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BRAVE, OR DUMB, ICELAND? December 3, 2012

Posted by wmmbb in Social Environment.

Austerity is the politics of disenfranchisement and the notion that people do not matter, by the self-affirming “cognitive elite”, as implicitly defined by Miranda Devine.

However good might be the results for the vulture capitalists and their co-conspirators, the politics of austerity are ripping the guts out of countries in Southern Europe in particular.

One country, stranded in the Mid-Atlantic, followed a different public policy and seems to have been successful. I can’t judge whether Iceland’s economic progress is short-term or a chimera. However, the results of the economic policy settings and actions, albeit for a very small country, merit consideration.

Alexander Reed Kelly at Truthdig describes situation in Iceland:

Iceland’s stock market plunged 90 percent in 2008. Inflation reached 18 percent, unemployment shot up ninefold and its biggest banks failed. This was no recession. It was a full-blown depression.

Since then, the country has steadily improved. By September of this year, it repaid its IMF rescue loans ahead of schedule. Unemployment dropped by half and its economy will have grown by roughly 2.5 percent by the beginning of 2013.

Credit has to given to the political leadership and their economic advisers that they did not panic. It might have something to do with social cohesion in a small island economy of 320,000 that they did not engage in social scapegoating. Economics is about social consequences and values. Blaming particular groups can degenerate in social violence reinforcing existing structural inequality.

Bloomberg News reports homeowners were rescued with means-tested subsidies targeted at those with less equity,lower incomes and parents with children, banks loans indexed to foreign banks were declared illegal, taxes were raised, and the bankers convicted. Such heresy, I suggest, could not be contemplated in the US, for example, since the Banks own the three branches of Government. Bloomberg News concluded:

Undoing the damage caused by the crisis is a work in progress; not every Icelandic innovation would be feasible in the U.S. or Europe. Iceland’s debt stands at almost 100 percent of GDP. Many of the country’s professionals have left for Norway and Denmark amid a dearth of jobs. Iceland still must figure out how to ease constraints that barred investors from withdrawing as much as $8 billion from the country and transferring it overseas. Inflation remains stubbornly high. To counter that, and to prevent capital flight, Iceland’s central bank has increased interest rates five times in the past year. But raising interest rates makes credit more expensive, checking growth.
Iceland’s central bank on Sept. 18 released a report suggesting the country go slow with plans to enter the European Union, a process started in 2010 when the euro seemed sounder than the krona. Becoming a member won’t be easy: If the issue were put to a referendum, Icelanders would probably reject admission. And why would Iceland want to join now? Euro-member nations such as Greece and Ireland offer testimony to the risks of being yoked to a currency along with stronger economies.
Devaluation of the kind Iceland suffered is never fun. Reneging on debts leaves a legacy of violated trust. But it still looks better than recession with no obvious way out.

Imagine that a small country dependent on fishing, tourism and aluminium production (electricity) can do without it’s cognitive elite?

As quoted,Paul Krugman suggests that the politics of austerity represent ideology trumping “empirically-based economics”. There is not just an ideology but a vicious, punitive rhetoric that accompanies the ideology – if that is what it is. Perhaps Austerian politics have a psychological basis. It may represent a form of motivated reasoning. Apparently, despite Nate Silver and others, the Romney Campaign was convinced it was going to win. One imagines that delusion, based on internal polling, was not due to lack of cognitive ability. Brad De Long suggests the US might have dodged a bullet with Romney.

The issue finds expression in the struggle of low wage workers for a living wage. Robert Reich, writing at Truthdig is pertinent and among other observations notes:

Unlike industrial jobs, these can’t be outsourced abroad. Nor are they likely to be replaced by automated machinery and computers. The service these workers provide is personal and direct: Someone has to be on hand to help customers and dole out the burgers.

And any wage gains they receive aren’t likely to be passed on to consumers in higher prices because big-box retailers and fast-food chains have to compete intensely for consumers. They have no choice but to keep their prices low.

That means wage gains are likely to come out of profits – which, in turn, would affect the return to shareholders and the total compensation of top executives.

Imagine the wow if the “cognitive elite” were not richly recompensed at the psychological and physical well being of the lesser human beings?

Brad De Long has his say during a morning coffee, about five years ago:

I suppose in the Information Age, particular cognitive skills are properly socially valued. The same applies to all those skills that I do not have even a glimmer of. Historians argue that the Industrial Age, the progenitor to the existing civilization was made possible by the retention and development of artisan skills – hence all the family names such as Smith – in European civilization. We don’t know what skills may be critical. I would have thought attention to empirical evidence was important.

We do know that we dehumanize people by stunting their development and the realization of their human potential. A fundamental problem is the failure recognize thinking as a source of violence, then to be enacted. Cleverness is not the same as truth. The politics of austerity are not accidental and wholly unconscious and as such should be judged as  the intentional application of social violence.



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