Joseph Stiglitz on Iceland’s Crisis and Recovery

Here is an IMF video on Iceland’s program featuring Joseph Stiglitz, who has derided "free market fundamentalism" at international institutions like the World Bank, where he was once Chief Economist, and the International Monetary Fund (hat tip Global Macro Monitor).

Of course, the video stresses the positive since it is an IMF video. The blurb on the You Tube page accompanying the video reads:

As the first country to experience the full force of the global economic crisis, Iceland is now held up as an example by some of how to overcome deep economic dislocation without undoing the social fabric. Professor Stiglitz discusses lessons learned.

I would say that Stiglitz is right that Iceland and the IMF have done well. Remember, people were rioting in the streets to keep the IMF out.

The program has worked (so far) in large measure because Iceland was not subjected to the kind of austerity that you traditionally see in these kinds of programs and which is an anti-growth policy. We are seeing the negative repercussions of this in Greece. He is also right that capital controls were necessary (at least temporarily). Most importantly, sovereigns should not step in and assume all of the banking sector’s liabilities. Ireland has learned this the hard way. I cover some of this in my post “Four biggest lessons from Iceland’s brush with national bankruptcy”.

Iceland was right to hold a referendum as Michael Hudson argues in Consent Needed for Debt Repayments. Greeks should want to hold one as Hudson argues in EU: Democracy Incompatible with Debt Collection.

Still, Jon Danielsson has written two posts that tell you that all is not well in Iceland and much needs to be done. See “Was the IMF programme in Iceland successful?” and “How not to resolve a banking crisis”

Stiglitz video below