Iceland: Probably Not a Model for the Rest of the World

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Paul Krugman links today to an FT Alphaville post noting that Iceland, which suffered the biggest banking crisis in the world in 2008, is doing relatively well these days. He credits Iceland’s “heterodoxy” for producing a “not-so-terrible post-crisis outcome.”

That’s fair enough, but before everyone breaks out in Iceland fever I think it’s worth pointing out a couple of things. First, Iceland has about the population of Bakersfield. So when they made foreign creditors take most of the losses in the wake of their banking failure, the rest of the world could afford to let it happen. There were no systemic risks involved. Also worth noting: the Icelandic krona got devalued a lot. In 2008 a euro bought 90 krona. Today it buys 160 krona. That means imports are a lot more expensive than they used to be. And state spending, although it went up in krona terms, was cut sharply in real terms. Iceland isn’t really an anti-austerity poster child.

Iceland is certainly an interesting example of how to handle a financial crisis, and there may even be some lessons there for the rest of us. But I’d be pretty cautious about those lessons. What worked for Iceland doesn’t necessarily scale up to work for the rest of the world.

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In-depth journalism that investigates the powerful takes real money and is so damn important right now.But it doesn’t take a Mother Jones investigation to know that billionaires and corporations will never fund the type of reporting (like they do politicians) we do that exists to help bring about change. Instead, our mission-driven journalism is made possible by people power, and has been for 46 years now since our founding as a non-profit.

In “TITLE TK” Monica Bauerlein writes about the perilous moment we’re in, and why it’s so important that we raise $325,000 by the time November’s midterms are decided so we can be ready to throw everything we have at the big issues facing the nation no matter what happens. Please help MoJo’s people-powered journalism with a donation today.

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