First the good news:

Iceland’s real gross domestic product grew by 1.2 percent in the July-September period from the previous quarter, the first quarterly increase since the same period in 2008.

Then the less good:

That the economy was not yet out of the woods was made clear by data showing that in the third quarter, G.D.P. shrank by 2.1 percent, on an annualized basis, from the year-earlier period. For the first nine months of the year, the decline was 5.5 percent.

Arsaell Valfells, a professor at the University of Iceland, says “We’ve basically gone back to 2003 in terms of the level of standard of living.” Years worth of growth wiped out, in other words.

The scary thing is that, as Paul Krugman observes, Iceland is doing better than comparably situated countries. Massive collapse in the value of your currency takes a gigantic bite out of living standards, but seems to be a superior way of allocating the losses entailed by a crash than any other. Iceland’s hidden advantage here is that the country is tiny (Iceland is to Sweden as Sweden is to the USA) so it can have a crash devaluation without disturbing the global economy as a whole.

I really want to teach Scott Sumner to write shorter blog posts, because this throwaway paragraph embedded in a larger argument I don’t really agree with is great on its own:

[S]uppose we had been gladly importing Ecuadorean bananas for decades, naively thinking that any country named after the equator must be warm. Then we found out that the weather in Ecuador was actually quite cool (due to high altitude), and that bananas could only be grown there because the government was heavily subsidizing production in greenhouses. Of course most red-blooded Americans would be outraged by this discovery, as it would indicate that we were a bunch of patsies who had been victimized by the Ecuadorean “dumping” of subsidized goods. A few economists might argue, however, that if cheap bananas are good for the US, it doesn’t really matter why they are cheap.

Incidentally, I have in fact seen a government-subsidized greenhouse in Iceland where they were growing tropical flowers and citrus fruit:

I hope—but don’t dare assume—that the Icelandic government is rethinking some of its agricultural policies in the wake of their bubble collapse. The US has some irrational approaches in this regard, but it’s nothing compared to what they were up to.

A few days ago, I read Sally McGrane’s excellent profile of Reykjavik’s new mayor, Jon Gnarr, a comedian and musician, whose Best Party captured 34.7 of the vote in the recent elections and is now governing in coalition with the Social Democrats:

With his party having won 6 of the City Council’s 15 seats, Mr. Gnarr needed a coalition partner, but ruled out any party whose members had not seen all five seasons of “The Wire.”

A sandy-haired 43-year-old, Mr. Gnarr is best known here for playing a television and film character named Georg Bjarnfredarson, a nasty, bald, middle-aged, Swedish-educated Marxist whose childhood was ruined by a militant feminist mother.

The profile would have done well, however, to link to this Best Party campaign video, which is priceless on its own terms:

Reykjavik is a funny place—a national capital and center of government and culture and all the rest. But it’s tiny. The metropolitan area has about 200,000 residents, on a par with Fargo or Yuma or Racine.

At any rate, I asked ace intern Ryan McNeely to look up how Iceland’s doing economically compared to the other big crisis hot spots. In GDP terms, they’re doing terribly, almost as bad as Ireland:

But in labor market terms, things look pretty rosy:

Does currency devaluation explain the difference? Or maybe some direct labor market interventions?

(my photo, available under cc license)

Notwithstanding my relative optimism about the financial reform legislation in congress, the fact remains that there’s a lot of rot in our political system and our elite culture has entered a bizarre accountability-free zone. Compare our situation to what’s happening in Iceland:

Last Monday, a special investigative committee released a much-anticipated report that analyzed events in the nation’s public and private sectors that led to the bank failures. The report, which ran more than 2,300 pages, accused seven government officials, including the former prime minister and the former head of the central bank, of acting with “negligence” in their oversight of the financial sector.

The findings prompted three members of Parliament to take leaves of absence pending the outcome of a parliamentary review of the report. More are expected.

“We thought we were living in this well-ordered society, a respected member of the Nordic countries, stable, well-organized, well-behaved, deeply democratic and certainly not corrupt,” Jon Baldvin Hannibalsson, a former foreign affairs minister and ambassador to Washington said in an interview Sunday. “This investigation showed a totally different picture.”

The Financial Crisis Inquiry Commission is doing some good stuff, but there’s just no comparison.

Reykjavik, Iceland (cc photo by ezioman)

Iceland has decided to ban strip clubs, earning it the title of “the world’s most feminist country” from Guardian columnist Julie Bindel. Not everyone is so sure. Miriam Perez says that “criminalizing these industries simply drives them underground, where they continue to thrive, but with little regulation and definitely no protections for the workers.”

I think that’s almost certainly true as a general matter, but probably not true of Iceland. Iceland is tiny, to the point that Icelandic people don’t even have family names, and I think it would be relatively easy to enact an enforceable ban on strip clubs. To be financially viable, people would need to know where to find the club, and if word was out the authorities would find out about it. I would also imagine that the clubs are largely catering to the large number of foreign tourists who visit Reykjavík and would lose a ton of business by being driven underground.

Jill Filipovic has a more straightforward argument:

Which isn’t to say that stipping is all glitter and fun and empowerful — I’m sure for some women it is, and for most women it isn’t. Like a lot of other jobs. I’d be willing to bet that most strippers strip because it pays pretty well. Removing that option, even if it does send A Message, doesn’t seem like a great victory to me. Because, sure, dudes will be sad that they don’t get to male bond over seeing naked ladies anymore. But the ladies will be the ones who are dead broke because of it.

This seems right to me, but the further angle is that according to Bindel you’re largely talking about an immigrant workforce:

According to Icelandic police, 100 foreign women travel to the country annually to work in strip clubs. It is unclear whether the women are trafficked, but feminists say it is telling that as the stripping industry has grown, the number of Icelandic women wishing to work in it has not. Supporters of the bill say that some of the clubs are a front for prostitution – and that many of the women work there because of drug abuse and poverty rather than free choice. I have visited a strip club in Reykjavik and observed the women. None of them looked happy in their work.

To simply note that the workforce doesn’t look happy is really neither here nor there. I went to CVS yesterday and none of the cashiers looked happy in their work either—it’s boring, low-status, and pays terribly. People work at CVS because they want money. Stripping in Iceland probably isn’t a great living, but it’s hardly beyond belief that 100 people might prefer it to being unemployed in Minsk.

Ultimately, considering Iceland’s small size and the foreign-born labor force this strikes me as almost more akin to a zoning issue in the United States. There’s no substantial political movement in this country to ban strip clubs, but there are many, many, many tony residential communities in which you’d never be allowed to open one. The general view is that this is a very undesirable business function that should be legal, but “somewhere else.” In a small country like Iceland, that means “in another country.” Bindel posits a sharp dichotomy between feminist-inspired opposition to strip clubs and religious-inspired opposition to strip clubs, but I live across the street from a strip club in a gentrifying neighborhood and the overwhelming sentiment on the condo listserve about it is just a kind of generalized and pre-political bourgeois belief that it would be better if the place became a yoga studio.

Reykjavik, Iceland (photo by me, available under cc license)

Felix Salmon on the UK’s shameful bullying of Iceland:

I’m quite ashamed of the bullying tactics being used here by the UK government. What happened was that an Icelandic bank, Landsbanki, started attracting UK depositors through its Icesave brand. When Landsbanki failed, the UK government bailed out those depositors in full. And now it wants that money back from the Icelandic government, which never guaranteed the Icesave deposits. If you thought the cod wars were bad, this is much worse.

If the UK were picking on a country its own size, here, I wouldn’t feel so bad. But Iceland is tiny, and has no real means to fight back, other than essentially saying “OK, then, hit me.” Which is what it’s just done. I hope that the UK doesn’t follow through on its threats — even if that means damaging its own credibility going forwards.

You can make a decent case for the policy decision of the UK government. Failing to bail out the Landsbanki depositors could have launched a panic and caused runs on other banks—British banks—with British depositors. The costs of dealing with that would plausibly have been higher than the costs of bailing out the Landsbanki depositors. But either way, the choice was made by the UK government. The idea that the government of Iceland somehow owes an obligation to make it up is bizarre.

The really outrageous thing, however, isn’t the behavior of the UK—people want money—but the IMF, which seems to be making emergency loans to Iceland contingent on knuckling under. The IMF is supposed to prevent international finance crises by throwing lifelines to countries in need of help. Instead it’s acting like a member of an extortion racket. The harsh treatment the IMF inflicted on several countries in the nineties when they needed help did an enormous amount of human damage. Then by encouraging Asian countries to rack up massive piles of reserve dollars to prevent future punitive IMF conditionality wound up doing even more harm by introducing distortions into the global economy. Now it seems to be taking that even another step further, pressuring a country in need to take on additional debt by honoring this UK request.

It seems nuts to me. One thing we badly need coming out of this crisis is an IMF that actually works. The institution serves an important role, but that underscores the fact that we need the role to be filled well not sadistically.

The three McDonald’s outlets operating in Iceland are going to close shop, victims of the collapse in the value of Iceland’s currency.

Subway, Reykjavik, Iceland (my photo, available under cc license)

When I was in Nizhny Novgorod in 1998 when Russia defaulted on its debt, I remember a McDonald’s guy explaining to me that the company tried, when feasible, to make sure that expenses and purchases were happening in the same country. So you buy Russian potatoes with rubles and sell french fries in Russian cities for rubles. Icelandic agriculture isn’t going to be able to work as a McDonald’s supplier (great butter, though) so presumably they were importing tons of stuff and thus exposed to a great deal of currency risk. Perhaps if Iceland joins the EU and adopts the Euro, they’ll get their McDonald’s back.

Meanwhile, I wonder about other fast food outlets. The American fast food chain I went to in Iceland was Subway. Are they still there?

Freshly returned from a great trip to Scandinavia, I can’t help but enjoy the FuckYeahScandinavia tumblr that I was first shown this morning. That said, no fan of northern Europe can avoid observing that several of the countries the tumblr covers aren’t technically “Scandinavian.” Americans often find this a bit confusing but Scandinavia, strictly speaking, only refers to Denmark, Sweden, and Norway. If you want to add in Iceland and Finland and miscellaneous extra territories (Åland, Faeroe Islands, Greenland) the word you’re looking for is “Nordic.”

I don’t totally understand why the distinction has been drawn this way—but roughly the point is that Finnish is a very different language from the others and that Iceland is clearly a geographically distinct phenomenon from the rest.

The larger point, however, is that the giant phone in this Robyn video is totally awesome. I also like that in Sweden health care is “under democratic control and financed on the basis of solidarity.”

Storkur, Iceland (my photo, available under cc license)

I’ve been saying that for all the gloating people did last fall over Iceland’s collapse, that the country was actually in pretty good shape. Yves Smith observes, for example, that a small open economy like Iceland’s can just nationalize its banks and devalue its currency and put itself on the road to recovery. That’s not a fun thing to experience, but it’s a lot better than what Spain and Ireland are looking at—a sustained period of double-digit unemployment and round after round of nominal wage cuts.

Meanwhile, the other thing I’ve been saying is that currency issues aside, the fundamentals in Iceland are strong. It’s a small, quiet, peaceful, homogenous country full of healthy and well-educated people. When the global economy comes back, they’re as well-positioned as anyone else to take advantage of whatever opportunities present themselves.