Gísli Hauksson, RNH chairman, og Ridley, with the Icelandic edition of Ridley’s book. Photo: FOK.

The world is rapidly improving, whether we look at living standards, health, literacy or the reduction of many social evils, such as violent crimes, warfare and contagious diseases. We have also seen a greening of the earth, with ever less land being required for agriculture, while the environment has in most cases being improving (with exceptions like China). There has been some global warming, and it is probably to some extent caused by human activities, but it is by no means clear that it should be of great concern to us. The problem has been vastly exaggerated. This was in short the message English science writer Matt Ridley brought to Iceland 30 October when he gave a talk before a packed audience in the meeting facilities of finance company Gamma at a seminar organised by RNH. AB Publishing has just published Ridley’s Rational Optimist, in Icelandic Heimur batnandi fer, where he describes man’s evolution in the last millennia, and the “catallaxy”, or system of mutually beneficial exchanges enabling people to utilise the knowledge of one another and to generate new knowledge.

One of Iceland’s most distinguished scholars, Economics Professor Thrainn Eggertsson, who also gave a talk at the seminar, writes: “In his book Matt Ridley, writer, scientist, og former Economist senior editor, has rearranged ideas from Adam Smith and Charles Darwin in order to explain why man has done so much better than other animals on earth. How division of labour and exchanges between unrelated individuals have enabled us to utilise the knowledge of millions of people and create goods such as cars, computers and drugs, which none of use could have invented or produced on our own. Ridley also discusses mankind’s strong and dark pessimistic streak and some fashionable doomsday scenarios, formerly linked to religion, but now also to natural sciences. The author uses a wide basis of sources, has a superb command of English, peppered with a rich sense of humour, and he draws on an amazing wealth of knowledge on evolution of life on earth and the history of human beings and on new research in the social and natural sciences.”

At the seminar, Associate Economics Professor Birgir Thor Runolfsson also gave a talk, explaining an example used by Matt Ridley in his book on how to combine sustainability and profitability: the Icelandic system of individual transferable quotas. This system creates incentives and possibilities for owners of fishing capital both to reduce costs over each season and carefully to maintain the long-term value of the resource. While the ITQ system is not a system of fully defined property rights, it shares some of its qualities, having turned out to be surprisingly successful both ecologically and economically. Most world fisheries are operated with huge losses, but in Iceland the fisheries generate reasonable profits, giving some a cause, or rather a pretext, for complaint. After the seminar there was a reception. The seminar formed a part in the joint project by RNH and AECR, Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”.

Arnason, Grainger and Gissurarson. Photo: Mbl. Kristinn Ingvarsson.

A resource rent tax in the fisheries is not the best means to achieve the efficient utilisation of the fish stocks, because it will probably always be unacceptable to the fishing sector itself. A system of individual transferable quotas, ITQs, initially allocated on the basis of catch history is much more likely to be accepted. A resource rent tax which aims at expropriating rent created in the fisheries (after the introduction of ITQs) is not efficient, either, because it is the fishing firms which in effect create this rent, and the tax would reduce investment, innovation, research and development. However, a cost recovery charge on the fisheries seems reasonable. These are some of the implication of the research into fisheries economics by Professor Corbett Grainger of the University of Wisconsin which he presented at a well-attended seminar of RNH and the Icelandic Taxpayers’ Association 24 October 2014, chaired by Skafti Hardarson with Dr. Birgir Thor Runolfsson as discussant.

Professor Ragnar Arnason of the University of Iceland analysed some common measurements of income distribution. They were often so inaccurate and misleading, according to Professor Arnason, that it would be nothing short of absurd to base demands for comprehensive taxation changes—for example the imposition of a confiscatory top income tax or a wealth tax—on them. The Gini coefficient—often used, because simple to calculate—sometimes provided the same kind of incomplete information as the description of a horse as being brown in colour; much more was needed fully to understand each situation. There could be one Gini coefficient for various and very different income distributions. Professor Arnason demonstrated how the Gini coefficient would rise, falsely showing more income inequality, if the proportion of university students and pensioners in a given society would increase, simply because people received more education and lived longer. One-year-measurements like the Gini coefficient were difficult to use because the total income over an individual’s life was much more relevant: this income was subject to many abrupt changes; sometimes it was low (when the individual in question was a student or a pensioner), and sometimes high (when he or she was on the top of their earning ability and energy). Professor Arnason referred to the papers in the recent book published by AB on income distribution and taxation (with an English Summary).

Balzac: Capital is fragile

Professor Hannes H. Gissurarson of the University of Iceland criticized some deficiencies in the controversial book by Thomas Piketty, Capital in the 21st Century. Some of Piketty’s numbers on wealth distribution in England and France had turned out to be inaccurate, but possibly his numbers on income distribution in the West were more plausible, showing that the income of the top 10 or 1% had greatly increased in the last few decades relative to the income of the bottom 10%. However, global income distribution had actually become more even. The main common explanation for these three trends was globalisation, Professor Gissurarson stated. Unskilled workers in the West faced competition from China and India; at the same time, individuals with unique and irreproducible abilities (film stars, athletes, innovators, entrepreneurs, supermanagers) had gained access to a much larger international market than before and had thus been able to get a much higher rate of return on their services. Nothing was anyway wrong with an uneven income distribution, if it was distribution by choice: from each as she chooses and to each as she is chosen. Again, it was not as clear as Piketty suggested that the rate of increase of capital was in the long term always greater than economic growth. Capital was not necessarily accumulated by a few individuals over time: it was a much more dispersable, fragile and fickle phenomenon, as Balzac’s novels—frequently quoted by Piketty—indeed showed. Because of ever-improving technology and freer trade, capitalism had the creative power to sustain rapid economic growth.

The seminar formed a part of the joint project by RNH and AECR on “Europe, Iceland and the Future of Capitalism“. It was widely covered in the Icelandic media. Vidskiptabladid and Morgunbladid announced it in advance, and Morgunbladid interviewed the main speakers afterwards and also published an account of the seminar 25 October and 1 November.

Corbett Grainger Slides

Ragnar Arnason Slides

Gissurarson Slides on Piketty

Participants in the ESL conference in Bergen. Professor Gissurarson (in blue jacket and red shirt) stand behind one of the girls who hold the ESL banner. Yaron Brook stands at the centre behind the banner.

The much-discussed theories of French economist Thomas Piketty are not based on sound principles, as can be seen on a close scrutiny. This was what Professor Hannes H. Gissurarson, RNH Academic Director, argued at the conference of European Students for Liberty in Bergen 10 October 2014. Professor Gissurarson contrasted Piketty with Rawls, the main leftwing thinker of the past: Whereas Rawls was preoccupied with the poor, Piketty seems solely to be concerned with the rich. Everybody agrees that poverty is a problem. But is affluence really a problem? But even if Piketty’s use of the data could be plausibly criticized, as has been the case, it could well be, Professor Gissurarson submitted, that the gap between the poorest and the richest groups in the West had widened somewhat in the last few decades (mainly because the richest have become much richer, the gap has been stretched upwards). But income distribution in the world as a whole had in fact become more even (mostly because many of the poor in China and India have produced themselves out of poverty; according to figures from Piketty’s own data base the real income of the poorest 90% in China has tripled since the mid-1980s).

Three speakers: Gissurarson, Brook and Hannesson. Photo Eszter Nova.

Professor Gissurarson asked: Is something wrong with this trend? Should it not be welcomed that hundreds of millions of people in China and India have escaped poverty by their own efforts? It was however correct that some people in the West possessing marketable, but unique, irreproducible and unimitable skills and abilities, such as film stars, entertainers, athletes, innovators and entrepreneurs, now could because of globalisation reach a much larger market than before, possibly three to four billion people instead of only 300–400 million in the past; this resulted in them gaining a much higher income (which would constitute rent in the sense of economics). But there was nothing wrong with income distribution by choice, Professor Gissurarson maintained. He gave a simple example: Milton Friedman visits Iceland to give a lecture. A thousand people attend the lecture, each paying an entrance fee of $50. Thus, Friedman becomes richer by $50,000, and 1,000 people become poorer each by $50. But where is the injustice? Everybody is satisfied. Professor Gissurarson also pointed out that capital was not made of the same solid and immobile material as Piketty seemed to think. Piketty frequently quoted Balzac’s novels. But the main theme in most of these novels was how fragile and fickle wealth could indeed be. For example, in Balzac’s famous Old Goriot (Père Goriot), often quoted by Piketty, Goriot himself, previously wealthy, has run out of money. One of his daughters was struggling to pay the gambling debts of her secret lover, while the husband of the other one had lost the dowry in speculations.

Five Icelandic students attended the Bergen conference. The other speakers were activist Rasmus Brygger from Denmark, Dr. Yaron Brook from the Ayn Rand Institute, and Professor Emeritus Rognvaldur Hannesson from the Norwegian Business School in Bergen, NHH, which was the venue of the conference. Professor Hannesson, an Icelander who has spent all his professional career in Norway, is also a Visiting Professor at the University of Iceland. The organisation was in the hands of Eirik Aaserod from Norway and Lukas Schweiger, ESL chairman. Professor Gissurarson’s lecture formed a part of the joint project by RNH and AECR on „Europe, Iceland and the Future of Capitalism”.

Gissurarson Slides in Bergen

From left: Jordan, Gissurarson and Poole.

Grazing rights in the Icelandic mountain pastures, individual transferable quotas in the Icelandic fishing grounds and the indexed Icelandic krona are three examples of institutions or solutions developed spontaneously by the market rather than imposed by government. This was claimed by Professor Hannes H. Gissurarson at a conference on the social and political theories of Friedrich von Hayek at Manhattanville College in New York 10 October 2014, organised by the Economic Freedom Institute. Professor Gissurarson recalled his meetings with Hayek who had asked the students of his thought not to become Hayekians, but rather to maintain their critical faculties and to develop classical liberal principles further, on their own. It was in this spirit, Professor Gissurarson said, that he offered his analysis of these three examples. The grazing rights in the mountain pastures and the individual transferable quotas in the fisheries had both been developed to escape “the tragedy of the commons” where open access to resources led to their over-utilisation. Professor Gissurarson said that he had first suggested the introduction of quotas in the fisheries at a conference in Thingvellir in 1980, in order to stop over-fishing, but that he had not then been aware of the fact that such quotas had already been allocated in 1975 in the herring fishery and in 1979 in the capelin fishery. A system of individual quotas was then introduced in the demersal fisheries (including the important cod fishery) in various stages from 1984, the quotas gradually becoming transferable and permanent. The system of individual transferable quotas was, according to Professor Gissurarson, a good example of an institution which was not designed by academics, but spontaneously developed by the parties directly involved, and then explained and articulated by academics.

Professor Gissurarson said that he had suggested publicly in 1983 that the Icelanders should abandon the krona and use instead some harder currency, arguing that the krona was not adequately fulfilling two of the three roles of money, as a unit of account and a store of value. However, he had not realized then that this problem had already been solved in Iceland by the use of the indexed krona which performed these two roles very well, while the ordinary krona could be used as before for the third role, as a medium of exchange. In fact, two currencies were — and still are — used in Iceland, the indexed krona for long-term contracts and the ordinary krona for short-term transactions. Professor Gissurarson pointed out that while legislation had certainly been necessary to support these three institutions, they were examples of solutions of the market rather than of government: the results of human action, but not of human design. Professor Gissurarson used the opportunity while in New York to have discussions with Professor Frederic Mishkin on the 2008 Icelandic bank collapse and with Walker F. Todd, a former lawyer at the Federal Reserve System and a specialist on currency swap deals. He also discussed the international financial crisis, the operations of the Federal Reserve System and the Icelandic bank collapse with Dr. Jerry Jordan, former President of the Federal Reserve Bank of Cleveland, and Dr. William Poole, former President of the Federal Reserve Bank of St. Louis. Both Jordan and Poole attended the Manhattanville College conference which was presided over by Professor Emeritus Anna Sachko Gandolfi and her husband, Dr. Arthur E. Gandolfi, former Citicorp Vice President and a student of Ayn Rand and Ludwig von Mises. The two Gandolfis have published, with David P. Barash, Economics as an Evolutionary Science. Professor Gissurarson’s lecture at the conference formed a part of the joint project of RNH and AECR, the Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”.

Gissurarson Slides at Manhattanville College