Truthdiggers of the Week: Iceland’s Leaders
Truthdig – TRANSCEND Media Service
One country refused to bail out its derelict banks and slash social spending amid the financial crisis. And guess what? Unlike the eurozone and the United States, it’s making a sturdy comeback.
Iceland’s stock market plunged 90 percent in 2008. Inflation reached 18 percent, unemployment shot up ninefold and its biggest banks failed. This was no recession. It was a full-blown depression.
Since then, the country has steadily improved. By September of this year, it repaid its IMF rescue loans ahead of schedule. Unemployment dropped by half and its economy will have grown by roughly 2.5 percent by the beginning of 2013.
So what’s Iceland’s secret? According to the editors at Bloomberg News, it’s a refusal to do what virtually every other nation that was pummeled by the crisis did: adopt policies of economic austerity.
Iceland’s approach was the polar opposite of the U.S. and Europe, which rescued their banks and did little to aid indebted homeowners. Although lessons drawn from Iceland, with just 320,000 people and an economy based on fishing, aluminum production and tourism, might not be readily transferable to bigger countries, its rebound suggests there’s more than one way to recover from a financial meltdown.
Nothing distinguishes Iceland as much as its aid to consumers. To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support.
The International Monetary Fund’s mission chief to Iceland has sung the nation’s praises too. “Iceland has made significant achievements since the crisis,” Daria V. Zakharova told Bloomberg in August. “We have a very positive outlook on growth, especially for this year and next year because it appears to us that the growth is broad based.”
Letting the losses fall on bondholders rather than taxpayers, maintaining the country’s welfare system and imposing temporary controls on investments protected Iceland from collapse and pushed it toward recovery, she said.
American leaders are threatening to do the opposite at the end of this year when a potential failure to reach a deficit reduction deal will trigger a total of $54.7 billion in spending cuts from government offices and social programs, Medicare among them, per year.
Nobel Prize-winning economist Paul Krugman agrees that cuts to the social safety net are not the way. Ideology should not trump empirically based economics, he says. But right now, in the United States, it is. Krugman writes:
The doctrine in question amounts to the assertion that, in the aftermath of a financial crisis, banks must be bailed out but the general public must pay the price. So a crisis brought on by deregulation becomes a reason to move even further to the right; a time of mass unemployment, instead of spurring public efforts to create jobs, becomes an era of austerity, in which government spending and social programs are slashed.
Even in the face of evidence, including a recent return to recession for the eurozone economy, elected officials on the right and left are pushing what serious economists recognize as failed policies. And it appears they will continue to do so for the indefinite future. In the meantime, we honor the reality-based leaders in Iceland as our Truthdiggers of the Week.
—Posted by Alexander Reed Kelly.
DISCLAIMER: The statements, views and opinions expressed in pieces republished here are solely those of the authors and do not necessarily represent those of TMS. In accordance with title 17 U.S.C. section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. TMS has no affiliation whatsoever with the originator of this article nor is TMS endorsed or sponsored by the originator. “GO TO ORIGINAL” links are provided as a convenience to our readers and allow for verification of authenticity. However, as originating pages are often updated by their originating host sites, the versions posted may not match the versions our readers view when clicking the “GO TO ORIGINAL” links. This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.