I can’t fault any American who wants to say the current state of the economy is a mess. But in truth, it could be a lot worse than it is. Although there are lots of trouble spots, the economy as a whole is moving along reasonably well, its capacity diminished only about 2 percent from its recent peak. The United States can solve its economic crisis just by solving each breakdown one at a time, and I hope that is what happens.
To see how much worse an economy can get, you only need to look halfway across the Atlantic at what is going on in Iceland. Imagine being in a country so close to bankrupt that it is hard for it to buy coffee from other countries. Imagine what it would be like to have to pay back a mortgage in a foreign currency that you no longer have access to. Imagine bank accounts frozen, 16 percent inflation, restaurants empty, workers fleeing the country. Sarah Lyall opens her New York Times story on Iceland this way:
The collapse came so fast it seemed unreal, impossible. One woman here compared it to being hit by a train. Another said she felt as if she were watching it through a window. Another said, “It feels like you’ve been put in a prison, and you don’t know what you did wrong.”
This country, as modern and sophisticated as it is geographically isolated, still seems to be in shock. But if the events of last month — the failure of Iceland’s banks; the plummeting of its currency; the first wave of layoffs; the loss of reputation abroad — felt like a bad dream, Iceland has now awakened to find that it is all coming true.
Iceland’s problems are larger than the United States’ because banking was such a large part of Iceland’s economy, and the banking industry had so distorted the value of Iceland’s currency. The United States faces the same difficulties, but in lesser degrees. So far, everyone seems to agree that Iceland will be fine in the end. Unless enormous mistakes are made, the United States will be as well.