Photo: Haraldur Gudjonsson.

Special taxes on the rich are counterproductive, according to Dr. Daniel Mitchell, senior tax analyst at Cato Institute in Washington DC. He argued for this at a well-attended seminar organised by the Icelandic Taxpayers’ Association and RNH in Reykjavik 4 November 2013. Mitchell pointed out that ordinary people on fixed salaries and with fixed hours could do little about it if their income tax was raised. But rich people usually derived their income from other sources, such as investment and management of private companies. If the tax on their income was  raised, they had many means to avoid paying more tax. A horde of lawyers and accountants were at their disposal. Thus, many kinds of economic distortions were created by a progressive income tax or other kinds of special taxes on the rich. One example given by Mitchell was that some rich people in the United States bought municipal bonds because income from them was tax-free. But this was not necessary the most productive use of their money for society in the long run.

Mitchell reminded his audience that Ronald Reagan had cut taxes on the rich, with the consequence that their number had increased considerably and also the tax revenue from them. He discussed the Laffer Curve which shows that tax revenue is zero at a 0% tax rate and again zero at a 100% tax rate. Observing that there was no controversy about this, Mitchell said that the issue was where on the curve the revenue-maximising point was. Paul Krugman and other dirigiste economists believed that the point was about 70% for taxes on the rich, but their analysis had been contested by economist Alan Reynold. Mitchell said that he himself believed that the point was closer to 20%. However, the objective ought not to be to maximise tax revenue, but rather to maximise economic growth in the long run, and to do so the tax rate had to somewhere around or under 20%. A lively discussion followed Mitchell’s lecture, where the special temporary wealth tax imposed by the left-wing government of Johanna Sigurdardottir and Steingrimur J. Sigfusson was mentioned, and also the special charge on the fisheries aimed at seizing the profits of fishing firms.

While in Iceland, Mitchell blogged about the Icelandic situation, recommending that at least government should freeze its expenditure. In a recent video, he delivered the same message as in Iceland about taxing the rich:

Photo: Haraldur Gudjonsson.

Dr. Yaron Brook, director of the Ayn Rand Institute in California, gave a paper on self-love and capitalism in Reykjavik 1 November 2013, on the occasion of the publication of the Icelandic edition of We the Living, the most autobiographical of Rand’s novels, called “Kira Argunova” in the translation. According to Brook, in her novels Rand described the independent, creative individual who was proud of herself and determined to fulfil her potential as a rational human being. The real opposites in life were the free and spontaneous development of free individuals under the law on one hand, and government coercion in the other hand. In Western philosophy, Aristotle came closest to Rand in this ideal or moral goal. Self-love in Rand did not mean aggression towards others. However, the proud and independent individual in Rand—often a woman, for example Kira Argunova in We the Living and Dagny Taggart in Atlas Shrugged—refused to sacrifice herself for others. She was working for herself, not for others. Capitalism was the economic order under which people could develop and flourish in all their diversity without violating the rights of others or having their own rights violated.

A lively debate followed Dr. Brook’s speech. He was asked about charity in a Randian world. He responded that people could help and love others, but that the recepients had to deserve it. The social ills that most people were concerned about, such as poverty, were not remedied by charity, but by production. Only a fraction of the population could not look after themselves, but in a free society sufficiently many would want to help them, and they could do so because of capitalism. Brook said that he had nothing against charity, at your own expense. Brook was also asked whether he did really equate whipping a slave’s back and regulating the financial market. His answer was that the essential distinction was between coercive and non-coercive actions. Individuals should take responsibility for their lives, and government should not relieve them of that responsibility. Professor Hannes H. Gissurarson who chaired the meeting observed that in Icelandic a distinction was made between two senses of pride, “dramb” on the one hand, one of the seven deadly sins in Christianity, and “stolt” which had a positive ring to it. Rand’s ideal of the proud and independent individual was better captured by the latter of these two words, “stolt”.

We the Living appeared as a serial story in Morgunbladid in 1949, but the translator is not known despite attempts to locate him or her. Radio host Frosti Logason edited the book, and lawyer Asgeir Johannesson wrote an afterword about Rand, her life and her work. Morgunbladid published an interview with Brook 6 November 2013. Many left-wing intellectuals have blogged against Rand, for example television host Egill Helgason, philosophy Professor Stefan Snaevarr and sociology Professor Stefan Olafsson. Also, social democratic commentator Sigurdur Holm criticized Rand on the radio show “Harmageddon” 31 October 2013. A day after the meeting, Brook wrote on his Facebook page: “Gave talk yesterday. Toured country last couple of days. Very beautiful, dramatic landscape. In spite of cold and wind, had a really good time!”

Brook’s lecture, with the trailer from the Italian film made in the 1940 from We the Living, prohibited by Mussolini, and discussion after the lecture, is available on Youtube:

Gunnlaugsson giving his lecture.

At a well-attended meeting of Logretta, the Association of Law Students at the University of Reykjavik, 29 October 2013, former Supreme Court Judge Jon Steinar Gunnlaugsson argued that special charges imposed on the Icelandic fisheries were unconstitutional and therefore illegal. It was obvious, he said, that those charges were taxes by nature, so that rules applying to taxes would extend to them. The charges were laid on the holders of the individual transferable quotas which had been developed in the 1980s in order to limit access to the Icelandic waters. Gunnlaugsson said that as early as 1995 he had himself pointed out that such quotas were protected by the constitutional statute about private property. Gunnlaugsson said that both the general charge and the special charge imposed recently on the fisheries were unconstitutional. This was an illegal appropriation or seizure by government of private property. Moreover, those taxes were by their nature also retroactive.

The other lecturer at the meeting, Helgi A. Gretarsson, Associate Professor of Law at the University of Iceland, disagreed that all special charges on the fisheries were unconstitutional. He pointed it that there were clear provisos in the law on the individual transferable quotas that they did not form property rights and also that courts had insisted on the same principle, for example in three Supreme Court judgements, in 2000, 2012 and 2013. Gretarsson agreed however with Gunnlaugsson that the recent special charge on the fisheries was of doubtful legality. It could be in breach of articles 40 and 77 of the Icelandic constitution. Gunnlaugsson’s response was that the court judgements that Gretarsson had referred to had not really been on the nature of the individual transferable quotas, but about other issues; therefore, they did not have any general implications in this legal dispute. He said that the question which the Icelandic courts had to answer was the following: Is it constitutional that the Icelandic government seizes, with the imposition of special taxes, all or most of the profit being generated in the fisheries?

Many distinguished lawyers and business leaders attended the meeting, as well as students at the University of Reykjavik. While Logretta held it, RNH supported it as forming a part in the joint project with AECR, the Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”.

Professor Hannes H. Gissurarson gave a lecture on the Icelandic bank collapse and the future of capitalism at a breakfast meeting of the Swedish think tank Timbro in Stockholm Tuesday 29 October 2013. Sharing the podium with him was Urban Bäckström, former Governor of the Swedish Central Bank and now Director of the Employers’ Association. Gissurarson argued that the international financial crisis had essentially three causes: 1) excessive risk-taking stemming from the unwritten rule that profit is captured by bankers, while loss is transferred to taxpayers; 2) misguided government intervention, for example in the subprime loan market in the US and in the expansionary pre-crisis policies of the American Federal Reserve System; 3) incorrect pricing of risk despite a belief to the contrary, based on new financial techniques. Professor Gissurarson observed that capitalism still seemed to be subject to what used to be called business cycles.

Professor Gissurarson rejected the common claim that the Icelandic bank collapse had been caused by a “neoliberal” legal and regulatory framework for the Icelandic financial market: the framework was precisely the same as in other member countries of the EEA, European Economic Area. He also rejected the claim that Icelandic bankers had been more reckless than their colleagues elsewhere: all bankers had been reckless. Otherwise it would not have been necessary to bail them out in the US and Europe at enormous costs to American and European taxpayers. The Icelandic banks had not been too big when looked at as European banks: But they were certainly too big to depend on institutional support from Iceland alone. What happened in the crisis was  however that all other countries, for example Switzerland, were helped with large currency swap agreements with the American Federal Reserve System, while Iceland alone was refused such an agreement.

Urban Bäckström said that capitalism had not failed despite the financial crisis. He reminded the audience of the fact that Sweden had suffered a severe banking crisis in the early 1990s, when an asset bubble had burst and the Swedish krona had tumbled down. They had come out of the crisis successfully. Government had saved the banks, but removed the equity from the owners of banks needed saving, while protecting the interests of depositors and creditors. In his comment on this, Professor Gissurarson said that the Swedish scheme of coping with a banking crisis was a sensible one, but that the Icelanders had not been able to implement such a scheme because they lost total control of the situation when the British Labour government suddenly closed the two Icelandic banks in England, at the same time as it presented a huge rescue package to all other banks in the country, and then, to add insult to injure, when the Labour governemtn also put one of the Icelandic banks on a list of terrorist organisations, causing an immediate stop to all financial transactions to and from Iceland.

The meeting was well-attended, and a sympathetic, if cricital commentary of Gissurarson’s paper was published in Dagens Nyheter, Sweden’s biggest quality newspaper. A tape of the meeting, with the lectures and the discussion afterwards, is available on Youtube:

26 August 1991: Prime Minister Oddsson with the foreign ministers of Iceland and the Baltic countries.

Professor Hannes H. Gissurarson delivered a paper 25 October 2013 on “Different Nations — Shared Experiences: Iceland and the Baltic Countries” in a seminar on the international angle at the annual conference “The Mirror of the Nation” where teachers at the School of Social Sciences at the University of Iceland present their research. He pointed out that Iceland and the three Baltic countries all gained sovereignty the same year, in 1918. All four countries were occupied in the spring of 1940, Iceland by the British, and the Baltic Countries by Stalin’s Red Army. In all four countries, military control passed to another state in the summer of 1941: Iceland made a defence treaty with the United States, and the German Army occupied the Baltic countries, driving out the Red Army. The year 1944 had also been significant in all four countries, Iceland becoming a republic, and the three Baltic countries being forced to re-enter the Soviet Union where they had been briefly, and nominally, member-states before the German occupation.

From the outset, the history of the international communist movement was linked to the history of those four small countries. Professor Gissurarson gave a brief account of the history of the Icelandic communist movement which started when Brynjolfur Bjarnason and Hendrik Ottosson became Bolshevik supporters after street riots in Copenhagen in 1918, and went on to become delegates to the Comintern Congress in Moscow in 1920. In 1923, a Latvian Jewess, Liba Fridland, gave lectures in Iceland about the Bolshevik Revolution, with Ottosson vehemently protesting in the organ of the Social Democratic Party (where the communists operated until 1930 when they founded the Communist Party under orders from Moscow). Professor Gissurarson also described a controversy in 1945–1946 about the situation in the Baltic countries between the conservative newspaper Morgunbladid and the socialist organ Thjodviljinn. A Lithuanian refugee, Teodoras Bieliackinas, had written about the Soviet oppression of the Baltic countries, with the result that the socialist organ called him a “Lithuanian fascist”. By then, the Communist Party had been dissolved, but the Socialist Party replacing it in 1938 also strongly supported the Soviet Union.

Ants Oras

Professor Gissurarson mentioned the 1955 foundation of the Open Book Club, the Almenna bokafelagid, which was to resist the communist dominance of Icelandic cultural life. Its first publication was Baltic Eclipse by Estonian Literature Professor Ants Oras. In the summer of 1957, the Icelandic President, Asgeir Asgeirsson—a staunch anti-communist—and Foreign Minister Gudmundur I. Gudmundsson received Dr. August Rei, Prime Minister of the Estonian government-in-exile in Stockholm, at the President’s residence, after which the Soviet Ambassador, Pavel Ermoshin, protested formally. In 1973, the Open Book Club published Estonia. A Small Nation Under Foreign Yoke by Andres Küng, an Estonian-Swedish journalist and writer. The book was translated into Icelandic by a law student at the University, David Oddsson. By this time, most leftists in Iceland had turned their back on the Soviet Union, even if some of them maintained ties with Cuba and China. On the far left, the People’s Alliance had replaced the Socialist Party. In 1991, when Iceland became the first country to re-recognise the independence of the Baltic countries, Oddsson was Prime Minister.

Historian Karlsson leads a protest march in the 1970s against Iceland’s alliance with the West.

Finally, Professor Gissurarson presented the findings of a survey that he did with his student, Helena Ros Sturludottir, on the treatment of Baltic history in Icelandic textbooks. In particular, Professor Gissurarson criticized the widely-used textbook Modern Times (Nyi timinn) by two socialist historians, Gunnar Karlsson and Sigurdur Ragnarsson. In this book, the fact is not really mentioned that the Baltic countries were occupied by the Red Army in 1940; instead it is said that they were “annexed” by the Soviet Union, becoming Soviet republics. It is also said that the Western powers at Yalta de facto recognised Soviet control of the Baltic states. According to Professor Gissurarson, this was highly debatable, the main point surely being that the democratically-elected Western leaders and the Eastern dictator used the concept of a “sphere of influence” in different senses. Furthermore, in the book by Karlsson and Ragnarsson it is said that the Baltic countries in 1991, under the influence of growing nationalism, used their right under the Soviet constitution to secede from the Soviet Union. This was not relevant, Professor Gissurarson responded. If the Baltic countries did in fact have this right, why did they not secede much earlier, given the unpopularity of the Kremlin masters in those countries? It was clear that the Baltic countries had never freely joined the Soviet Union. Their status in 1940 to 1991, under international law, was that of occupied countries, not that of fully recognised Soviet republics.

The lecture of Professor Gissurarson forms a part of the joint project by RNH and AECR, the Alliance of European Conservatives and Reformists, on “Europe of the Victims: Remembering Communism”. He also co-operated with institutes in Estonia and Latvia working on the project “Different Nations — Shared Experiences”.

25 October 2013, Professor Hannes H. Gissurarson read a paper at a seminar on the 2008 Icelandic bank collapse, a part of the annual conference “The Mirror of the Nation” where social scientists at the University of Iceland present their recent research. Professor Gissurarson rejected two common explanations of the bank collapse. One of them was that, under the influence of “neo-liberalism”, Iceland had deregulated the financial market. Gissurarson pointed out that Iceland operated under precisely the same legal and regulatory framework for the financial market as other member-states of the EEA, European Economic Area, which Iceland joined in 1994. The second explanation was that Icelandic bankers were more reckless than bankers elsewhere. Gissurarson pointed out that they had been able to find customers, both depositors and creditors, who would then have been guilty of the same recklessness. But, Gissurarson submitted, there were nevertheless two systemic risks to be found in the Icelandic banking sector. One was extensive cross-ownership and excessive borrowing by one business group — clearly identified and explained in the report by Parliament’s Special Investigation Commission on the bank collapse. The other additional systemic risk was the enormous difference between the banks’ field of operations — all of Europe — and their field of institutional support — Iceland alone, as it turned out.

Red line: Loans to Baugur Group

Professor Gissurarson displayed a graph which he had drawn with figures from the report of the Special Investigation Commission about the total borrowing in Icelandic banks by the three dominant business groups in Iceland before the collapse. It is clear from that graph that the Baugur Group and their associates were quite distinct in this respect. However, what was crucial for the collapse was that into this already vulnerable situation entered three decisions made abroad. One was the refusal of the American Federal Reserve System to make currency swap deals with the Icelandic Central Bank, at the same time as it made such deals with the other Nordic central banks and in fact with all central banks in the Western world, outside the Eurozone. A second decision was that of the British Financial Supervisory Authority to close the two London banks owned by Icelanders at the same time—indeed, the very same day—as it offered all other banks in Britain a generous rescue package. The third decision was that of the British Treasury to invoke the British anti-terrorism law against an Iceland bank, with repercussions not only for that bank, but also for the whole Icelandic financial system. The subsequent sale of Icelandic assets fetched much less than reasonable prices, even in an international financial crisis. Professor Gissurarson gave a few examples from Norway. His paper formed a part of a joint project by RNH and AECR, the Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”.