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The story of Iceland is not Keynesianism vs Austerity. Rather it is about default (which is not what is generally advocated by keynesians) vs. making bond hold

The story of Iceland is not Keynesianism vs Austerity. Rather it is about default (which is not what is generally advocated by keynesians) vs. making bond holders (especially politically privileged ones) whole by any means necessary (money printing, favored by keynesians or austerity favored by chicago school types.) Iceland went full default and appears to have done well because of it. Greece has moved slowly into default-lite and is doing much worse. There are an infinite number of other variables at play (I think culture is particularly significant, for example) but it does offer some evidence for the full-default/reset approach.

drucken 14y ago
This is absolutely the correct interpretation, though this article is appallingly badly written compared to the Bloomberg Businessweek original (http://www.businessweek.com/news/2012-08-12/imf-says-bailouts-iceland-style-hold-lessons-for-crisis-nations http://www.businessweek.com/news/2012-08-12/imf-says-bailout...). The reason why the IMF is critical to this is because of a (in)famous paper they released in September 2010 essentially formalising a past decade of IMF policy outlook called, "Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely" - http://www.imf.org/external/pubs/ft/spn/2010/spn1012.pdf http://www.imf.org/external/pubs/ft/spn/2010/spn1012.pdf Iceland is a perfect highly modern example of why sovereign default is such an effective recovery tool. Default has been historically proven as effective for thousands of years and often the ONLY recourse for states with unsustainable or structural debt overhangs (regardless of where or how that debt came from) that would cripple their future prospects or cause an immense medium term opportunity cost. The key though is that default often forces institutions, policies and their regulatory frameworks to re-align with sustainable long term goals of the state as well as leave a lasting cultural mark on their people to never permit such mistakes again. Clearly, this has been the case for Iceland while amazingly retaining their welfare system. What I find particulary impressive was their committment to apply capital controls despite some enormous, vociferously protected external claims, particularly those from much larger nations such as the UK.
- carsongross 14y ago
  Yep. They really did tell the international banking cartel to go to hell, and it worked almost exactly like the non-mainstream debt-centric economists (Steve Keen, etc.) predicted. Amazing.

drucken 14y ago

This is absolutely the correct interpretation, though this article is appallingly badly written compared to the Bloomberg Businessweek original (http://www.businessweek.com/news/2012-08-12/imf-says-bailouts-iceland-style-hold-lessons-for-crisis-nations http://www.businessweek.com/news/2012-08-12/imf-says-bailout...). The reason why the IMF is critical to this is because of a (in)famous paper they released in September 2010 essentially formalising a past decade of IMF policy outlook called, "Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely" - http://www.imf.org/external/pubs/ft/spn/2010/spn1012.pdf http://www.imf.org/external/pubs/ft/spn/2010/spn1012.pdf Iceland is a perfect highly modern example of why sovereign default is such an effective recovery tool. Default has been historically proven as effective for thousands of years and often the ONLY recourse for states with unsustainable or structural debt overhangs (regardless of where or how that debt came from) that would cripple their future prospects or cause an immense medium term opportunity cost. The key though is that default often forces institutions, policies and their regulatory frameworks to re-align with sustainable long term goals of the state as well as leave a lasting cultural mark on their people to never permit such mistakes again. Clearly, this has been the case for Iceland while amazingly retaining their welfare system. What I find particulary impressive was their committment to apply capital controls despite some enormous, vociferously protected external claims, particularly those from much larger nations such as the UK.

carsongross 14y ago
Yep. They really did tell the international banking cartel to go to hell, and it worked almost exactly like the non-mainstream debt-centric economists (Steve Keen, etc.) predicted. Amazing.