May 24, 2013
Truthdiggers of the Week: Iceland’s Leaders
Posted on Dec 1, 2012
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.
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:
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.
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