The law of unintended consequences states that actions, especially governmental ones, always have unintended and unpredictable effects. These unanticipated effects can be far more powerful than the planned ones. Thus, economists often use this law as a warning to politicians that policies commonly ‘achieve’ the opposite of their intentions. For example, raising the minimum wage to ease the burden on workers usually causes more unemployment, especially among marginal workers. Similarly, raising taxes often diminishes tax revenues.
But sometimes unintended consequences are nothing short of delightful. Consider the prospect of Iceland abandoning the krona and adopting the dollar as its currency. No, no, not the US Greenback but the Canadian “loonie,” so named for the water fowl imprinted on the flipside of its one-dollar coin.
[Disclaimer: the author admits to being a Canadian who wishes to vacation in Iceland and, so, she may be biased in deciding what is delightful.]
Since the 2008 financial crisis in which its top three banks collapsed, Iceland has eyed other currencies with the goal of establishing both stability and liquidity even at the cost of losing control of its own monetary policies.
Why is the possibility of adopting the loonie “an unintended consequence”? Because up until now, the currency overwhelmingly favored for adoption was the euro. Iceland applied to join the European Union in 2009 and formal negotiations began in 2011, with the issue of fisheries being particularly sensitive. Iceland has exclusive fishing rights to the 200 nautical miles surrounding its shores and fish constitute its largest export by far. There is understandable reluctance to entering an agreement that would open up Iceland’s fishing zone to competitors.
Moreover, the recent rockiness of the Eurozone and the euro itself cannot be encouraging to Icelanders. Indeed, given that Iceland rebounded from its fiscal crisis by defaulting on debts and not bailing out banks, it is unlikely to sympathize with the hysteria surrounding a Greek default. A recent Capacent Gallup poll found that 60 percent of Icelanders now oppose union with the Eurozone. The Finance Minister is among them. Who knew that strict fishing policies and the coddling of Greece would make the loonie glimmer in Icelandic eyes?
And, so, prominent Icelandic businessmen, opposition politicians and much of the public are favoring a move toward the loonie; the Canadian Ambassador Alan Bones had been scheduled to address the possibility of currency sharing at a political conference in Reykjavik over the weekend. But the Canadian government apparently reconsidered the appropriateness of the venue for such a discussion; the conference had been sponsored by a specific political faction within Iceland. Instead, last Friday, the Canadian Ambassador announced on the Icelandic national broadcaster RUV that Ottawa was quite open to holding talks on the subject. The Icelandic Foreign Minister Ossur Skarphedinsson stated “I’m all in favor of discussing the alternatives we may have to the krona.”
On the street level, the Canadian public seems tickled. Indeed, in a recent column entitled “Five reasons why Iceland should adopt the Canadian dollar,” Michael Babad offered as the concluding reason:
“5. Our glowing hearts. For Iceland, do not underestimate friendship in this post-crisis era of currency manipulation and mounting trade tensions. We’re a wonderful people, they’re a wonderful people. We’ve got a beautiful country, they’ve got a beautiful country. True, it gets cold in Canada in the winter, but remember we’re talking about Iceland.
“And surely we can forgive them for Björk.” [Björk Guðmundsdóttir is an Icelandic singer-songwriter.]
Icelanders seem receptive as well. According to the Globe and Mail, “In a recent Gallup poll, seven out of 10 Icelanders said they would happily dump their volatile and fragile krona for another currency. Their favoured alternative is the Canadian dollar, easily outscoring the US dollar, the euro and the Norwegian krone.” There are no reports of the Icelandic government opening discussions, however.
There are several reasons for the Canadian dollar — usually viewed as the Greenback’s poor cousin — to be preferred over the euro. The loonie has a AAA sovereign debt rating and Canada has very little debt compared to every other Western nation. The Globe and Mail provides other reasons:
“It [the loonie] offers the tantalizing prospect of a stable, liquid currency that roughly tracks global commodity prices, nicely matching Iceland’s own economy, which is dependent on fish and aluminum exports, and in the future, energy.
There’s also a more sentimental reason. They’re both cold, Arctic countries. “The average person looks at it this way: Canada is a younger version of the US. Canada has more natural resources than the US, it’s less developed, has more land, lots of water,” explained Heidar Gudjonsson, an economist and chairman of the Research Centre for Social and Economic Studies, Iceland’s largest think tank. “And Canada thinks about the Arctic.”
Economic commentator ZeroHedge (Tyler Durden) ends his report on Iceland’s longing look at the loonie with a warning, “So be careful Canada: with great power, comes great a desire to distribute wealth. And we have all seen what happens next.”
Will currency imperialism go to Canada’s head? Fear not, ZeroHedge. I still remember the contest run by Canada’s national magazine Macleans years ago. It wanted to come up with a phrase that captured what was quintessentially Canadian, similar to the down-under phrase “As American as apple pie.” And, so, Macleans invited readers to fill in the blank: “As Canadian as _________.” The challenge was distinguishing Canada from its neighbor who was louder, flashier, (then) richer, sexier and, well, add “er” onto almost any adjective.
The winner? “As Canadian as possible under the circumstances.” Arrogance is not a problem.
for The Daily Reckoning
Wendy McElroy is a Research Fellow at The Independent Institute. Her books include the Independent Institute volumes, Liberty for Women: Freedom and Feminism in the 21st Century, and The Art of Being Free.
A contributor to numerous books, Ms. McElroy was Series Editor for Knowledge Products' audio-tape series, The World of Philosophy, The World's Political Hot Spots, The United States at War, and The United States Constitution, and she authored the scripts for Vindication of the Rights of Woman, The Liberator, Civil Disobedience, and Discourse on Voluntary Servitude in the Audio Classics Series. Her scripts have been narrated by George C. Scott, Harry Reasoner and Walter Cronkite. She is a contributing editor to the magazines, the Freeman, Free Inquiry, and Liberty, and the author of numerous articles in The Independent Review, Journal of Libertarian Studies, Literature of Liberty, National Review, Reason, SpinTech, Freedom Daily, Maire Claire, Penthouse, and Toronto Globe and Mail.
Why would they pick the Loonie over gold?
Why pick the loonie over gold? Gold doesn’t move – the loonie can fly. Toungue in cheek aside. Icelanders may want to do what some Greeks are doing – applying for canadian work visas. Got any skills?
Well to pick gold would perhaps mean that accounts would be settled with gold. Nixon said that was bad, at least when you are buying other countries products more than you are selling your own. As an aside, I am wondering why I have not seen more post from Wendy McElroy.
YES, count yourselves in! I want YOU ICELAND, to join CANADA now and change the direction of your country and kiss those European banker leeches adios muchachos!europe? who needs herr!! Listen, for the first 5 years you can have access to all our social services, that’s right EVERY single one, in both French and English, so you get double your value! And after 5 years, have a referendum just like Quebecers did, if you want to cut out of the deal, that’s OK…you see, it can be all YOUR way…this is not a limited time offer so relax and consider this offer at your leisure…see you here !
Wendy’s books: “Liberty for Women: Freedom and Feminism in the 21st Century, and Freedom, Feminism, and the State”
Wow! Wanna go get some beers and chew tobacco after work, Wendy?
Wonderful article, thanks, Wendy. I don’t buy the ‘unintended and unpredictable’ part. I think applying the law of human action and Hazlitt’s One Lesson it is possible to distinguish between possible, likely and actual consequences of economic choices or economic oppressions.
Therefore, I view the notion of ‘unintended’ consequences as a convenient political euphemism for ‘likely but de-emphasized for politically expedient reasons, consequences.’
But…I know what you mean. My view is the less common one.
-Jahfre Fire Eater
Being a loyal citizen of the USA, I am appalled that you dare to burst my bubble of complacency with pin pricks of unpleasant truth. We are soon to embark on another military adventure in Iran, led by our valiant Nobel Peace Prize winner, and in the process, we will garner more middle east “friends” and accolades from the rest of the civilized world. SO THERE!
“achieve the opposite of their intentions.”
Wendy is philosophical in theory. Boldly, stray from the concurrent rigid unpalatable scientific commandment.
This must come as a bit of a shock to the Euro cheerleaders.
First the Icelanders reject the bank bailouts and have the cheek to start throwing the bankers in jail. Now they are contemplating adopting the Loonie.
I am really starting to like Iceland!
Now if Greeks and the Irish could follow their lead the whole rotten system will collapse.
“Björk Guðmundsdóttir is an Icelandic singer-songwriter.”
That’s very generous of you.
Does anyone know what this means?
“Canada is a younger version of the US.”
“Canada has more natural resources than the US” —Maybe per capita, but not on an absolute scale.
“it’s less developed,” Is that a plus?
“has more land,” –what’s the going value of artic tundra?
lots of water,” –I guess that helps
explained Heidar Gudjonsson, an economist and chairman of the Research Centre for Social and Economic Studies, Iceland’s largest think tank. “And Canada thinks about the Arctic.”
I don’t see how this possibly helps Canada in anyway and if I were from Iceland I would just get my act together and get my own currency.
Or use the Norwegian kroner.
Vastness, resourceful, underdevelopment is insignificant. It depends on speed of capitalistic machinery. Once it crosses the threshold and opts for furtherance, a good landscaping job is ensued. Area surface dotted with countless moon craters, deep and shallow potholes, fish ponds here and there reduce the countryside in tatter. When wealth came streaming, even the environmentalist tacitly nods with impunity.
Iceland is a great test balloon…….I watch it closely to see what I feel was doing the right thing by their population. I, for one, would love to see gold backed currency vs. using any other fiat.
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