Libertarian Experiment in Iceland Fails

Nov 2007
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I read this article the other day and noticed that there are distinct paralells between Iceland's experiment with libertarianism and the proposals put forth by several of our libertarian leaning friends on this forum. It would seem that a libertarian form of government is a recipe for political and financial disaster.



Thoughts?



In autumn 1984, the Icelandic Libertarian Association arranged for American economist Milton Friedman to visit Iceland. During this visit, Friedman gave a lecture at the University of Iceland on the "Tyranny of the Status Quo," and debated the country's leading socialist intellectuals--including current president Ólafur Ragnar Grímsson. This visit made a great impact on several young members of the Independence Party, including Davíð Oddsson, Hannes Hólmsteinn Gissurarson, and Geir Haarde.





Mr. Gissurarson, right, in happier times, with Milton and Rose Friedman at a Mont Pelerin conference in Tokyo in 1988.



Not content to sit on the sidelines, these men took action to break the government's total control over Iceland's media, fisheries, and banks. Hannes Hólmsteinn operated an illegal radio station, to protest against the government monopoly of broadcasting, and wrote an influential book advocating the privatization of Iceland's main resource, its fisheries.



Davíð was made head of the Independence Party and became Prime Minister in 1991. He began a radical program of monetary and fiscal stabilization, privatization, and tax rate reduction. Corporate taxes were reduced from 50% to 18%, and the net wealth tax was abolished. The fishing quotas were given free of charge to the owners of fishing vessels. In 2002, Hannes Hólmsteinn published a new book--"How Can Iceland Become the Richest Country in the World?"--in which he set forth a plan for Iceland to become an international financial center. In 2003, the country's main commercial banks were privatized.



Friedman saw Iceland as his utopia. "I would like to be a zero-government libertarian [but] I don't think it's a feasible social structure. I look over history, and outside of perhaps Iceland, where else can you find any historical examples of that kind of a system developing?"



At first, the policies appeared to be very successful. The economy grew at a strong pace, rising until Iceland achieved one of the highest per capita GDPs in the world. In 2007 it also topped the score for the United Nation's Human Development Index.



Iceland rocketed to the top 10 in the indexes of economic freedom. The Cato Institute praised the "Nordic Tiger" for its flat taxes, privatization and economic freedoms, and rated it as the least regulated country in the world.



Unfortunately, it has become evident that these libertarian policies were not the panacea that Friedman claimed they were. In fact, economists are already using Iceland as a textbook case of how to ruin a nation's economy. As Paul Krugman recently noted, there is an "almost eerie correlation between conservative praise two or three years ago and economic disaster today."



Although respectable economists were pointing out the fundamental weaknesses in Friedman's paradise as early as 2006, it is remarkable that Iceland's Financial Supervisory Authority (FSA) does not appear to have found a single securities or antitrust violation during the entire period of spectacular growth, despite the fact that nearly all of Iceland's wealth is controlled by a very small group. The Central Bank--led by Davíð Oddsson--took no steps to rein in the banks or to accumulate the reserves of foreign currency required to back their overseas commitments.



Any attempt to restrain the banks and businesses was met with contempt. The Iceland's parliament--the Althingi--was bullied into to implementing "globally competitive policies," with the implied threat that the investors would otherwise flee the country. Which they did anyway, with the banks setting up hundreds of shell corporations in Tortola.



It is an unfortunate characteristic of utopias that they never work as planned. Reality has a way of making a mockery of political and social constructs that are based on theory. Friedman's belief that the markets would somehow regulate themselves didn't take into account the predictably irrational character of human nature. In Iceland's case, the investors' irrational exuberance was matched only by the bank executives' irrational belief that they were the best at everything.



Certainly, no rational foreign investor would take a chance on Iceland now. It should be obvious now that regulation by disinterested parties is essential to the functioning of the markets. Until the entire affair is investigated and made public, until an effective regulatory scheme is enacted, until unbiased regulators are given real power over financial institutions, Iceland is dead in the water.



It is time for the grownups to take over again.


http://www.huffingtonpost.com/iris-lee/libertarian-experiment-in_b_172961.html
 

michaelr

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i can't see Bourne's bullshit post, but Iceland was not libertarian, so that is a fucking lie. They bailed out their banks until they went broke. Sound familiar???
 
Nov 2007
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[quote name='michaelr' date='08 October 2009 - 08:42 AM' timestamp='1255009341' post='34303']

i can't see Bourne's bullshit post, but Iceland was not libertarian, so that is a fucking lie. They bailed out their banks until they went broke. Sound familiar???

[/quote]



Mike, you read everything that I post. And the foul mouth doesn't serve your credibility.



Iceland adopted the principles of Libertarianism as espoused by Milton Freidman and promoted by the Icelandic Libertarian Association. The very same priciples which libertarians in this country want to see put in place. Libertarianism in Iceland was a disaster and I rather believe that the same outcome would occur here.
 
May 2007
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The downfall of Iceland was giving up their monetary sovereignty and joining the European Union and giving up their currency for the Euro. That piece it completely OP ED!
 
Nov 2007
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[quote name='mjollnir' date='08 October 2009 - 10:07 AM' timestamp='1255014466' post='34355']

The downfall of Iceland was giving up their monetary sovereignty and joining the European Union and giving up their currency for the Euro. That piece it completely OP ED!

[/quote]



The downfall was eliminating banking restrictions.



The article is quite accurate. Libertarianism failed miserably in Iceland.
 
Sep 2005
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[quote name='Bourne' date='08 October 2009 - 11:13 AM' timestamp='1255014812' post='34358']

The downfall was eliminating banking restrictions.



The article is quite accurate. Libertarianism failed miserably in Iceland.

[/quote]



But that's not Libertarianism.



With that said, true Libertarianism would be an absolute clusterfuck in a country of this size and complexity. I don't think there are many true Libertarians out there, just as there are few true Democrats and Republicans. Hell, I'm a Classic Liberal (best describe as socially liberal but fiscally conservative) which these days would identify more with the Republicans than the Democrats... if I had to pick my poison that is.
 

michaelr

Former Staff
Dec 2006
89,668
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FEMA Region 10
[quote name='mjollnir' date='08 October 2009 - 08:07 AM' timestamp='1255014466' post='34355']

The downfall of Iceland was giving up their monetary sovereignty and joining the European Union and giving up their currency for the Euro. That piece it completely OP ED!

[/quote]

Doesn't sound libertarian to me. They did what Obama is doing, and the liars will do anything to deflect the truth. I have a thread, you can clearly see that Iceland is not a libertarian state, in fact let me get some info that debunks that idiotic claim....



From 1995 to 2007 the government coalition of the conservative Independence Party (Sjálfstæðisflokkurinn) and the liberal Progressive Party (Framsóknarflokkurinn), opposed joining the EU, while the opposition Social Democratic Alliance (Samfylkingin) supported membership negotiations.


Here...........



Lays the hammer on the lie....
 
Nov 2007
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[quote name='PoliticalHotwire' date='08 October 2009 - 10:19 AM' timestamp='1255015186' post='34362']

But that's not Libertarianism.



With that said, true Libertarianism would be an absolute clusterfuck in a country of this size and complexity. I don't think there are many true Libertarians out there, just as there are few true Democrats and Republicans. Hell, I'm a Classic Liberal (best describe as socially liberal but fiscally conservative) which these days would identify more with the Republicans than the Democrats... if I had to pick my poison that is.

[/quote]



What triggered the downfall was what has been proposed by the mainstream libertarian movement in this country. Deregulation of the banking industry and allowing the market to seek its own equilibrium. That lead to the disaster which occured in Iceland just as it would have lead to disaster here.
 
Nov 2007
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[quote name='michaelr' date='08 October 2009 - 10:20 AM' timestamp='1255015221' post='34364']

Doesn't sound libertarian to me. They did what Obama is doing, and the liars will do anything to deflect the truth. I have a thread, you can clearly see that Iceland is not a libertarian state, in fact let me get some info that debunks that idiotic claim....







Here...........



Lays the hammer on the lie....

[/quote]



Iceland adopted libertarianism as espoused by Freidman and promoted by the Icelandic Libertarians.
 
Jun 2008
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[quote name='Bourne' date='08 October 2009 - 11:23 AM' timestamp='1255015413' post='34366']

What triggered the downfall was what has been proposed by the mainstream libertarian movement in this country. Deregulation of the banking industry and allowing the market to seek its own equilibrium. That lead to the disaster which occured in Iceland just as it would have lead to disaster here.

[/quote]





Absolutely right.