Standard caveat for this post: Iceland’s economy is far smaller and more homogenous than the United States – as are its banks.
Iceland was one of the first economies to truly go up in flames in the wake of the Lehman collapse – but it was followed quickly and for some of the same reasons by other countries. In fact, such calamities threatened to happen nearly everywhere, and the worldwide economy entered a general slump.
Two years later, though, there’s a sharp difference between the fate of the real economy in other countries which were hard-hit by the financial near-collapse of late ‘08, such as Greece, Ireland and even right here, and the real economy in Iceland today. The New York Times explains:
Iceland emerged from recession in the third quarter, official data showed Tuesday, returning to growth for the first time since its financial system collapsed at the height of the crisis in 2008.
Iceland’s real gross domestic product grew by 1.2 percent in the July-September period from the previous quarter, the first quarterly increase since the same period in 2008. Iceland entered a slump after its overleveraged financial sector collapsed in the wake of Lehman Brothers’ bankruptcy.
What accounts for the striking difference? The group of people Iceland chose to allow to shoulder the burden of the problems:
Like Ireland and Greece, Iceland has taken a large dose of austerity measures to rebuild its economy. Unlike Ireland and Greece, however, Iceland allowed private banks to fail, and its currency, the krona, has declined by about 46 percent against the dollar since the start of 2008.
“Excluding the financial system, the real economy is doing well,” Arsaell Valfells, a professor of business and finance at the University of Iceland, said in telephone interview. Retail spending was still shrinking, he said, but the export sector, consisting mainly of fish, aluminum and tourism, was improving. (emphasis mine)
Imagine that. In Iceland – contrary to both Ireland and the United States (where a 9.8% unemployment rate continues to haunt both President Obama and the Democrats’ reelection chances and, of course, those tens of millions of people who remain out of work) – the people who are hurting in Iceland (and elsewhere) are the investors, bankers and bondholders, not the working people who are the true engine of the economy.
Oh, sure – everybody is hurting some; in such a collapse, no one escapes unscathed (Professor Valfells estimates the Iceland economy is approximately “back to 2003 levels”). But the crucial thing which Iceland understood and got right, as evidenced by the state of their economy today relative to other hard-hit economies who chose different paths, is to remember when beginning the task of trying to repair the damage that it is the real economy of production and consumption which matters, not the speculative vaporware of the banking economy which tries to make money out of thin air.
Over in this country, the GOP likes to call it “class warfare” whenever anyone suggests making the rich pay more in taxes, whether income, capital gains, estate taxes or corporate taxes. You can’t turn on a TV to the news in America without hearing some Republican hack regurgitating Frank Luntz talking points about “job creators,” by which they mean: rich people. We mustn’t burden these “job creators” with excessive taxation, goes the well-polished Republican cant, because if we do, they will refuse to hire, and the economy will stall further. Any such moves in that direction are “job-killing” – another finely-tuned GOP catch phrase like “death tax” or “death panels.”
If one doesn’t really think too hard about the details of that line of reasoning, it sounds kind of plausible, almost. Sadly, most of our elite media, which is supposed to act as a watchdog for the people, as an extra-governmental check on abuses and untruths of the powerful, usually don’t think much harder than that. Most of them earn well into six figures or more; many grew up in that kind of environment as well. They’re insulated both geographically – in the steel and glass enclaves of Manhattan or the swampy-but-expensive dens of Washington – as well as economically from the reality facing most Americans. They see businesspeople and their lobbyists, powerful politicians and the like…and they conclude that these really are the people who make the country run. Last night on Countdown, Keith Olbermann had frequent guest Howard Fineman on to discuss Obama’s tax deal with the GOP. Fineman did his interview from the lawn of the White House, because he was just taking a break from attending the White House Christmas party. Really. Looked at in that light, it’s difficult to see how the elite political media wouldn’t be easily susceptible to such blinkered vision. Yes, Fineman made the appropriate tut-tutting noises…but then he hurried off at Olbermann’s urging to go get warm and have another cup of mulled cider in the cozy confines of the White House, hobnobbing with the rich and/or powerful. One wonders what Fineman and most of the rest of the elite media really, in their hearts, believe…after the cameras have stopped rolling.
For the rest of us, just scratch the surface of such Republican dogma as their “tax hikes disincentivize job creators and entrepreneurs” meme, and immediately the dominoes of those theories begin to fall. Look no further than Iceland, if you need evidence. Heck, look no further than right in our own backyard: George W. Bush took the Clinton surplus and almost immediately began giving it out to wealthy people in the form of tax breaks – the very same tax breaks President Obama just inked a deal with Republicans about, in fact. What was the result? An entire decade in which real net job gains were literally just above zero:
If making sure the rich had more money – so they could hire people and start businesses – was a workable economic theory, where were the jobs created in the Bush administration? You know as well as I do: there weren’t any. And don’t let any Republican fall back on “9/11 changed everything” – which they will still do, if pressed hard. It’s just not true. If the number of jobs created (and thus the strength of the economy in general) is in direct proportion to the amount of money the rich have available, why is our unemployment rate still 9.8%? Why is Iceland the only country of those hardest-hit by the recent financial strife to have a growing, steady (if not booming) economy?
The three biggest Icelandic banks, which had expanded aggressively during the credit bubble, all failed and were nationalized in October 2008. Cleaning up the mess left by one of those, the Icesave unit of Landsbanki, has soured relations with Britain and the Netherlands and delayed international aid.
Icelanders have resisted international pressure to make them fully reimburse the two governments for $5.4 billion they spent making whole Dutch and British depositors who lost their savings in the financial collapse. A March referendum in the nation of 300,000 people on whether to support repayment was overwhelmingly rejected by voters.
Got that? It works, people. Let the banks fail – or, if they’re genuinely “too big to fail,” as was the case argued with some of the American banks – then structure the bailout so that the people who ran the investment schemes like CDSs and other CDOs, and those who tried to get rich(er) from them are the ones who take the “haircut” (to use the quaint, fiscal terminology for having to actually lose money when your bets go south). Icelanders apparently haven’t been subjected to enough of a barrage of propaganda to make them think that their most important goal ought to be making the rich speculators and bankers whole again through repayment using public tax money. Those voters over there in Iceland “overwhelmingly rejected” the notion that what’s good for the banks is good for Iceland. They had the nerve to decide that the people who took the risks ought to be the ones who took the loss when those risks didn’t pan out. Goddamn class warriors, gettin’ all uppity. Who do they think they are?
Well, whatever else they may be – or think they may be – one thing that the people of Iceland are is quite clear: citizens of a country with a growing economy and a shrinking unemployment rate. Wish we could say the same.