#in The economies of the developed world need help. We need a hero. We need Iceland. Yes, this Arctic country of about 320,000 people has been held up as model of how to handle the fiscal and banking crises that have shaped our economic debates since 2008.
Iceland was booming during the last decade. People flocked to the renowned Reykjavik club scene and enjoyed the steamy waters from the volcanic springs. It’s the land of Bjork. You’ve probably heard of Bjork, right? She’s the pint-sized singer who has been churning out innovative and distinct music since the early 1990’s. But Iceland’s banks offered the best stage show: at the 2007 peak, Iceland had a banking system that had grown to 10 times the size of its national economy thanks to aggressive loans made all across Europe. Then the party stopped.
Iceland’s economy has been something sort of like Bjork’s career in reverse.
Bjork is now established as one of the most innovative performers of our time. But her first band, The Sugarcubes, were just a hit with college radio stations. They were a Nordic version of the B-52s. With Einar Orn Benediktsson playing the Fred Schneider role.
The B-52’s had some great tunes and they played some funked out party rock. Kate Pierson and Cindy Wilson wore big beehive hair styles and had gorgeous voices. Unfortunately, they decided to add some comedic relief to their band by interspersing the vocals of Fred Schneider. It was like putting Paul Lynde from Hollywood Squares on with the Supremes. I don’t need to hear “Rock Lobster” or “Love Shack” ever again. Please, for the love of all that’s decent, I beg all wedding Djs to leave “Love Shack” off the playlist.
Unlike the women in the B-52’s, Bjork figured out she was the real star and went solo after a couple Einar-laden albums. The Iceland banks did the same thing. They figured out that they could hang with the big boys and started making loans like crazy.
When the party ended, Iceland did something that other countries did not: Rather than bail out their banks with sovereign funds, they allowed them to fail. People lost a lot of money. Iceland’s economy shrank, big time. But they have emerged from the wreckage with a low-ish national debt, they have once again returned to the international bond markets, and their devalued krona is allowing exports to boom. They also implemented capital controls (a controversial move).
It stands in sharp contrast to Ireland, who effectively decided to nationalize the banking system (with one exception, thank you Wilbur Ross). Now Ireland faces a national debt that it will struggle under a generation of austerity to pay off. They are tethered to the Euro, so they can’t allow their currency to depreciate.
I’m not going to get into all the great ideas that came out of Iceland. I just find it interesting that a nation of 300,000 can be a model for how to deal with an economic crisis. I live in Omaha. We have 880,000 people in our MSA. We’ve got some pretty damn smart people living here, but I couldn’t imagine us having our own currency, central bank, and national anthem.
Could you imagine the IMF looking to a nation called Omaha for lessons on macroeconomic and fiscal remedies? Successful case studies are great and all, but Iceland? Holy crap! I mean, Vladimir Putin has chunks of guys called Iceland in his stool. There are more people born in in six days in India than live in all of Iceland.
All right, all right, enough with the Iceland put downs. Its a fine country and we are lucky to have it as an economic lesson. And if Fred Schneider wants to move there and start a band with Einar, that would be fine.