Iceland and Ireland offer a natural experiment comparing austerity with bank default
Evidence
Iceland, in many ways, was Ireland on crack. Its bank assets to GDP ratio in 2007 was nearly 1000 percent. So when Iceland got into trouble, it was going to be the mother of all banking crises. But there was one important difference. Where Ireland followed the mantra of austerity, slashed spending, and bailed its banks, Iceland let its banks go bankrupt, devalued its currency, put up capital controls, and bolstered welfare measures. A comparison of the two is as close to a natural experiment of the effects of austerity and bailouts as you are likely to find. — Mark Blyth, Austerity, 638
Categorization
- XREF: Serves as the empirical counterfactual to the Irish case in Mattei’s austerity critique; also connects to the broader ‘austerians vs Keynesians’ debate. — connects to: Ireland’s 1987 austerity case combined cuts with devaluation and wage moderation — Mark Blyth, Austerity: The History of a Dangerous…, 565; Ireland replicated Iceland’s boom-bust collapse nearly step for step. — Mark Blyth, Austerity: The History of a Dangerous…, 631; Ireland was promoted as austerity’s success model despite weak recovery evidence — Mark Blyth, Austerity: The History of a Dangerous…, 632 (+6 more)
Broader Connections
- Expectations-based expansionary austerity theory rests on Denmark and Ireland cases
#qualifies(0.80) — Mark Blyth, Austerity, 457 - Letting banks fail reversed Iceland’s two-decade inequality surge
#corroborates(0.75) — Mark Blyth, Austerity, 647 - European austerity is a bait-and-switch to save banks from themselves without admitting it
#complicates(0.70) — Mark Blyth, Austerity, 208