Very small countries

Here is James Surowiecki on the economic problems of Iceland.  Google tells me that Iceland has about 316,252 people.  Fairfax County is over three times more populous but it hardly receives any out-of-state attention.  Of course Fairfax County has neither its own language nor its own culture (apart from a lunch tradition, that is) but for economic questions that should not matter much.

One question is whether we should be trading asset claims to the future creditworthiness of very small units.  Let’s say there were tradeable shares in the future prospects of assistant professors.  A low share price wouldn’t do much for your mid-contract review and maybe not for your mortgage prospects either.  It seems that noise traders can wreak more havoc on small units, if only because volatility relative to retained earnings may be larger.  Maybe the real problem is when the small units cannot self-insure; imagine the public uproar if the Icelandic government were caught selling itself short.


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