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.

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.

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.

James Joyner writes about Iceland’s continued march to EU membership. This is brought about in part because the financial meltdown has made EU membership look better on the merits, in part because the financial meltdown has brought left-wing parties to power, and in part because the financial meltdown has just changed public opinion. Still, mass opinion is rarely all that Europhilic and there remains some chance that the public will reject accession in a referendum. EU leaders, meanwhile, seem to be welcoming the idea of expansion to a tiny rich country after so many contentious fights about the accession of medium-sized medium-income Eastern European countries.

The EU has a ton of problems, running the gamut from a nutty decision-making structure to the fact that voters seem to hate it. But when you step back and think about it, it’s really an enormous human achievement relative to where things were 60 or 70 years ago or to what anyone would have thought possible back then. And for all its problems, the EU keeps moving by fits and starts to become both broader and deeper and I see no real reason to think either trend will actually reverse. Most likely, some of the problems will get resolved and that, combined with generational turnover, will build a more EU-friendly public in the future.

Nevertheless, when you step back and think about it, though Iceland’s in for some rocky times in the near future, so are we all. And in a lot of ways, Iceland’s pretty well-situated for the future.

At the end of the day, they have a well-educated, healthy population a decent infrastructure and an absence of obvious pressing social problems. It’s a small, quiet, peaceful, orderly country that will suffer through the downturn and take advantage of business opportunities when the global economy revives. The United States is neither small nor quiet nor orderly. You could imagine the hard-fought crime control gains of the 1990s being totally reversed by a years-long recession, and you could imagine that pushing one or more cities into a downward spiral from which there’s little prospect of return.

Speaking of which, there are substantially more people living in Detroit than there are people living in Iceland, and it’s not at all clear—even on the most plausible possible optimistic assumptions about the economy—how their situations are ever going to be turned around. That’s a tale of collapse really worth dwelling on.

At any rate, I like Björk’s pre-solo work with the Sugarcubes best, and the “Motorcrash” video gives you a taste of Iceland’s odd, tree-free landscape:

Also note that unlike some musicians, Björk isn’t just being pretentious in not having a last time — Icelandic people don’t have last names. Instead they operate with a first name and a patronymic based on their dad’s first name.

No one disputes that the economic troubles of Iceland are largely the country’s fault. But there may be more to the story, at least in the view of Icelandic government, its citizens and even some outsiders. As grave as their situation already was, they say, Britain — their old friend, NATO ally and trading partner — made it immeasurably worse.

I actually sort of would dispute that the economic troubles of Iceland are largely the country’s fault. Being small is hard. Think of a small city who’s largest employer is a factory that makes airplane parts. Most people in the city don’t work at the factory. You’ve got kids and retirees and stay-at-home spouses. You’ve got some teachers, cops, firemen, librarians, postal workers, and bureaucrats. You’ve got banks and shops and restaurants and guys in the building trades. But the largest employer is the factory. And if the airplane industry suffers a severe downturn and needs to lay off workers and cancel shifts and bonuses, then that’ll be substantially less revenue for the stores and restaurants. People will have less cash on hand to pay for home repairs, and more time to try and do it themselves. So the shops and restaurants start cutting back on employment and hours. So their employees need to scale back their spending. And tax revenues go down, meaning less money for the public employees. All of which means even less revenue for the town’s stores. And down and down things will go until orders go up at the factory. Did the town government make some serious policy error? Well, probably they could have done something better, but fundamentally it’s in the nature of small places to be buffeted by trends that are too big for the city to control.

And the residents of our city can fairly easily try to find work elsewhere in the region and just accept a longer commute. Or they might move away. Or other firms might see costs declining in the city and decide to locate there.

Iceland is a small city of about 300,000 and though the country is open to trade, the nature of things is that it’s much more closed off from the outside world than an American town is from the rest of the country. A country like that isnisn’t big enough to have a balanced economy. They’ve got a fish-exporting industry, and then economies of scale dictate that if they manage to get successful in some sector of the global economy, that sector will come to dominate the country’s economy. For Iceland, it wasn’t a factory making airplane parts — it was banks. Run into a global banking slowdown, and the country is screwed. But it’s not clear what they could have done to stop this. Iceland’s banks were very big relative to Iceland but Iceland was far too small to alter the course of the global financial system.

Meanwhile, because nippy weather has finally arrived in Washington, DC I put on a 66 Degrees North jacket that I bought in Iceland and thought would be suitable attire for autumn bike commuting. When I read the story about the bailout, I thought that the collapse of the Iceland economy and currency might lead to some good bargains at the store’s website. But not really. Prices are denominated in Euros and not cheap.

UPDATE: Actually, David observes that South Korea needed an IMF assist during the 97-98 Asian financial crisis so this isn’t all that unusual.

I loved my trip to Iceland and would go if I had time, but the election’s a busy season. For $550 you can get rountrip airfare and three nights at the Hilton Rejkjavik Nordica. That’s a very nice deal and, I swear, it’s a great place to visit.

Gordon Brown has told the Icelandic prime minister that he is considering legal action against the country over the collapse of its national banks.

The prime minister said tonight that Iceland’s decision not to recompense those with savings in the bank was “completely unacceptable” and the British government would do “whatever is necessary to recover the money”.

“I’ve spoken to the Icelandic prime minister, I have told him this is effectively an illegal action that they have taken. We are freezing the assets of Icelandic companies in the UK where we can. We will take further action against the Icelandic authorities where necessary to recover the money.

This talk of “legal action” is nice, but if Brown’s really willing to do “whatever is necessary,” then the UK is one of the few countries capable of projecting substantial military power in Iceland. And, of course, Iceland has no military with which to defend itself. The country’s even been subjected to British military occupation in the past. Before WWII, Iceland was part of Denmark. Then when the Germans conquered Denmark, the British dispatched troops to Iceland to secure the country under a new independent government so as to ensure the viability of the sea and air routes between the UK and North America. Later (but before formal US entry into the war), the United States took over occupation duties. And we continued to maintain a pretty substantial military presence (relative to the size of Iceland) at Keflavik Naval Air Station until a year or two ago. But now Iceland’s defenseless!

As world economic conditions continue to deteriorate, Iceland continues to be the leading edge of collapse. Small countries tend, in the nature of things, to have less-balanced economies than do big ones. And Iceland is a very small country with an economy that revolves more-or-less exclusively around fish, tourism, Bjork, and banking so a banking collapse amidst a global economic slowdown leaves them in bad shape and facing national bankruptcy. There’s some thought that Russia may bail them out. Were there not a million other stories in the news, the thought of a NATO ally that long played host to a strategically important US military base becoming some kind of dependency of Russia would be prompting a lot of alarmed coverage. Thus far, though, not much. But David Hayes in a letter to Canada’s National Post suggests a Canadian solution:

Iceland, in the words of its President, is facing the “very real danger” of national bankruptcy. If the situation deteriorates, Canada should invite the small island nation to join our confederation, just as we did 60 years ago with another island in the Atlantic facing bankruptcy.

The island in question, for those not up on their Canadian history, would be Newfoundland which until 1949 was a politically separate element of Britain’s evolving empire-then-commonwealth. He observes that Iceland is no further from Ottawa than is Vancouver, that Iceland’s population largely speaks English (and one might add that Canada has some experience with bilingualism), that Iceland’s population is comparable in size to Canada’s smaller provinces, and that Canada is already committed to Iceland’s defense through NATO.

Iceland, like various other countries, has recently had to bail out a major bank. And like other countries, it looks like there may be more bank failures on the horizon. But where Iceland differs from other countries is that it’s tiny — fewer than 300,000 people live there — so that even though it’s a prosperous country, it simply doesn’t have very much money in the aggregate. And while its banks aren’t huge, they are quite large relative to the overall size of the Icelandic economy. Consequently, Iceland’s bank nationalization is leaving the country as a whole in need of a bailout.

Financial problems aside, Iceland’s one heck of a nice country. Absolutely beautiful and blessed with abundant reserves of puffins, hydropower, fish, and Bjork. Ultimately, taking over Iceland could be an excellent long-term move for a great power on the rise. Maybe China wants a new colony? After all, the US shut down the Keflavik Naval Air Station last year so it’s a wide open field.

UPDATE: More here from the Observer. Joking aside, the situation is quite serious: “Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.”