Wednesday, February 11, 2009

How to Solve Iceland's Problem

Here's a funny story.

Your captain, out of a combination of sheer curiosity, boredom and outlandish hope, sent an e-mail to the commerce department of the Icelandic government asking if they'd be interested in a quick fix for their economy.

What's even funnier is my idea would have worked.

And I don't mean that in a cocky, arrogant way. I meant that in a sincere way. One year and the Icelandic government's and Icelandic peoples' problems would be a thing of the past. The solution was so simple it was brilliant.

But like many other ideas I've had, they made so much sense and were so simple that when they were pitched to such brainwashed, automatonic dolts in management they were deemed too revolutionary, too simple and too outlandish (of course such "crazy" ideas including things like scanning documents in instead of spending hours filing the physical worthless paper, suggesting there was a Dotcom Bubble and maybe, just maybe we might want to do absorption studies for real estate, but again, "crazy" "outlandish" "unconventional.")

So I was always faced with a paradox. When it inevitably came to me leaving a firm (either willingly or forcefully) when they did an exit interview and asked why I was leaving, I wondered to myself, should I;

"A - Tell them why they're a bunch of effing retards, show them their weaknesses and explain to them how they could improve their efficiency and productivity


B - Shut up and be quiet in the fear that if I did tell them what was wrong and why I was leaving, there would be that infinitesimally small chance they'd actually listen and implement the changes, effectively getting hundreds of thousands of dollars worth of consulting without actually having to pay for it."

What I inevitably found out is that the skull of management is so thick you could with a sun powered LCD projector burn a power point presentation into their brains and they still wouldn't get it. The legions of management are so numb to new and revolutionary thought, they are condemned to obsolescence and being replaced by new start up firms (see Napster).

With that in mind I've decided to explain my solution to the Icelandic financial crisis not in the hopes anybody over there would listen (because they won't), but to have on record some dumb "crazy" economist had an idea that would have saved those poor Icelanders decades, if not scores of economic pain and suffering.

The idea, as I said was simple;

Lower your corporate and personal income taxes to zero and become a tax haven.

The low taxes, along with a geographic location between the United States and Europe would attract billions, if not trillions in new investment, capital and corporate headquarters resulting in an economic boom. Not to mention Iceland could pilfer the talents of all the advanced countries in the world who are basically being held hostage paying 50% taxes in their current countries. Poaching the productive talents from the other nations would only increase the future productive capacity of Iceland and make the current financial woes of 200,000 people look petty by comparison.

But like I said, such brilliance will only fall on deaf ears.


Anonymous said...

It's almost like you've read about how west germany restarted it's economy post WWII. Very simple solution to an intractablky complex problem.

Tabula Rasa.

Against the strong protestations by the occupying powers, I'll note.

Of course East germany never did restart it's economy.

Michael Ryan said...

It's not at all clear Iceland wants outside talent. Next thing you know, they think they're going to stay there permanently, and then some nice Icelandic girl winds up marrying someone who isn't her cousin.

Anonymous said...

That would be the easy solution, letting foreign investors finance the boom. How about privatizing everything from education to health care and start being productive by yourself!

Besides, there has to be functioning monetary policy, too. One of the reasons Iceland got into trouble was loose monetary policy which allowed inflation to reach double digits.

Anonymous said...

are we talking about iceland or Arkansas? (about marrying the cousin) I'm confused. :-D :-D

Anonymous said...

Given what is happening here in the USA with ‘Compassionate Conservative” (i.e. big spending liberal) George "Herbert Hoover" Bush and flaming socialist Barack Hussein “Franklin Roosevelt” Obama, I’ve got my eyes looking for a better place to live were my pocket isn’t picked and my savings are not inflated away. If they actually listened, Iceland would be a wonderful place to live.

Anonymous said...

I love the idea, Captain, but I'm surprised that you bothered to contact them. Anyone who has the ability to lower taxes is also someone who has the ability to spend tax revenue on their own pet projects. Why on earth would they cut their own funding to zero? They have no personal incentive to lower taxes, and every reason to keep them the same.

In a similar example I heard from my mother-in-law, a recent bill in the local (Utah) state legislature suggesting that they reduce legislator benefits. You know, make it harder for legislators to get life-long free insurance and retirement for themselves and their family, just because the legislator stayed in office ten years, working 45 days a year.

Clearly, it's just a play by one legislator to get a little more support from his constituents; but even if the rep is sincere, there's no chance that the rest of the state House and Senate would hurt themselves by passing such a bill.

Captain Capitalism said...


Good point, but with my plan, RGDP would grow so fast they would have to increase the money supply by double digits just to avoid deflation.

parselmouth said...

Michael Ryan, you hit the nail on the head why it won't happen. Last I recall, Iceland actually pays Icelanders to marry and stay within the "tribe." Iceland is also a classic study in genetic drift in human populations.

Mark Robertson, no need to be THAT pessimistic...every ONCE in a GREAT while, some pol with character actually gets elected to office. Here in Nebraska, they thought the whole bi-cameral state legislature thing was too costly and complicated for so few people, so they decided to oust the lower house. (We only have state senators, now.)

Michael Ryan said...

Anon 9:57 - We're talkin' about Iceland. The whole country only has a population of 320,000. That's less than half the population of Alaska.

Anonymous said...

Believe it or not, I read a news story that an advisory group appointed by the Governor of MN tasked with making recommendations for improving the business climate in MN recommended the same thing as its #1 recommendation.

MN has one of the highest business tax rates in the world (when you add in the federal tax as well).

The task force recommended replacing the lost revenue by expanding the sale tax to more items.

Forget Iceland... save Minnesota!

Hot Sam said...

South Dakota and Delaware became credit card meccas simply by raising the maximum rate of interest. But duplication in lowering taxes or regulation is always a hazard. It's called a 'race to the bottom.'

I'm generally in favor of lower business taxes but it is not a panacea. To attract business you must also generally have low cost of living, generally low wages, and good infrastructure (including airports). Idaho and Utah attracted high-tech away from California, but now they're being outcompeted by Asia.

My uncle lives in Elkhart, IN. After Bayer bought Miles Labs, they moved production out, closer to its distributional base in the east. One problem is that Elkhart was a cultural wasteland- white collars didn't want to live there. I'm sure the execs had other reasons too.

There are few good ways to attract business. There are lots of ways to lose it. California is going to learn the hard way that raising taxes to maintain their wasteful spending in a recession will destroy the economy without solving the budget crisis.

Unknown said...

Not a bad idea but the government here in Iceland is raising taxes these day including among other taxes a special tax on sodas and other sugar products. A pack of cigarettes cost over 6$ a 6pack of beer 15,5$ more than 25% more than last year. A special tax will be put on all wages over 5.426$ a month. Two days ago one dude that had lost his house to the bank demolished it with a big Excavator. That says a lot about how we are feeling here in Iceland.
But we will get over this an hopefully get the 30-40 people responsible for this (Enron - replica) in jail for a long time.