Iceland: The Forgotten Country
I was thinking the other day, whatever happened to Iceland? At the beginning of the global financial crisis Iceland’s three banks collapsed leveraged beyond the small nations GDP. Total debt reached 9.553 trillion Icelandic krónur (€50 billion) compared to Iceland’s GDP in 2007 of 1.293 trillion krónur (€8.5 billion). Iceland went cap in hand to the IMF, its currency collapsed to about half its previous value compared with the USD. The world for the most part wrote off Iceland and the IMF required a significant austerity package in condition for their support.
So what has been the experience of Iceland since 2008?
GDP Growth: 2008 1.4, 2009 -6.9, 2010 -3.5, 2011 2.2, 2012 2.9.
Unemployment: 2009 7.2%,2010 7.5%, 2011 7.0%, 2012 6.2%, 2013 5.3%
Government Debt (% of GDP): 2008 102%,2009 120%,2010 120.2%
Government Fiscal Condition: 2008, -13.5, 2009 -10.0, 2010 -7.8 (Expected to return to surplus 2013)
(Source OECD, http://www.oecd.org/document/62/0,3746,en_33873108_33873476_45269950_1_1_1_1,00.html)
So what can be learnt from Iceland? First Iceland did not bailout its banks, choosing only to bail out its depositors and not the investors. Second, Iceland has managed to stage a slow recovery despite the ongoing crisis amongst its European neighbors. Thirdly, having a national currency that can respond to crises may help other industries stage a recovering. Large energy intensive investment projects and a residential construction boom has led economic growth. Finally, austerity measures that led to sustainable government debt levels may play a role in supporting the economic recovery.
While I can’t claim to know enough about Iceland’s unique situation or how it impacts on the sovereign debt crisis, I suspect that there has been little effort to learn any lessons from Iceland and instead the Government’s in Europe continue to look for a painless recovery.
Creative Destruction and How it impacts on our lives.
So often in the news we hear of some formerly successful industry going bust. Trade unions and industry groups lobby hard for their industry to be saved through government intervention. A recent example in Australia and globally has been bookstores. I remember my excitement when the first Borders opened in the Brisbane CBD. I could buy a mocha caramel-latte at Gloria Jeans, choose from a range of specialty books that were never offered in Brisbane before. Having an interest in management literature, it wasn’t long before a had a large library of business titles and career development books.
Books would cost between $20-30 and textbooks could be up to the cost up $100. Now ten years on, Borders has gone bust and rumor has it that the building will become one of those ghastly Apple stores. Sorry, couldn’t resist. This is where creative destruction comes in. The Oxford economic dictionary describes creative destruction as, “A model of economic growth driven by quality-improving innovations that make old technologies or products obsolete.”
That pretty much describes my once beloved Borders, obsolete. I now have two new superior ways of buying books, first, Better World Books and second Amazon kindle. For my studies I have only bought one new textbook in 2 years. Others, I have bought secondhand on Better World books. Technology has allowed me to connect with bookstore all over America where slack students have foolishly sold their old textbooks allowing me to buy them for between $10-$20. Amazon Kindle has allowed me to purchase new books at a fraction of the price I would have paid at Borders.
This technological innovation has dramatically increased my consumer surplus. Not only in quantity but in quality. I recently was preparing for a job interview as a Business Analyst and realised I didn’t have sufficient skills using Microsoft Excel. In the bad old days, I would have driven to the bookstore, not found a book that really covered what I wanted and would have settled for some more basic book about Excel with a few accounting formulas in it. Instead, I went to the Amazon Kindle store, within five minutes I had a book called Business Analysis in Microsoft Excel 2010. I could read reviews about the book confirming the books quality and ensuring the author handled the topic well. This book covered everything I needed, there would have been almost no chance of me finding such a book in a bookstore in Australia.
From a bookstores point of view had they had such a book it would have sat on their shelf for months waiting for an econ nerd like me to come in, if I had come in at all. The price would have been significantly higher to cover the much higher costs of having that inventory sitting on their bookstores shelf for so long. So technological innovation increased the quantity of products I could choose from and lowered the price. Creative destruction.
Defending death threats
I believe in free speech. I mean — I really believe in free speech.
That doesn’t just mean that I support Andrew Bolt’s right to say whatever he likes about aboriginals, irrespective of who gets offended. And it doesn’t just mean that I oppose all censorship, such as the banning of Mein Kampf in some European countries. It also means I oppose defamation laws, and I believe you should be allowed to say anything about anybody, whether true or false, for whatever reason. It even means I believe that tobacco companies should be free to advertise.
I believe attempts to limit speech “for the public good” will mostly do more harm than good, and that messy and imperfect freedom is better than neat and tidy (but even more imperfect) government control.
Today I was discussing another of the controversial areas of free speech. Yesterday, that crazy old kook of the blogosphere grumpy-Graeme Bird wrote an eloquent rant aimed at me, where he said:
“He must die. John Humphreys must die so that this country can live. He has betrayed this country too many times and he must no longer live … This is too important a subject to let John Humphreys live. Where does the lying end. I’m convinced that it only ends when John Humphreys is cold and stiff … HE MUST DIE, FOR THE LYING TO END. AND THIS IS A LIFE OR DEATH MATTER … I am accusing Humphreys of being a knowing traitor … SO MY NEW CLAIM IS THAT HUMPHREYS WILL NEVER STOP LYING. THAT HE WILL NEVER BE A SAFE PAIR OF HANDS. THAT HE WILL ALWAYS BE A TRAITOR. WHILE HE YET LIVES.”
My first death threat. Now I know that I’m important. A few friends have suggested I take it seriously, and one kindly offered to call his federal police friend who would call Graeme… but I nixed that idea. For his part, Graeme says that it is not a death threat because he doesn’t plan on doing any killing himself. That’s good to hear. But another friend pointed out that the above sentiments might still be considered incitement to violence… which got me thinking about free speech.
Ron Paul & foreign policy
A lot of people like the free-market message of Ron Paul, but worry about his non-interventionist foreign policy. If you are one of these people, then this video is for you…
The unforgivable stupidity of the anti-banking “libertarians”
At the recent Mises Seminar in Sydney there was a speech by Chris Leithner that explicitly called for the banning of fractional reserve (FR) banking. Leithner and other Australian libertarians (including Michael Conaghan & Benjamin Marks from Liberty Australia) follow the lead of some American libertarians (Walter Block, HH Hoppe, JG Hulsmann — BHH) and argue that FR-banking is fraud and should be banned, and further that it is economically damaging and causes inflation.
These two issues need to be addressed separately. The first is a deontological issue about whether FR-banking is consistent with a free world. The second is a consequentialist issue about whether FR-banking leads to bad outcomes. It is possible that FR-banking is consistent with freedom and yet leads to bad outcomes, and then those libertarians who accept the “non-aggression principle” would have to tolerate FR-banking even if they don’t like those outcomes. But before delving into that debate, it is worthwhile quickly explaining what we are actually talking about with FR-banking.
Vaults, loans & banks
Anything can be money. In jail (and POW camps) cigarettes have been used as money. In the early years of Australian settlement, rum was used as money. In some small island nations, shells have been used as money. Through much of history, precious metals (especially gold and silver) have been used as money. And today, the most common sort of money is “fiat” paper money that is created by government but is intrinsically worthless (ie it has no value except as money). This is not the place to go into a debate about what should be money or who should decide, but the important point is simply that there is some original supply of money that then becomes the standard “unit of account” and “store of value” and “medium of exchange” in an economy. For the sake of this discussion, this original supply will be called “base money” and in Australia it is created by the Reserve Bank of Australia (RBA).
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