Mr. Chakrabortty reverses the argument.
Unnoticed it may be, but Reykjavik now serves as a very different kind of parable, of how to minimise the misery of financial collapse by ignoring economic orthodoxy.
Eh? What Iceland did is against economic orthodoxy?
These policies were not just controversial; they represented a two-fingered salute to the polite society of academics and policy-makers who normally lay down the laws on economic disaster management.
Compare Iceland\’s policies with those followed by another tiny country in the North Atlantic, which also has a banking industry much bigger than its national economy. When the credit crunch came to Dublin, the government decided to underwrite the entire banking industry – including tens of billions of euros of loans made by foreign investors. That landed the country with a debt worth something like €80,000 for every household – a debt that effectively bankrupted the country.
That bit is true, yes. The Irish decision to guarantee the banks\’ debts was the most stupid one possible. The worst mistake of the entire experience.
But what our economics leader writer for The Guardian has missed is that he\’s got the orthodoxy thing the wrong way around. What Iceland did is orthodox, what Ireland did was unorthodox (as ewll as rampagingly stupid).
If you can\’t pay your debts then you don\’t pay your debts. This applies to nation states as much as to bankrupt companies. There\’s even a whole book about how many times this has been done. 800 times over the centuries in fact.
When national debts get too high then nations default. Everyone licks their wounds, takes the haircut and things then carry on.
It\’s actually us neo-liberal right wingers (I can think immediately of myself, Guido and the ASI as all having said the same thing) who have been saying: default you fools!
To find that we who have been screaming economic orthodoxy, urging the Icelandic solution on all, now being described as unorthodox is really rather grating.