What About Iceland: The Geopolitical Argument

So what about Iceland?  Well, as far as I can tell from the Truthout article, Iceland had a period of rapid economic growth spurred by a pure neo-liberal government.  I’m assuming that that we’re talking about neo-liberalism in the economic context as opposed to a political one.   So years of rapid growth spurred on by laissez-faire government policy led to unmanageable foreign debt, the failure of the country’s three main banks, and a devalued currency.  The banks were nationalized and the nation declared bankruptcy.

A couple of plans for settling the bankruptcy were put forward, plans which called upon private citizens to pay off the debt incurred by other private interests.  The plans essentially socialized the losses incurred by private banks (yes, that’s what we’ve done with the bank bailouts, by the way) and they were so unpopular that the populace drove their government from power and has started a process by which private citizens are engaged in an online constitutional convention. Specifically a pool of 522 individuals was established.  The qualifications for candidacy were that the individual not belong to a political party and that they receive the recommendations of 30 people.

The international community has made all sorts of threats about isolating Iceland, and as the process is ongoing, it’s not clear if that will happen, but the revolution has stood its ground and the constitutional process is proceeding.

So could it happen in the United States?   

As far as I can tell, there have been protests and riots in Iceland, but the revolution has been relatively bloodless.  The vote to reject the international community’s bankruptcy plan passed with 93% of the vote.  I don’t think you could get 93% of Americans to vote for Mom, and apple pie.

Iceland is a pretty small country.  Unless we’re back in the Cold War and in need of a line of anti-submarine buoys to keep Soviet subs out of the North Atlantic, it’s not of critical importance from a geopolitical standpoint.  It appears that the investors in the UK and Holland are being bailed out by their governments, and the amounts in question seem to be in the millions.  I’ve honestly been wondering if that’s a typo.  If it is, it’s consistent.  At the same time, the payoff plan of each Icelander paying $130/month for fifteen years doesn’t quite add up.  

Actually, those numbers don’t add up at all.  The article says that the plan for paying off a debt of 3.5M Euros called for each Icelandic citizen to pay $100/Month for fifteen years at 5.5% interest.   Yet, if we assume that only half of the population is subject to the debt obligation that would yield 16M Euro’s each month.  Clearly, there’s something going on with the numbers that did not make the article.

So let’s assume that there are some bigger numbers in play.  They would still be dwarfed by an equivalent collapse in the US banking system.  Such a default would hit the global economy like an earthquake.  Were the US to refuse to pay would cause a tsunami.  The numbers are too big and the players are too powerful to take that kind of a hit without reciprocating.

So what does that look like?  A trade war?  Tariffs? Closed markets?  That’s the tip of the iceberg.  If it were just those things, I might think something like what Iceland is doing could be worthwhile. 

To set up the problem, I want to point out a couple of things.  First, the big prestigious school for political science in the UK is the London School of Economics.  The school is well named because politics and economics don’t just go hand in hand.  They are two critical aspects of how we make decisions as a society, a body politic if you will.

Second, I want to point out the famous quote by German military theorist, Carl von Clausewitz.  “War is the continuation of politics by other means.”  This is absolutely true.  I happen to think that war represents a policy failure, but it is surely a political act.

Third, I want to step back to ninth grade geometry and the transitive property.  If A = B and B = C then A = C.  So, given that 1) economics is a key part of politics and 2) war is a political act, we can apply the transitive property and prove that war is an economic act.

But no one’s going to go to war over a debt default, right?  Yes and no.  We’re not going to have Chinese paratroopers dropping into a Colorado high school because we decided not to pay up on our T-Bills. Our military’s too strong.  Oceans protect us.  No one is strong enough to counter us. If they mess with us, we can put an aircraft carrier off their coast and bring them in line.  Right?   Right?

Let’s play with this a bit.  No one really has the power to go toe to toe with us militarily.  No one has the power projection capacity that comes from our aircraft carrier-based navy. But there’s a problem.  While the reactor of a nuclear aircraft carrier can run non-stop for decades, those giant ships only carry enough consumables, food, fuel, ammunition and such, to operate effectively for a couple of weeks.  They need tenders to resupply them, and those tenders need to pick up those supplies somewhere.  What happens if we anger an ally enough that they stop letting us use their facilities to resupply our ships.  What happens if someone starts denying over-flight of their territory?  What happens if law enforcement stops helping us with counterterrorism information? 

It gets dicey doesn’t it?  It gets far less certain.  I try not to underestimate the capacity for stressed out individuals with guns to shoot something. At times if stress I try not to underestimate the chances of misunderstandings.  With large nations, those misunderstandings tend to lead to actions by armies and navies.  And voila, you end up with a shooting war and you’re not even sure what happened.

So that’s why a default strategy would not work well for the United States on the global level.  Tomorrow I’ll write about why I don’t think it would work domestically.


About Andrew

I'm a Christian, American, liberal, geeky, thoughtful, Northwest-transplanted Angeleno husband, father, and pundit who writes about anything he can think of.
This entry was posted in Economics, Politics and tagged , , , , , , . Bookmark the permalink.

What are your "Great" Thoughts

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s