Iceland did almost everything right

They stiffed the bank creditors to avoid aggravating the moral hazard problem, just like the textbooks recommend.  In the eurozone the bank creditors are being bailed out.  They relied of fiscal policy to address S/I and debt issues, and let monetary policy address AD, just as the New Keynesians were recommending in the 1990s.  In the eurozone they combined tight money with reckless deficits.  And now Iceland is growing fast and the eurozone is stagnating.

I do realize there are tricky issues involved when analyzing the GDP of a country with 310,000 people.  One big aluminum smelter could probably have an impact on GDP.  I’d focus on the fact that their GDP is up about 12% from 7 years earlier.  That’s not great, but they clearly aren’t in a depression.  I seem to recall that Britain’s GDP is flat over the past 7 years, and some of the weaker eurozone members have done even worse.

I realize that people will say that Iceland is special, it doesn’t count,  Just as Australia doesn’t count and Sweden doesn’t count and Poland doesn’t count and Israel doesn’t count and Argentina doesn’t count, and all those countries in the 1930s that just happened to start recovering after they left the gold standard don’t count.  But still, it’s one more data point.

That's Scott Sumner.