Just Be Yourself, Dammit

Begone with your misinformation!

I better not respond to every misleading meme out there, but let me do one more.  To start, you’ve probably seen this “This is X… X is Y… X doesn’t do Z…. Be like X” meme on Facebook, or the “Be Like Bill” meme. It’s got problems on its own.


As only inevitable, the meme has taken a political turn. I wasn’t convinced by the above meme to begin with: Iceland has fewer people than Alaska, or 0.1% of the U.S. population, so few that they have to worry about incest when hooking up. In intermediate macro we learned the difference in financial markets between the “large” open economy and the “small” open economy–we more or less ignored the small open economy case, because, well, U.S.A. In any case, the difference comes down to whether the country in question takes the supply of savings (and associated interest rates) as given–as a small economy relying mostly on foreign investment would–or can affect the supply of savings–as a large economy with a significant share of the world’s savings would. So starting from a theoretical framework, the U.S. and Iceland are very, very different. Did I mention the whole incest thing?

In any case, there are a lot of problems with the whole “Iceland had the balls to let its ‘Wall Street’ collapse and if we did, too, we’d be better off” narrative. In comparing it with Ireland, which did almost all of the same things, this WaPo article breaks down why reality is more complicated:

Iceland’s recovery has become a myth wrapped in a legend inside a legend. It let its banks fail, slashed household debt, let its currency collapse, put capital controls in place—and now it’s doing better than those countries that did austerity! In reality, Iceland let its banks fail for foreigners, wrote down household debt only after their laws had made it worse, had no choice but to watch the krona plummet, but, at the same time, tried to keep it from plunging too far by limiting how much money people could take out of the country . Oh, and it did more austerity than any country not named Greece.

While U.S. banks were speculating with mortgage-backed securities and collateralized debt obligations–with the underlying assets (houses) based domestically–Icelandic banks were largely speculating on currency, and using foreign money to do it. When the Icelandic government allowed the banks to fail (primarily because it didn’t have the money to), the ensuing credit crunch was mainly felt by foreign investors. On top of that, it literally stopped money flowing out, which probably would never happen in the U.S. It also devalued its currency and practically defaulted on a lot of its  private debt. And also got an IMF loan, which it then used to carry out its guarantee of its people’s deposits.

As for gloriously jailing bad bankers, that may be something the U.S. can learn from, though some would argue that the crimes for which they were arrested are fundamentally different from the arrests we would want. Not to mention, President Obama was more or less elected to repair the damage from the financial crisis. He’s got a tough attorney general in Loretta Lynch, too. If something could be done under current law, why hasn’t his administration gone after Wall Street? Don’t tell me our lame duck president who has no intentions to run for anything ever again is dependent on big bank campaign money.

Basically, Iceland had a lot of things going for it after the SHTF in 2008. Using Iceland as a model for U.S. macroprudential policy is like imitating their foreign policy (which, if the answer is stay out of everyone’s business, makes foreign policy even more applicable).

So in general, don’t be like Iceland. They may have hot springs and cheap flights, but they also only have 300,000 people…which means Tinder doesn’t preclude incest.


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