Professor Gissurarson giving his lecture. Photo: Andres Magnusson

The Icelandic 2008 bank collapse was self-inflicted in the sense that a precarious situation had been created by the very rapid growth of the three main Icelandic banks. But glass does not break because it is breakable, and a precarious situation does not become a collapse, unless something is done to it. This was what Dr. Hannes H. Gissurarson, Professor of Politics at the University of Iceland and RNH Academic Director, said in a well-attended lecture at the Institute of Economic Affairs, IEA, in London 27 November 2014. According to Professor Gissurarson, three decisions had entered into this precarious situation, transforming it from a recession in Iceland into a total collapse of the banking sector: First, the US Fed had refused to make the same dollar swap deals with the Central Bank of Iceland, CBI, as it had done with the central banks of the Nordic countries and even of Switzerland. Second, in the second week of October 2008 the British Labour government had refused to provide the same liquidity for the two British banks owned by Icelanders as it did for all other British banks. Third, by invoking an anti-terrorism law against Iceland (briefly against the CBI and the Icelandic Financial Supervisory Authority, and for a longer time against the Icelandic bank Landsbanki), the British Labour government had made all rescue attempts impossible. This sudden strike against an old friend, a nation without even a military, a fellow NATO member, recently standing behind the UK and the US in the Iraq War, was almost incomprehensible.

Professor Gissurarson rejected the thesis that the Icelandic banking sector had been too big. In fact, it was about as big relatively as the Swiss banking sector, whereas the Scottish banking sector was somewhat bigger, relative to Scotland itself. Why did the Swiss bank UBS and the Scottish bank RBS then not fail like the Icelandic banks? Because they were rescued, not least by dollar swap deals, provided by the US Fed, and in the case of RBS also by taxpayers’ money from England and Wales.

Alistair Darling

Professor Gissurarson agreed with the Icelandic Special Investigation Commission, SIC, on the bank collapse that there had been a hidden systemic risk in the Icelandic banking sector. This risk was mostly created by the Baugur Group as could be seen from the 2010 SIC report. The Icelandic banks had used the good reputation Iceland had earned in 1991–2004, when sound economic policies were pursued, to obtain foreign credit which they had then passed on to Baugur Group and to some other business groups. Some investments of Baugur Group had been sound, while others had been unwise: For example, the head of Baugur Group, Jon Asgeir Johannesson, had spent tens or even hundreds of millions of dollars on a private yacht, Heesen 4400, a private jet, Dassault Falcon-2000, luxury ski huts in Courchevel in France and an immense penthouse on Gramercy Park in Manhattan. By their extravagance and aggressive behaviour, in 2004–8 Johannesson and some of his business partners had destroyed, or at least blackened, Iceland’s good reputation and thus made it more difficult for the Icelandic authorities  to obtain assistance when subsequently needed. However, the British Labour government had also been outright hostile to Iceland, as could be seen from the book by the former Chancellor of the Exchequer, Alistair Darling, Back from the Brink, published in 2011. It was hard to explain this hostility, but possibly Darling and former Prime Minister Gordon Brown, both coming from Scotland, had wanted to demonstrate to the Scots that independence was a risky endeavour.

After the lecture, Professor Gissurarson answered questions. A member of the audience expressed surprise at the 2013 EFTA Court judgement in the Icesave dispute between the UK and Iceland because surely the Icelandic government had discriminated between Icelandic and foreign depositors. Professor Gissurarson replied that this was indeed a common misunderstanding, shared by British ministers and even judges. By the Emergency Act of 6 October 2008, all deposits in Icelandic banks had been made priority claims, including deposits held by UK residents. However, at the same time, Icelandic government ministers had announced that they would guarantee all domestic deposits. This announcement had not had any legal significance or force, and it was in fact similar to public announcements made all over Europe at that time in order to prevent panic and a run on banks. Professor Gissurarson’s lecture formed a part of the joint project by RNH and AECR, the Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”.

Professor Tara Smith from the University of Texas in Austin gave a lecture at the University of Iceland, sponsored by RNH, Monday 24 November 2014, on the moral message in the works of Russian-American novelist and philosopher Ayn Rand. The most influential female philosopher of all times, Rand expressed her political ideas in her novels which have sold in thirty million copies worldwide. AB Publishing has recently brought out three of her novels in Icelandic translations: The Fountainhead (Uppsprettan, 2011), Atlas Shrugged (Undirstadan, 2012) and We the Living (Kira Argunova, 2013). In her lecture, Smith discussed in particular two passages on money in Atlas Shrugged. Francisco d’Anconia gives a speech against the common view that money is the root of all evil. He argues that money is a medium of exchange which enables individuals to satisfy their different needs by free trade, without commands from above. Instead of stealing the goods which people desire, they pay for them with their money. In another passage in Atlas Shrugged it is explained that money also extends life indirectly. It buys time, enables people to satisfy more needs than before. In an order based on money and exchange people have to work ever fewer hours to satisfy their basic needs and thus can use more time for what they really desire, want dream about or aspire to, materially and spiritually. The lecture was well-attended. After it, Professor Smith answered questions from the audience, and then RNH held a reception on the University premises. Professor Smith’s lecture formed a part of the joint project by RNH and AECR on “Europe, Iceland and the Future of Capitalism”.

Here is a lecture which Professor Smith gave on Ayn Rand in Stockholm in 2014:

Lukas Schweiger, ESFL Chairman, is farthest to the left of those holding the banner.

About 85 people attended the conference of the European Students for Liberty, ESFL, in Reykjavik Saturday 15 November 2014, including about 15 students from abroad. The Conference took place at the University Plaza on the University of Iceland premises. Lukas Schweiger, chairman of the ESFL Executive Board, gave an account of the origin and objectives of ESFL. Libertarian, or classical liberal, students are influenced by the analysis of F. A. Hayek in his “The Intellectuals and Socialism”: ultimately, ideas are conclusive, but they are created by original thinkers, then transmitted by intellectuals, shaping public opinion and conditioning political behaviour. Thus, what is crucial is not to influence individual politicians, but rather to organise a formidable, even if small, group of eloquent and thoughtful intellectuals who can change public opinion and facilitate the task of politicians sympathetic to liberty, while making more difficult the steady attempts by authoritarians to reduce liberty.

Economics Professor Birgir Þór Runólfsson, of the University of Iceland, pointed out that the economic case for government was that it had to produce certain public goods that individuals could not produce and price in their transactions. The clearest examples of public goods were defence and enforcement of law. However, in Iceland a Commonwealth had operated for more than three centuries, as anarcho-capitalist David Friedman had published an early informative paper on, with Professor Runolfsson writing his interesting doctoral dissertation on the institutions of the Commonwealth where many cases were solved in private transactions, such as payments or restitution for men killed in battles, and where the weak had some resources at their disposal, such as family alliances, transferable rights in court cases to stronger allies and the protection of their powerful chieftains. The Icelandic farmers could choose between chieftainships producing protection and legal enforcement of court decisions just as modern consumers can choose between many different insurance companies.

From left: Kokotevics, Schweiger and Gunnarsson.

Helgi Hrafn Gunnarsson, Member of Parliament for the rebel Pirate Party, formed by young people disillusioned with politics and socially liberal, participated in a panel with Serbian Student leader Aleksandar Kokotovic on the legalisation of recreational drugs. Mr. Gunnarsson explained the two arguments for legalising them. First, everybody was entitled to his or her own life and body, and others should not try to interfere with how he or she disposed of it, unless they had to defend themselves against harm inflicted upon them. In the second place the consequences of prohibiting many recreational drugs, some with positive medical effects, were worse than the consequences of allowing them. By criminalising harmless recreational behaviour, their production and distribution was forced underground, strengthening the mafias already engaged in crimes, while tying up the police force in pursuit of people who had only committed victimless crimes.

James W. Lark, Professor of Systems Management at the University of Virgina, described the libertarian movement in the US in which he has participated as the National Chairman of the Libertarian Party. He recognised that many libertarians are active in other parts or not political at all. By nature libertarians were sceptical of government power, whether abused by a majority against a minority or by a minority against a majority. Classical liberals who wanted to improve the world should try to get rich by selling better or cheaper goods and services  to the public than do their competitors. If rich, they could also support the libertarian battle of ideas, fought by a handful of libertarian intellectuals.

Professor Gissurarson giving his paper.

Politics Professor Hannes H. Gissurarson, of the University of Iceland, criticized the message of French philosopher Thomas Piketty who seemed to have replaced American philosopher John Rawls as the main guru of the left. The difference was that Rawls was concerned about poverty, which was indeed a recognizable social evil, whereas wealth had been regarded as a blessing, to be welcomed, if it was not ill-gotten, usually from government monopoly or protectionism. Piketty’s data had been severely criticized, but Professor Gissurarson said that that was not relevant to the main point: during the last few decades the income gap had indeed widened in the West in that the worst-off, or unskilled labour, were competing fiercely with their counterparts in China and India who could offer much lower wages, to the advantage of consumers. At the same time, people with exceptional skills, not easily reproducible: innovators, entrepreneurs, investors, top managers, entertainers, athletes, film stars and celebrities—Steve Jobs, Sam Walton, Warren Buffet, Jack Welch, Oprah Winfrey, Tiger Woods, Angeline Jolie, David Beckham and so on—were suddenly faced with a tenfold market for their services to that of their predecessors. Supply was fixed while demand greatly increased, resulting in much greater remuneration than previously, more rent being captured by the top income group. The common cause of both trends was globalisation. Moreover, Piketty overestimated the stability and certainty of capital held by individuals and underestimated the creative powers of capitalism to deliver economic growth.