_of_Greece>

Which is not totally surprising since it's this imbalance of trade that
resulted in them running up their massive 'credit card' bill in the first
place.

------
tezza
Quelle Surprise, a Journalist paints the picture that a local decision is
wrong and englightened foreigners got it right.

This is linkbait, pure and simple.

\---

What worked for Iceland...

less people, first to go,

not in EU, few options,

history of obstinancy ( cod wars )

...

Cannot be applied to Ireland ...

more people, later to go,

bound in EU, many countries who would back it ( UK bilateral loan helped a lot
)

history of abiding by contract

------
etfb
What's the difference between economists and homeopaths?

At least there's evidence that water exists.

------
digeridoo
If you fall deep you have a long way back up. It's worth nothing that Ireland
still out-performed Iceland over the past 10 years.

------
nacker
"Self-delusion is a characteristic of Irish society. In the old days we were
told things about ourselves that in retrospect seem laughable. We were morally
superior to other races, O’Connell Street was the widest street in Europe, the
Shannon was going to be drained, the country reunited and the Irish language
restored.

Such was the pathetic nature of the society that it tended to grasp at any
idea, no matter how absurd, seen as positive to our warped sense of
nationhood."

[http://www.irishtimes.com/newspaper/opinion/2012/0920/122432...](http://www.irishtimes.com/newspaper/opinion/2012/0920/1224324198844.html)

~~~
patrickk
Great, yet depressing description of the Irish psyche.

This part in particular rang true:

" _The Republic of Ireland has never been truly independent. This could be
because the best and the brightest were and are the most likely to emigrate,
leaving behind the more deferential, insecure and apathetic people. British
rule was overthrown in this part of the country in 1922 only to be replaced by
an equally abusive system controlled from Rome.

This itself is in the process of being gradually overturned, but is being
replaced by a regime controlled from Frankfurt, whose intentions are, as yet,
unclear. Unless something fundamental changes in the public psyche, Ireland
seems doomed to endlessly repeat its history of failure and to be a society
that is deferential and provincial in outlook._"

