Two people I trust suggested that this post is a little hot headed and that I should revise or tone down.
The email however is suddenly running very supportive.
The purpose of the post is and was to make sure everyone knows just how important and nasty financial crises are.
If I have offended people doing that I am sorry, but the crisis is the central fact in what will be modern Icelandic history...
The central policy question raised by the Asian crisis was 'why did the market deal such harsh punishment for so minor economic crimes?'
This will be the question asked by Icelandic people too. And it is a question that should be asked of all those who subscribe to the dumb doctrine that is Austrian economics...
In Asia they ran large current account deficits caused mostly by good excess investment... it still crashed (and recovered).
The stakes here are very high. Iceland is a nasty case but there is no 'Icelandic exceptionalism' and there will be no 'Australian exceptionalism' if we stuff up either. Australia is warmer than Iceland and that is a darn good thing. But it is a small thing.
So, please take my hot headedness as it is intended, which is to outline the stakes...
********************
There is a long history of financial crises, there is a long history of the aftermath. I made a semi-flippant comment about part of the aftermath. It has sent my email and the comments wild. I have gone from 1 regular Icelandic visitor who knew my views in detail because he asked to hundreds of Icelandic visitors. The comment was about financial crisis and prostitution.
I know of no crisis where pretty women have not prostituted themselves out of desperation or for advantage. There are people who have emailed me who can confirm this first hand for Argentina, both as clients and as good Catholic girls turned to distasteful work. Do not think for a moment that I am pleased by these stories...
The journalist whose story of the Russian crisis was one of pretty women aspiring to be dollar whores said it as a matter of fact...
This is not new.
I have now had so many emails and comments that tell me that Icelandic women would rather shoot me and eat me than prostitute themselves that I am sick of it. It may be true but it is not an option open to most Icelandic people.
Financial crises are pernicious affairs. And if there is something about Icelandic exceptionalism I do not see it in the market place. Take your Icelandic exceptionalism and stick it with what is left of your Krona.
I do not mean to be tough. I think that the US should bail out Iceland. Its a democracy full of fundamentally decent people and they deserve much better than what is about to befall them. If the goal of US policy is to make the world safe for democracy fixing Iceland is a cheap shot.
But the US is not going to bail out Iceland. And life is going to be very tough indeed. Tough enough to undo all Iceland's excessively high opinion of itself.
For that I am sorry.
Australia also has a high opinion of itself, and an unsustainable current account deficit. Not as unsustainable as Iceland but bad. I would not like it at all if what is about to befall Iceland befell my home town.
John
PS. My view is not fundamentally different from this view in the British press...
http://www.independent.co.uk/news/business/news/fear-on-streets-of-reykjavik-as-country-can-only-go-to-imf-for-financial-bailout-957876.html
11 comments:
I see you can drop flame bait as some troll - I gather they are very pro-troll in Iceland - once said Iceland can push out beauties.
screw iceland. they'll be ok. everyone's going to be fine.
a post re the 35% meltdown in aud and your view on where it's going would be appreciated. i'm about to change 10k US on monday and wonder if i should wait some more...
Personally I like your candor as it accentuates the seriousness of the on-going worldwide crisis. Also, pride, particularly of the excessive kind, is increasingly harder to maintain each step down the economic ladder. Thanks for your viewpoints.
Unfortunately there is still far too much smugness here in Australia.
Don't know if you saw this:
http://online.wsj.com/article/SB122325772150706655.html
Janet Albrechtsen way off her turf (of course she's pretty asinine at the best of times..).
I still hear lots of people (ignoring politicians who of course are going to say we're going great) thinking we'll be largely unscathed. Often because China is so strong.. 'cause, like, that couldn't change.
On the upside, it could make houses out your way cheaper, which I'd be appreciative of ;)
--Q
John - I could be wrong, but it's my experience that almost all people don't understand any given situation but do hold opinions.
You are well aware of the nature of a financial crisis and the consequence of a failed economy; and because of that, you know what must end come of it and of course - implicitly - being a decent chap, you know it's awful. No decent man needs to explicitly write that being forced into prostitution is appalling.
Then we have the vast majority, who don't understand a crisis, can't see why prostitution will perforce come with it, and because of that can't understand why you would make that comment and so I think attribute it to a *wish* of some sort on your part.
And you get hundreds of angry emails.
On recent form I predict that they will become pimps and madams instead.
I don't understand why the IMF is being cited as a "salvation" here. The IMF has the track record of an 1840's doctor- bleeding and leeches resulting in death (currency crash, depression) the usual result of heeding their advice.
In order to have a growing economy you have to get prices right. For a country the most important price to get right (this should be obvious) is the currency rate. Iceland is now about to get this price right. Only problem is that the price will be politically unpopular. If Icelandic politicians take IMF money in order to keep the price wrong (such as pegging ISK/EUR at 131) all they will accomplish is to extend the depression, as the IMF successfully did in Russia and Argentina.
Note that the IMF's writing off Russia as a 'hopeless case' in Apr 1999 and Argentina's breaking relations with the IMF in '02 (and subsequently excoriating them in all public announcements) were turning points in those countries' capital markets and economic growth.
If/when the head of the IMF shows up in Reykjavik the PM should just punch him in the stomach and let him crawl back to his G5. What else should you do with a charlatan whose policy advice would condemn your country to an extended depression?
What's your problem with Austrian Economics?
A link to your main arguments will do.
The Austrian argument that excessive debt causes busts is something I absolutely agree with.
The Austrian extension that you should just let the market take its course as the solution is insane.
There is (a) a big disconnect between the crime and punishment, and (b) I have never seen the economic advantage in having mass unemployment of resources.
J
1873 vs 1929
The Keynesians and Monetarists (neoliberals) do not have a good track record of "misery reduction".
The calculus gets even worse if you count obscene prison populations and the wastage of elective wars as "unemployed resources" (broken window fallacy and all).
"Australia also has a high opinion of itself..."
Truer words never have been spoken.
They make Americans look humble.
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