Tuesday, November 25, 2008

Riots In Iceland: Icelanders Not Chilling

Iceland is a country with a temperate climate that belies its forbidding name. Its population of little more that 300,000 is about one seventh of the population of Brooklyn. There is a sense of fraternity in such a small population that can only be imagined by citizens of larger countries. Years ago I read an article about capital punishment that described an Icelander who was convicted of murder and dined with the judge at his home upon his release. This is not a country given to gratuitous strife. It has enjoyed a high standard of living built upon the hard work of its citizens in a supportive legislative environment.

But now the people of Iceland are furious. They have taken to the streets of Reykjavik, the capitol citly with revolutionarly language that could well resonate past its modest borders in the North Atlanic . According to France24.com,

Thousands of Icelanders demonstrated in Reykjavik on Saturday demanding the resignation of Prime Minister Geir Haarde and Central Bank Governor David Oddsson for failing to stop a financial meltdown in the country.
It was the latest in a series of protests in the capital since the financial meltdown that crippled the island’s economy.
Hordur Torfason, a well-known troubadour in Iceland and the main organiser of the protests, said the protests would continue until the government stepped down.
“They don’t have our trust and they are no longer legitimate,” Torfason said as the crowds gathered in the drizzle before the Althing, the Icelandic parliament.

This is a country with the oldest parliament in the world. The protests are being led by a folk singer who hardly sounds like a revolutionary firebrand. The anger is that of people who deposited their savings in a spirit of fiscal prudence. The money they had entrusted to bankers was invested in enterprises that have either collapsed or fallen on hard times.

On a smaller scale, Iceland has secured the kind of relief that the American Congress is rushing through on a fast track to passage into law. The France24.com continues as follows.

“Iceland’s three biggest banks — Kaupthing, Landsbanki and Glitnir — collapsed under the weight of billions of dollars of debts accumulated in an aggressive overseas expansion, shattering the currency and forcing Iceland to seek aid from the International Monetary Fund (IMF).
This week, the North Atlantic island nation of 320,000 secured a package of more than $10 billion in loans from the IMF and several European countries to help it rebuild its shattered financial system.”

What remains sketchy is the answers that came from an analysis of the bank failures. Like America, Icelanders seems to have coloured their analysis of the crisis with a layer of political considerations that limits their usefulness. America’s national soul searching was undoubtedly hampered by the presidential elections, with each party looking to the electorate with their fingers pointed at the other guy.

Iceland, unlike America has a parliamentary system in which a no confidence motion can bring a government down and trigger new elections. The solid majority now in charge is unlikely to step down without a lot of arm twisting. This is what demonstrators hope to accomplish.

The world economy is not made up of discreet components. There is interconnection between countries. A collapse in Iceland or anyplace elsewhere can have a domino effect. This is why concern for our allies is not simply charity but a sound business premise.

What concerns me in looking at the strategies now being debated is the approach of drawing upon taxpayers at a time when the tax base has shrunk tremendously. A cornerstone of any recovery strategy is the continued confidence of investors. What would be far more efficient a way to finance fecovery in Iceland, America or anyplace else would be a legislative package to facilitate investment in troubled sectors of the economy. There are some things like humanitarian relief that can not plausibly be funded by private investment. An increase in private sector solutions would free up the now limited tax base for a greater focus on blunting the human impact of the current crisis.

An article with proposals for economic recovery

The anger of the masses is a wake up call. It is instructive but not specific. The collective desire for vengeance can easily be redirected towards a constructive analysis of the current difficulties. It needs to be restated that printing money is not the same as creating wealth. The best long term solution is for the government to facilitate the economy’s healing of itself.

Iceland is a country with a long and solid tradition of social stability. Pepper spray in its atmosphere should clear the eyes of observers elsewhere. America has a far longer history of social instability. We should be looking at solutions that will not only see us through the day but insure a stable foundation for the future.

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