Out of the Woods

Miracle in Iceland

Iceland has a population of some 300,000 people. In 2008 it suffered the same problems experienced by our country, by Greece, by Italy, by Spain, only worse– people and banks had borrowed a great deal of money on the strength of a housing bubble. When the bubble burst the banks went broke and ordinary people lost their homes and their jobs.

What we did, what the Greek government is doing under pressure from the European Union, is to bail out the banks and make the people pay for it. This is known as an "austerity program" which cuts social programs and cuts wages, while banks recover and make more money than ever.

As a result the population is impoverished, business declines, more people are out of work and thus there is less and less money to spend – which is very bad for business. Unemployment in Greece is close to 25%. It is still 8% in our country. Our economy is not recovering at all, or only very slowly.

Iceland, by contrast, is doing well. Their national product is not quite what it was before the crisis but it is growing every year. They are doing better than the rest of Europe. They're doing better than we are.

They chose the opposite policy from the United States and the European Union. They let the banks go broke and maintained social programs and wages. The ordinary people had money to spend and that was one of the factors that helped the economy recover. Now they are thriving.

What is more, the Icelanders jailed the bankers who ruined the economy in the first place. In the US, the US attorney in New York yesterday filed the first criminal case against one of the banks who are responsible for the current crisis, J.P. Morgan. They are working on some other cases, but my bet is that no one will go to jail.

Americans like to quote Lincoln's phrase from the Gettysburg address about "the government of, for and by the people." But our government is not for the people; it is for the banks. The Icelandic government is for the people and they find that to be a good policy.