Icelandic investment bankers and fishing

I haven't blogged in a while. I think I'm making an effort to reduce my online presence, but I've been doing a lot of reading lately and I think perhaps I could make this blog a little less about me, and more about things I've been learning, observed, and think about various topics.

So in that spirit, I've just read today a fascinating article about the collapse of the Icelandic economy, about what fishermen (fisherpeople?) and investment bankers have in common, and a small window into Icelandic culture.

Article: Wall Street on the Tundra

Here's a couple of extracts from the article that I either found very interesting, or made me laugh out loud:

Iceland instantly became the only nation on earth that Americans could point to and say, “Well, at least we didn’t do that.” In the end, Icelanders amassed debts amounting to 850 percent of their G.D.P. (The debt-drowned United States has reached just 350 percent.) As absurdly big and important as Wall Street became in the U.S. economy, it never grew so large that the rest of the population could not, in a pinch, bail it out.

Icelanders are among the most inbred human beings on earth—geneticists often use them for research.

Alcoa, the biggest aluminum company in the country, encountered two problems peculiar to Iceland when, in 2004, it set about erecting its giant smelting plant. The first was the so-called “hidden people”—or, to put it more plainly, elves—in whom some large number of Icelanders, steeped long and thoroughly in their rich folkloric culture, sincerely believe. Before Alcoa could build its smelter it had to defer to a government expert to scour the enclosed plant site and certify that no elves were on or under it. It was a delicate corporate situation, an Alcoa spokesman told me, because they had to pay hard cash to declare the site elf-free but, as he put it, “we couldn’t as a company be in a position of acknowledging the existence of hidden people.”

Back in 2001, as the Internet boom turned into a bust, M.I.T.’s Quarterly Journal of Economics published an intriguing paper called “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” The authors, Brad Barber and Terrance Odean, gained access to the trading activity in over 35,000 households, and used it to compare the habits of men and women. What they found, in a nutshell, is that men not only trade more often than women but do so from a false faith in their own financial judgment. Single men traded less sensibly than married men, and married men traded less sensibly than single women: the less the female presence, the less rational the approach to trading in the markets.

What I've been thinking as well is that, even though I've believed in it for so long, perhaps the Milton Friedman dogmatism for free markets just isn't the solution. I still believe in the market, but because the assumptions for free markets are virtually never met, why should policies be created to support this ideal? And this backflip in the capitalist zeitgeist is being supported at the very highest eschalons; for example, former US Federal Reserve Chairman, Alan Greenspan (who is a known libertarian), now supports the part nationalisation of banks. Which really could only be expected based on what is happening in the world economy at present.

I would have to stop, however, at calling myself a neo-keynesian. Last month I read the article that Kevin Rudd published in the magazine called "Monthly", and how the neo-liberal movement is the reason behind the worldwide economic crisis, and how neo-keynesian and social democratic policies are going to save the day. And as surprisingly impressed I was by the article, and how article and persuasive it was, I still don't entirely buy it. In contrast to the common quote "we're all Keynesians now", I most certainly am not, but no longer belief that deregulated capitalist markets are a sustainable solution.

Social democratic ideals aren't going to serve as a white knight that rescues us all from ourselves. I still believe in minimal government, but adequate regulation for the market to not cannibalise itself. And it has to be recognised when something can't be privatised: for example, when something is a public good.

What I really don't believe is that government has a better idea of how to manage enterprise, spending, and the economy than non-public corporations. A corporations' objective is mostly ubiquitous and transparent: maximise shareholder wealth. What is the government's objective? Well that depends on the government. Do they want to be green? Do they want to go to war and invest in military spending? Do they want to encourage a social democracy? Or do they want to encourage business and corporation?

I think the real role of the government is to manage public goods and create adequate legal infrastructure for the markets to operate - the legal infrastructure being necessary to ensure the market doesn't canabalise itself.

So I came across another interesting idea yesterday: libertarian socialism. Sounds like a bit of a paradox in terms, but the basic idea (because that's about the level of my understanding at present), involves liberal policies of minimal government in order to decentralise the influence of any one body (usually government). Any economically significant property should not be privately owned, but run by a body that is the equivalent of a union so that people have direct democratic rights to the means of production. It's actually quite closely tied to anarchism. I really don't know enough about it to comment on whether I agree or not. My first reaction was to disagree (letting go of long time neo-liberalist beliefs is a difficult thing), but someone I know is reading up on Noam Chomsky, a well-respected thinker in the libertarian socialist field, and I'm sure he'll be able to further explain when he does the reading.