From left: Dr. Yaron Brook, Ayn Rand Institute, Bruno Zaffari from IEE, Eduardo Campos, governor of Pernambuco, and Professor Hannes H. Gissurarson, University of Iceland.

Professor Hannes H. Gissurarson, University of Iceland and RNH, gave a paper at the conference Fórum da liberdade in Porto Alegre 9 April 2013. The title of his paper was “Making the Invisible Hand Visible: Reflections on the Political Economy of Freedom”. According to Professor Gissurarson, the biggest news in the early 21st Century was not the financial crisis in the West, but rather the fact that big countries like Brazil, Russia, India and China had entered the world economy and established capitalism, however imperfect, in their economies, with a corresponding rapid economic growth. This was a challenge to the North American and European countries. Professor Gissurarson said that the goal was not to maximize the tax revenues of government, as some proponents of the Laffer Curve thought, but rather to maximize economic growth by keeping taxes low, for example at the same level as in Switzerland, which, incidentally, had about the same tax revenue per capita as Sweden, about $25,000, but with much lower tax rates, 28% of GDP instead of 44%. To demonstrate how important economic growth was to well-being and living standards, Professor Gissurarson showed a graph of the different paths taken by Argentina and Australia since 1929 and their results in terms of GDP per capita: the Argentinians, under the spell of despots and demagogues, were busy trying to redistribute wealth, whereas the Australians were more concerned with creating wealth.

Sharing the panel with Professor Gissurarson were Dr. Yaron Brook from the Ayn Rand Institute in Irvine, California, and Eduardo Campos, governor of Pernambuco and widely seen as the next presidential candidate of Brazil’s Socialist Party. Other lecturers at the conference included José Mariano Beltrame, director of security in Rio de Janeiro, Professor Randy T. Simmons, author of several books about public choice, Jorge Gerdau, one of the most influential businessmen in Brazil, Paulo Kakinoff, director of the airlines GOL, and Alexandre Tombini, governor of Brazil’s Central Bank. João Robert Marinho, one of the directors of the Globo media company, received a medal for his energetic defence of freedom of expression in Brazil.

IEE (Instituto Estudos empresariais), an association of young entrepreneurs and businessmen in Porto Alegre, organised the event, which was attended by about four thousand people. The theme was from French writer Frédéric Bastiat on what is seen, and what is unseen in political economy. Here is Gissurarson’s speech:

The discussion in the panel was described in the website journals Voto and Agenda 2020. Gissurarson’s lecture was 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”. During the conference, he used the opportunity to discuss possible future lectures in Iceland by Dr. Yaron Brook on Ayn Rand’s life and works, in special connection with the publication of the novel We the Living, Professor Randy T. Simmons on public choice theory and endangered species, and Professor João Carlos Espada on the Anglo-Saxon Tradition of Liberty.

Gissurarson Slides 9 April 2013

From left: Daniela Becker, Hermilio dos Santos Filhos, João Espada, Yaron Brook, Leonidas Zelmanovitz, Gabriel Gimenez-Roche, Flavia Vera, Jorge Monteiro, Hannes H. Gissurarson, Cesar Santolin, Giacomo Neto, Jairo Procianoy, André Alvez, Gabriel Calzada and Randy Simmons. Sitting: Carlos Julio and Andre Loiferman.

Professor Hannes H. Gissurarson, a member of the RNH Academic Council and the centre’s academic director, attended a colloquium on public choice theory 4–7 April, organised by the American institution Liberty Fund in Petrópolis in the State of Rio de Janeiro in Brazil. The topic was a book by economist Randy T. Simmons, Professor at Utah State University, Beyond Politics, where the economic analysis of politics is clearly described and applied. According to Simmons, one cannot presuppose informed, altruistic persons in politics, and shortsighted, selfish persons in business. Instead, the same model of man should be used in the two walks of life—in pricing or taxing; in coordination by trade or commands from above. Professor Simmons was discussion leader, but participants included Dr. Yaron Brook from the Ayn Rand Institute, Irvine, California, Professor João Carlos Espada from the Catholic University of Portugal in Lisbon, and Professor Emeritus Jorge Vianna Monteiro, PUC-Rio (Pontifical Catholic University of Rio).

RNH works with, and supports the publishing house AB, Almenna bokafelagid. In mid-March AB published a book by a young historian, Stefan Gunnar Sveinsson, on the street riots of 2008–2009 in Iceland. The book is called Busahaldabyltingin: sjalfsprottin eda skipulogd (The Pots and Pans Revolution: spontaneous or organized?). Professor Thor Whitehead calls the book “a readable, informative and interesting work”, and the publisher writes:

The 2008–2009 “Pots and Pans Revolution” was indeed a truly extraordinary chapter in Iceland’s history. This previously peaceful society, not even with an army, suddenly seemed to collapse. Government House, the Central Bank building and Parliament House were under siege, government ministers had to use bodyguards, an attempt was made to wrest prisoners by force from the hands of the police, there were fights of life or death in the streets of Reykjavik, many policemen were reaching their endurance limits, a government was thrown out of office. Historian Stefan Gunnar Sveinsson has had access to unpublished confidential material, including police reports and personal recollections, and he has interviewed several participants in these memorable events, policemen, protesters, government ministers and members of parliament. The result is a remarkable book about a remarkable period. There is much new information in the book, not least about the part played by the Left Green party leaders in the riots.

The new book is the second one in a new series of AB studies of Icelandic society, the first one being The Icesave Deals: The Blunder of the Century? by journalist Sigurdur Mar Jonsson, published in the autumn of 2011 to great acclaim.

Booth giving his Iceland paper. Photo: Haraldur Gudjonsson.

In a lecture at the University of Iceland 13 March 2013, sponsored by the School of Business at the University of Iceland, and by RNH, Professor Philip Booth of Cass Business School and the London IEA discussed the causes of the 2008 international financial crisis. It was widely believed, according to Professor Booth, that the crisis was caused by capitalism, especially the greed of bankers, and that consequently financial markets had to be more closely regulated and monitored. Professor Booth argued however that this was a great over-simplification. One cause of the crisis was unsustainable mortgage lending in the US, to individuals belonging to designated minority groups, but with no proven ability to meet their obligations, often even without registered assets or regular jobs; this was encouraged, and sometimes enforced, by government. Another cause was the lax monetary policy of the American central bank, the Fed, under Alan Greenspan, after 2001, in an unfounded fear of stagnation after the dotcom crisis. In the first few years of the new century, international financial markets were full of cheap money, and finally the bubble had to burst.

There were however two basic systemic causes of the crisis, Professor Booth argued. One was the moral hazard of the “Too Big to Fail” approach. Bankers knew that in good times, the profits were theirs to enjoy, whereas in bad times, the losses would almost always be transferred to the taxpayers. Government did not even charge the banks for, in effect, insuring deposits. Recklessness did therefore pay. The other systemic cause of the crisis was that uniform rules on assets, equity ratios and risk estimates, had been imposed internationally on commercial banks, with the unintended consequence that the risk for individual banks may have been reduced, while the risk to the whole system, given a possible flaw in the structure, had been increased.

Professor Booth expressed doubt about proposals to increase regulation in the financial sector, saying that a better way of dealing with risk was to maintain several types of banks, competing for customers, surviving if well-run, failing if badly run, but without bringing down others. The most important task ahead was to change the framework in finance in such a way that banks could fail individually, instead of taking either government or their competitors hostage, in the fear of banks failing collectively. Professor Booth added that it seemed sensible to give deposits priority over other claims on banks which should imply that providers of capital to the banks would become more cautious. He also suggested that present rules about taxing bank equity and bank debt very differently should be changed in order to reduce risk.

The lecture was well attended, with a lively discussion following it, moderated by Professor Ingjaldur Hannibalsson, president of the Icelandic School of Business. Skafti Hardarson, chairman of the Icelandic Taxpayers Association, asked whether the idea that central banks should be lenders of last resort made any sense. Professor Booth replied that the best proposal he had seen on this issue was that banks should be free to choose whether or not to be supervised by a central bank. Should they choose to do so, the central bank would undertake to be their lender of last resort. But if they did not want to participate in such a scheme, they would be neither supervised nor supported by the central bank. Professor Stefan Olafsson asked Professor Booth whether he concluded, on the basis of research done by Reinhart and Rogoff, that the crisis was caused by deregulation. Professor Booth replied that regulators did not possess perfect information or the right incentives to control banks. There was, he pointed out, no clear causal connection between the lack of regulation and instability. For example, in the third quarter of the 20th Century, English banks operated under very light rules, not even having deposit insurance. Nevertheless, they were quite stable.

This event, which formed a part of the lecture series jointly organised by RNH and AECR, Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”, was widely reported in the media. The daily Morgunbladid gave an account of the lecture 14 March. Vidskiptabladid, a business weekly, also reported on the lecture 14 March, and on its website an interview with Professor Booth, taped after the lecture, can be watched. Vidskiptabladid also wrote an editorial quoting approvingly Professor Booth’s analysis of the financial crisis. Professor Stefan Olafsson wrote a blog about his experience at the meeting. Professor Booth’s talk in Iceland can be watched here on Youtube.

Booth Slides