Results for “iceland fish”
13 found

Should Iceland join the euro?

That may not be in the cards anytime soon, but at least it has surfaced as a potential option, along with EU membership, to be considered by Icelandic referendum.  Matt Yglesias questions whether this might be a mistake.

I see the creation of the euro as a big mistake, and in general I favor flexible exchange rates, but on this question there is a plausible case for Iceland joining up with the euro.

First, Iceland cannot defend itself and does not want to rely only on the United States.  European Union membership helps out on that front, and the EU has at least been claiming that new members also will be euro-using members.  Fishing rights are a big deal for Iceland, and maybe the country will decide it does better within EU structures.

Second, and more to the macroeconomic point, very small countries do not always do well with floating rates.  For instance, no one suggests that every household should have its own currency.  Iceland, with a population of about 330,000, may be small enough to make this comparison at least a bit apt.  Keep in mind the biggest exports are tourism, fish, and aluminum products, not much else.  Using the euro may help tourism a bit, while I suspect the fisheries and aluminum smelters can get by with a mix of a) not employing that much labor anyway, and b) making wages more flexible if need be, rather than needing a floating rate to stay competitive.

Another way to put the point is this: floating rates are most useful as a protection against nominal shocks, not real shocks.  But when an economy is sufficiently small, real shocks tend to be the more significant problem because usually there is not so much diversification.

On the macro front, so what if Iceland becomes the north Atlantic version of how Panama, Ecuador, and El Salvador stand pegged with respect to the U.S. dollar?  Those economies have various troubles, but fixed exchange rates are fairly low on those lists.

Not long ago, the Icelandic economy was hit by a massive shock from capital flight, which in turn stemmed from a banking and real estate collapse.  Capital controls were imposed, in part because the flow of funds whiplash was so large relative to the size of the Icelandic economy.  Relying on continental, euro-denominated banking from Dutch, German, and other suppliers may well be a better option.  A true EU banking union, if one ever comes, would be better for Iceland yet.  In other words, in the eurozone Iceland might be better protected against at least some real shocks.

I don’t have a firm view here, so it is fine to think of my conclusion for Iceland as agnostic.  I ‘m just saying you can be a euro skeptic, and favor Icelandic euro membership, without fear of contradiction.  The European countries that should not be in the eurozone, such as Italy and Greece, are much bigger than Iceland and are also more economically diversified.


Should Iceland abolish fractional reserve banking?

You are all familiar with their recent financial mishaps in Iceland, note also theirs is not a history of financial stability:

It is fair to say that Iceland’s monetary history has been a turbulent one.  Currency controls in the 1920s to the 1950s were followed by chronic inflation in the 1970s to 1980s, with annual inflation reaching a high of 83% in 1983.  In 1981 it was considered necessary to redenominate the krona with 100 units being replaced by 1 new unit.

That is from a new Frosti Sigurjónsson report (pdf) advocating 100 percent reserve banking for Iceland.  In the “good old days” we had so many arguments against this arrangement — “disintermediation!” — but do those critiques hold up when so many nominal interest rates are in any case negative or close to zero?  In many countries banks may be fated to become money warehouses as it is.

An interesting question is whether Iceland can, with its current size and export profile, ever have monetary and financial stability.  With their exports and thus gdp so depending on fish and aluminum smelting and tourism, no other country shares their economic fluctuations, even roughly.  A fixed rate thus means a non-optimum currency, but a floating rate for 323,002 people may mean perpetual whipsawing from international capital flows, not to mention the risk of acquiring an oversized, hard to bail out banking system, as Iceland did before its Great Recession.

Should I file under Department of Why Not?  What if Scott Sumner asks me how to do this without inducing a collapse in nominal gdp?  If I interpret p.78 of the study correctly, the government will create new money by printing and injecting it into the economy through fiscal policy, as a means of forestalling this problem if need be.  Under this scenario, how powerful does the state become?  On what do they spend the money?

Frosti’s report, by the way, was commissioned by the Prime Minister and it is being taken very seriously.

I believe I first saw notice of this link from Stephen Kinsella.  Here are some responses to the idea.  Zero Hedge seems sympathetic.

Some additional reasons why Iceland has done well

I agree with much of Paul Krugman’s recent posts on Iceland, here and here.  But there are neglected factors behind the Icelandic recovery, namely real shocks.

Note that Iceland is a small, open economy and fish accounts for 40 percent of Icelandic exports.  It does not hurt that Norwegian cod prices have risen 20 percent over the last year; I cannot find a separate figure for Icelandic cod prices but that is a likely major factor behind the Icelandic resurgence.  Here is a separate, brief report on the boom in the Icelandic fishing sector.  Especially when it concerns small countries, always look first for the real shocks.

As an aside, there seems to be a system of fairly flexible wages for the major export:

The lay system of remuneration is used extensively in fisheries. Under this system, fishermen are paid a share of the catch value, perhaps after subtracting some costs, rather than a fixed wage. There may, however, also be a fixed wage element, so that fishermen get a share of the catch value in addition to the fixed wage, or a fixed wage as a minimum in case the fishing trip turns out to be unrewarding.

That is a Norwegian source about fisheries worldwide and not Iceland-specific, and here is another general source on compensation for fishermen with a similar message; can anyone speak to Iceland in particular?

Krugman writes: “And nominal wages are downwardly rigid. That’s simply a fact, true always and everywhere.”  But that is an overstatement, especially when an output-linked and value-linked bonus system is in effect.

Iceland has had both currency flexibility and, it seems, a higher than average degree of wage flexibility in the major export sector, automatically built in at that.  (If further and more targeted sources contradict this portrait I will gladly report the update.) That real wage flexibility may or may not be a major factor in the Icelandic comeback (only 4,000 fishermen in the whole sector, and the fisheries already do their accounts in euros), but it does show the standard theory of optimum currency areas should not be applied here without considerable caution.

Finally, note that a flexible exchange rate does not bring all of the wage-reducing benefits of yesteryear.  Workers are employed increasingly in domestic services (health care, education) and many export sectors are less labor-intensive than before, at least in the West.  With the progress of mechanization and globalization, the ability to cut your real wages rapidly for your exports is arguably diminishing in value.  The relevant rigidities are becoming increasingly domestic, it would seem.

Iceland: what does the endgame look like?

Thrainn Eggertsson writes to the FT:

The government of Iceland has now been offered foreign loans that roughly equal the country’s gross domestic product.  The annual interest payments, say 3-4 per cent, approximately correspond to the country’s annual economic growth.  Additionally the loans must be paid up.

I believe Thrainn is being generous with that growth estimate.  Then he compares Iceland to Germany in 1919 and predicts similar consequences (I don’t think he means that as a threat, however).  Instead, I wonder what it is like for a country to be truly, permanently bankrupt.  And a further difficulty lies on the horizon.  Circa 2000, fish accounted for 70 percent of the country’s export earnings.  Here are many articles on dwindling cod stocks, the number one item sold by Icelandic fishermen.

I genuinely cannot imagine what the endgame looks like.

Open Borders in Svalbard!

Well north of Iceland there is a island archipelago that is governed by Norway but because of a peculiar treaty it has entirely open borders:

When you land in Longyearbyen, the largest settlement in the Norwegian archipelago of Svalbard, you can step off the plane and just walk away. There’s no passport control, no armed guard retracing your steps, no biometric machine scanning your fingers. Svalbard is as close as you can get to a place with open borders: As long as you can support yourself, you can live there visa-free.

In an excellent piece in The Nation, Atossa Araxia Abrahamian describes the history and what it is like to visit:

Formally, Svalbard—known as Spitsbergen until the 20th century—belongs to Norway, which writes the laws, enforces order, builds infrastructure, and regulates hunting, fishing, and housing. Last year, when a Russian man was caught trying to rob a bank in town, a Norwegian judge sentenced him under Norwegian law to a Norwegian jail. But Norway’s control over Svalbard comes with obligations outlined by an unusual 1920 treaty signed as part of the Versailles negotiations ending World War I.

Written in the aftermath of the war, the Svalbard Treaty is both of and ahead of its time. Its architects stipulated that the territory cannot be used for “warlike” purposes. They included one of the world’s first international conservation agreements, making Norway responsible for the preservation of the surrounding natural environment. The treaty also insists that the state must not tax its citizens more than the minimum needed to keep Svalbard running, which today typically amounts to an 8 percent income tax, well below mainland Norway’s roughly 40 percent.

Most radically, the treaty’s architects held Norway to what’s known as the nondiscrimination principle, which prevents the state from treating non-Norwegians differently from Norwegians. This applies not just to immigration but also to opening businesses, hunting, fishing, and other commercial activities. Other countries could not lay formal claims on Svalbard, but their people and companies would be at no disadvantage.

Some 37 percent of Svalbard’s population is foreign born and there is an abandoned Soviet town with statues of Vladmir Lenin. Tyler will also be pleased to know that there are puffins.

I can’t say that I am tempted to move, but given global climate change it’s good to know that I could.

Hat tip: The Browser.

What you can learn from the Faroe Islands

Should you go?  I give the place high marks for food and scenery, but the total population of about 48,700 limits  other benefits.  It is like visiting a smaller, more unspoilt Iceland.  There is a shop in the main city selling Faroese music and many shops selling sweaters.  They will not tell you where the sweaters were knitted.

The natives seem to think Denmark is an excessively competitive, violent, harsh and hurried place.  The norm here is to leave your door unlocked.  It is a “self-governing archipelago,” but part of the Kingdom of Denmark.  In other words, they get a lot of subsidies.

But they are not part of the EU, so they still sell a lot of salmon — their number one export — to Russia.

You see plenty of pregnant women walking around, and (finally) population is growing, the country has begun to attract notice, and the real estate market is beginning to heat up.  But prices remain pretty low, and it would be a great place to buy an additional home, if you do that sort of thing.

In the early 1990s, their central bank did go bankrupt and had to be bailed out by Denmark.  It is a currency board arrangement, and insofar as the eurozone moves in that direction, as it seems to be doing by placing Target2 liabilities on the national central banks, a eurozone central bank could become insolvent too, despite all ECB protestations to the contrary.

Every mode of transport is subsidized in the Faroes, including helicopter rides across the islands.  Often the bus is free, and there is an extensive network of ferries.  I wonder how many population centers there would be otherwise.  There is now the notion that all of the communities on the various islands are one single, large “networked city.”

The Faroes are a “food desert” of sorts, with few decent or affordable fruits or vegetables.  And not many supermarkets of any kind.  Yet the rate of obesity does not seem to be high.  And they have a very high rate of literacy with little in the way of bookstores or public libraries.

The seabirds including puffins are a main attraction, but I enjoyed seeing the mammals too, with pride of place going to the pony:

The domestic animals of the Faroe Islands are a result of 1,200 years of isolated breeding. As a result, many of the islands’ domestic animals are found nowhere else in the world. Faroese domestic breed include Faroe pony, Faroe cow, Faroese sheep, Faroese Goose and Faroese duck.


The country receives a great deal of negative publicity for killing whales, but overall they seem to treat animals better than the United States does.  Fish consumption is very high and there are no factory farms.

If the Faroes had open borders, but no subsidies for migrants, how many people would settle there?

In 1946 they did their own version of Faerexit, from Denmark of course:

The result of the vote was a narrow majority in favour of secession, but the coalition in parliament could not reach agreement on how this outcome should be interpreted and implemented; and because of these irresoluble differences, the coalition fell apart. A parliamentary election was held a few months later, in which the political parties that favoured staying in the Danish kingdom increased their share of the vote and formed a coalition.

Overall I expect this place to change radically in the next twenty years.  It is hard to protect 48,700 people forever.  In part, they are killing those whales to keep you away.

A better player for a bad team?

Kevin Love, in his infinite wisdom, decided to test the free agent market.  At least for a while, it seemed to raise the possibility that he wouldn’t return to the Cleveland Cavaliers with LeBron James.

Courtside critics of Love frequently cite the Coase theorem, especially when criticizing his play this last year for Cleveland.  Arguably Love is a better player on a bad team than he is on a good team.  He scores a lot, but only if he is the primary option on offense; you can see this by comparing his numbers on Minnesota, a poor team where he was a big star, with his numbers for Cleveland, where he was the number three scoring option.  He needs a lot of touches to hone his shooting, which is a kind of scale effect.  He also pulls in a lot of rebounds by neglecting his duties on team defense.  For a poor team, maybe that is OK, because the team defense had serious holes anyway.  For a good team it can wreck the entire plan.

This situation differs from the traditional O-Ring model (clever link there), in which the lesser talented workers hold the more talented worker back.  Here the lesser talented workers allow a flawed, attention-demanding competitor to flourish.

It may sound negative to say a player is more valuable on a bad team, but that is a skill too.  These individuals are perhaps no less virtuous or hard-working than those who are better on a good team.  Michael Adams was better on bad teams (and he played on lots of them), but was hard-working and non-selfish and also widely admired, even though he was too short and weak to hold the line in a good defensive set-up.

There are analogues in business.  Some managers may have special talents in bringing out the best in less talented workers.  Or they may make better decisions when they get to be the real boss of just about everything.  They may need a lot of unfettered experience to refine their skills, and perhaps they’re not so good at collaboration anyway.

Some politicians may be better at running chaotic countries; Nelson Mandela would have been wasted as Prime Minister of Iceland.

Some economists may be of more value in weak departments than in strong departments.  Their generalist skills fill in a greater number of gaps, and perhaps they can bring out the best in weaker students, when better students would find their lack of specialization a bigger drawback.

What are other examples of this phenomenon?

Given that Kevin Love is indeed re-signing with Cleveland, does this mean the knock on him is wrong?  Or is the equilibrium that the Cavaliers will become a worse team?  Or maybe virtually all players are good bargains the year before the salary cap will go up a lot?  Maybe Cleveland re-signed him…because they can?  The rumored deal is for $110 million, tell Coase about that.

Craft beer markets in everything

Dogfish Head, for example, has Chicha – a native corn beer that is chewed by the brewers and spit out before being brewed (and boiled – so it’s sterile). The saliva, say the brewers, has enzymes that convert the starches in the corns to sugar.

Earlier this month, Barrels and Bottles Brewery in Golden, CO offered an extra special bitter that was brewed with Peeps, the colored marshmallow candy that marks the Easter season. (90 of them, to be specific.) And just last week, New Belgium teamed up with Ben & Jerry’s ice cream to announce plans to produce a Salted Caramel Brownie Brown Ale (which will go on sale this fall).

…The newly crowned king of stunt beers is Iceland’s Brugghús Steðja. In January, the microbrewery introduced Hvalur 2 – a 5.2% ABV seasonal ale that incorporates the testicles of fin whales into the brewing process. And, believe it or not, that’s not the weirdest part of the ingredient list.

“We consider this beer to be in perfect style of [the Thorri] season,” says Dagbjartur Arilíusson, Steðji’s co-owner. “We get fresh whale testicles from a fin whale and we smoke it in an old Icelandic tradition way, smoked with dry sheep dung.”

There is more here, via the excellent Samir Varma.

The commons are still tragic

Kevin Grier reports:

Paul Krugman points us to the success story of the rebound of US fish stocks. He then makes an amazing leap to climate change saying, “Fighting climate change isn’t really all that different from saving fisheries; if we ever get around to doing the obvious, it will be easier and more successful than anyone now expects.”

I actually agree with the first part, and the Vox article that Krugman links to makes the point pretty well, just not in the way Paul wants it to be made.

Now the big caveat: Yes, US fisheries seem to be recovering. But that’s not true for much of the rest of the world. And, given that the United States imports around 91 percent of its seafood, this is a pretty crucial caveat.

All told, the best-managed fisheries around the world — the United States, Canada, Australia, New Zealand, Norway, Iceland — only make up about 16 percent of the global catch, according to a recent paper in Marine Pollution Bulletin by Tony Pitcher and William Cheung of the University of British Columbia.

By contrast, more than 80 percent of the world’s fish are caught in the rest of the world, in places like Asia and Africa — where rules are often less strict. The data here is fairly patchy, but the paper notes that many of these nations are less likely to follow the UN’s Code of Conduct for Responsible Fisheries, and there’s evidence that “serious depletions” may be occurring…

In other words, overfishing, like climate change, is a global problem that the US can’t fix on its own. Our fish stocks are rebounding, and our carbon emissions are falling, but much of the rest of the world is moving in the wrong direction on both issues.

The full post is here.

What to look for in the Cyprus deal

1. Output on the island could easily decline by 25% or more, and I don’t think that will involve much subsequent mean-reversion.  There will be a deflationary shock, an uncertainty shock, an “austerity shock,” a credit contraction shock, and a few other negative shocks as well.  The Cypriot government will not be fiscally well situated to support the safety net or automatic stabilizers.

2. It’s never a good sign when a deal is structured so that no one has to vote on it.  (Correction: various European legislatures may be voting on it, but no one in Cyprus.)

3. The deal itself still doesn’t cough up all the money, but rather relies on subsequent tax increases and privatizations to come up with at least another billion euros.  Believe it or not, the numbers don’t add up.

4. “This was not a good weekend for Russian billionaires.”

5. I wonder if the two main banks even have the money they claim they do.  Who tells the truth going into a deal like this?

6. Capital controls in Iceland are expected to remain in place at least through 2015, which would make seven years (and counting).  That is a better run country with lots of fish and aluminum smelting.  You can expect the same or longer from Cyprus, and that’s assuming this deal can last that long, which I doubt.

7. ELA assistance is now, all the more obviously, contingent rather than certain.  Who would keep their money in the “good bank” which is being folded into Bank of Cyprus?  Why would anyone do this?  Given a shrinking economy, surely this bank cannot afford to pay very much to retain deposits, since rates of return on domestic assets will be negative and capital controls will limit or prevent investments in foreign assets.

8. The capital controls will have to be strict.  What will the price of a Cypriot euro be, relative to a German euro?  50%?  I call this Cyprus leaving the euro but keeping the word “euro” to save face.  And yet they fail to reap most of the advantages of leaving the euro, such as having an independent monetary policy.

9. Given that the nation is uh…corrupt, and the account holders are very often money launderers (duh), how effectively will those capital controls be enforced?  Won’t the banks end up drained, one way or another?  Of course remittances will need to be sent abroad to purchase “essential services,” right?  Who picks up the tab for the total collapse of all the banks?  Won’t the euros that are left depart Cyprus altogether?

10. Next up may be Slovenia

Addendum: A summary of the deal is here.  And here are some very good comments.  Here are more details on capital controls.

Jokes about the financial crisis

The most popular game for Icelandic families in 2009?

Go Fish!

What’s the capital of Iceland?

About $20

Iceland was a currency posing as a bank.

I went to an ATM today, and it asked to borrow a twenty till next week.

Quote of the day (from a trader): "This is worse than a divorce. I’ve lost half my net worth and I still have a wife."

In Soviet America, banks rob people because that is where the money is!

Those are from this comments section.  Do you know any such jokes?

The Cone of Silence

Jason Kottke quotes from Arsenals
of Folly
, the new Richard Rhodes book about the nuclear arms race.  The scene is the
1986 meeting between Gorbachev and Reagan in Reykjavik, Iceland

Back at the American Embassy, Shultz assembled Donald Regan, John Poindexter,
Paul Nitze, Richard Perle, Max Kampelman, Kenneth Adelman, and Poindexter’s
military assistant, Robert Linhard, iTheconeofsilencenside what Adelman calls "the smallest
bubble ever built" — the Plexiglas security chamber, specially coated to repel
electromagnetic radiation and mounted on blocks to limit acoustic transmissions,
that is a feature of every U.S. Embassy in the world. Since the State Department
had seen no need for extensive security arrangements for negotiating U.S.
relations with little Iceland, the Reykjavik Embassy bubble was designed to hold
only eight people. When Reagan arrived, the air-lock-like door swooshed and
everyone stood up, bumping into each other and knocking over chairs in the
confusion. Reagan put people at ease with a joke. "We could fill this thing up
with water," he said, gesturing, "and use it as a fish tank." Adelman gave up
his chair to the president and sat on the floor leaning against the tailored
presidential legs, a compass rose of shoes touching his at the center of the

Will increasing productivity render the welfare state obsolete?

Under one argument, economic progress will make welfare states harder to maintain.  Resource mobility (one result of greater productivity) will force states to lower tax rates to avoid the loss of capital and labor.

I no longer hold this view.  Instead I expect rising wealth to lead — for better or worse — to a massive expansion in welfare benefits.  In other words, income effects could outweigh substitution effects.

Matt Yglesias notes that Iceland has high levels of government spending yet is prosperous.  Note that the country has less than 300,000 people and 70 percent of their export earnings comes from fishing.  This is sustainable as long as the cod stick around.  Norway relies on the North Sea for oil and gas.  Botswana, the African success story, uses diamond wealth to maintain extensive public spending.

Some of the smaller Gulf economies have extraordinarily high productivity for their modest labor inputs, because of accessible oil or gas.  Qatar and Dubai have erected elaborate welfare states; most citizens don’t work at all, unless you count extended trips to the shopping mall.  Guestworkers handle most of the menial labor or even the white-collar jobs.  The point is not that every welfare state has external largesse, but rather that free lunches tend to produce welfare states.

Imagine that nanotechnology, or some other version of The Next Big Thing, came to pass. The bounty of nature would be replaced by the bounty of science.  Might our economy look a bit more like the welfare policies of the Gulf states, albeit with greater diversification?  Won’t we massively expand our welfare state?  Since the whole point is not to work, no one will complain much about the high (implicit or explicit) marginal tax rates.  The rush will be to get in, not to leave town.