learning to fly

Last month I wrote about the young sport of paragliding and its avid per-capita following here in the Land. Today I am pleased to bring you my first-ever helmet-cam video, shot yesterday. It was a glorious evening with a gentle sea breeze and birds thermaling out over the nearby plain. After I landed and was packing up my glider, I had the recurring thought that even just 3 minutes in the air rolls back a year of aging. It certainly makes me feel like a kid again, and maybe not in quite the same way as middle-aged women from rural Pennsylvania mean when they talk about why they make annual visits to Disney World.

The thing about this sport that makes it a challenge for an aspiring writer to describe is that we humans don't really possess a vocabulary for the feelings and sensations of flying. We're not flying animals. To paraphrase IR regular Biskupinn, it's a bit like asking someone how it feels to breathe underwater with their gills, to see in the dark, or to move their eight legs.

We think and act in two dimensions, living out our existence on a Cartesian plane. To be able to lift off of that plane and then land back on it, to turn around and look back to the top of the mountain that I climbed up with my feet but then came down some other way, is for me a profound experience.

top ten

Top 10 ways Icelandic elections are different than American elections.

10. Elections happen on a Saturday, not a Tuesday. (So people can, you know, show up.)
9. Three poll workers for every 8 streets, not every 80.
8. Photo ID required.
7. No gun-toting cops at the polling place door.
6. Ballots basically just a heavy piece of paper folded in half. No envelopes.
5. Vote by marking an X in a box with a pencil. No hanging chads, no Diebold TABS.
4. Every voter automatically "registered" to vote, by virtue of being a citizen.
3. Choose the party, not the person. Cross out the people you don't want.
2. Polls open until 10 at night.
1. Turnout is steady; basically everyone votes.

choosing europe

Tomorrow is the election day for Alþingi, Icelandic Parliament. And it will be my first time voting here in the Land.

I find the election system here sort of odd. There are only 6 districts (kjördæmi) serving the whole country (and Reykjavík city gets two of these by virtue of its dominating population). In each of these large election districts, voters choose their favorite political party (not person) and then the parties each take a pro rata share of the parliamentary seats they won in that district. Each district controls between 9 and 12 seats, for a total of 63 seated representatives in Alþingi.

Before the election, each party has set up a ranked list (via primary elections) of its candidates, and then fills the seats it won in that order. Having voted all my life up to this point in the U.S., I find the prospect of choosing a party rather than a person a bit unsettling: in Iceland I can't point directly to the parliamentarian who represents me.

But, to paraphrase Donald Rumsfeld, "As you know, ah, you go to elections with the political system you have, not the system you might want or wish to have at a later time." So I had to figure out which party gets my vote. There were none that really appealed to me, only one that definitely does not appeal to me. I for sure would not be giving my vote to Sjálfstæðisflokkurinn, the party that through 18 years of governing only to maintain their own power finally brought this country to its knees last autumn. The other three parties in contention, having been out of the governing spotlight for so long, suffer from either disorganization, fringe thinking, or lack of support.

In the economic crisis that began to unfold here in early 2006 (and hit the all-out-panic stage last October), the one thing that became clear to me was just how few friends Iceland truly has. The Land is too small of an economy, and too remote, to be more than an afterthought in international politics. Iceland occupies a sort of no-man's-land between Europe and America. It is a strategically important location against Russia, but not much else. As the influence of the U.S. in Iceland has waned (culminating with the closure of the Keflavík Naval Air Station a few years back), Iceland has increasingly looked to Europe. As part of the European Economic Area, which Iceland joined in 1994, Iceland enjoys the same free movement of goods, people, services, and capital as the other European Union states. It also imports and enacts a significant percentage of E.U. legislation (it must enact all social policy, consumer protection, environmental, and corporate legislation by the terms of the EFTA agreement) and by some accounts this is as much as 75% of all E.U. legislation. But Iceland does not belong to the E.U. and so remains a wallflower at the European prom, with no overt acknowledgment of its status by the big European powers, and no say in the legislation that it has signed on to enact without question. Iceland is a bit of a Puerto Rico: all of the rules but none of the say.

Iceland is a misfit in another way: with the highest literacy in the world and a tradition of democracy stretching back to before 1000 A.D., it has a claim on being one of the most advanced Western states. But on the other side of the coin, the small economy has only really opened up to the world in the last 10 years, and it is an economy with many features (such as inflation indexation, or verðtrygging) that are decidely third-world. The Land thus has a bit of a distance to travel to get its economic framework up to snuff with its advanced society.

With the economy here now in shambles - rising unemployment, rising personal and company bankruptcy, and a currency that is practically worthless on world markets - and with the significant hit in reputation that Iceland has suffered as a result of its government's botched handling of the banking crisis last autumn, there is really only one way to regain the confidence that is needed to rebuild. Only by reaching out to the European Union can Iceland show that it is serious about rejoining the world community, and remind the other nations of Europe that it has been along for the ride with them (albeit sitting back in the shadows) since 1994.

Unfortunately much of party politics these days in Iceland seem mired in minutiae. The immediate start of the E.U. application process is only on the platform of one of the parties. That party is center-left Samfylkingin. In my view, Iceland needs to get the E.U. ball rolling now before a further serious leg down in the economy.

It is imperative that we start this process now, as a show of good faith. The decision to actually join the E.U. will come later in a national referendum, when we have more facts on just what membership will entail for us. But to end the comparisons with Zimbabwe and terrorists, to re-join the list of Western nations where we belong, to show that we are serious about modernizing our economy: now is the time to extend a hand to the E.U.

my easter egg

One thing that Iceland does well this time of year is create giant Easter eggs out of milk chocolate. They come in a series of numbered sizes, the biggest being well over a foot tall. Inside the chocolate shell is an assortment of bags of candy: gummy bears, licorice balls, things in little plastic bags. On the back of the egg is a little resealable trap door by which the inner candy sanctum can be accessed.

Something that has bothered me since I moved here in 2004, though, is that although grownups routinely purchase/demolish these eggs for themselves, the eggs themselves are very kid-focused. Milk chocolate, for one. Gummy bears, for another. I longed for an adults-only version, packed with adult chocolates and with an outer shell crafted from that dark smoky Icelandic chocolate that all the New Yorkers are raving about. Then, on a frozen night in the depths of blackness that can only be found in an Icelandic December, came the chance of a lifetime. I found myself at a dinner downtown, seated next to none other than Iceland's own Willy Wonka, the production manager of Nói Síríus chocolates.

So I turned to this Villi Vonkarson [not his real name] and said, "Hey what's the deal? How come no adult Easter eggs? You know, dark chocolate?"

"Hmmmm, I hadn't thought of that," he said. "Excuse me just a moment, I need to use the restroom." And he stepped around the corner and I could hear him mumbling excitedly into his chocolate cell phone: hushed whispers that ended with, "Just get it done!"

He came back and seated himself, saying not a word more as he munched away on what had been his keypad. And I forgot about the whole thing, myself. But then, in the supermarkets last month, what to my wondering eyes should appear, but... the dark chocolate "not for kids" Nói Síríus Easter egg! In a very respectable #4 size, too.

So we cracked it open just now and my man Villi did not disappoint. The shell is solid dark chocolate, a quarter inch thick. And inside are nothing but the finest confections, wrapped in shiny papers. And some dark chocolate caramel-bombs along for the ride. It's a thing of chocolatey beauty that no kid would want to go near. It's stupendous.

Gleðilega páska!

isk, usd, and ppp

There has been a lot of talk around Iceland on what would constitute a "fair" value for the króna on foreign exchange markets. Many here are convinced that the ISK, currently trading at around 120 to the dollar, is far too weak. They understandably yearn for the days of 60 ISK to the dollar (and the fully loaded Icelandair 757s back from the Mall of America that followed), and since last fall, elected officials from former Prime Minister Geir H. Haarde on to those in the current government, publicly support the idea that the ISK can "recover" its value soon. The editorial desk here at the IR remains skeptical.

The economic theory of purchasing-power parity (PPP) states that, in the much-maligned "long run", currencies should buy the same amount of goods and services in each country. The theory says that a dollar or a Euro or 100 ISK should buy the same amount of "stuff" whether those monies are spent in Reykjavík, Paris, or New York. There are of course some assumptions here: sales/VAT taxes and transport costs being the same everywhere are among them.

The most cited example of this absolute version of the theory of purchasing-power parity is The Economist's Big Mac index. The magazine periodically looks at the price of a Big Mac burger in all sorts of locations around the world and uses those prices to say whether the local currency is over- or undervalued against the dollar. So what does it say about Iceland? In the most recent version of that index that included the ISK, from July 2008, the ISK (then trading at 79) was a "whopping" 67% overvalued against the dollar. The "correct" price for the ISK was 131 to the dollar, at least according to the benchmark price of a Big Mac in one of Reykjavík's shady McDonalds stores. As it has many times since its inception, this Big Mac Index correctly predicted the future movement of a currency, in this case predicting the massive devaluation for the ISK that began within a month of the article's publication.

Another way to look at this idea of PPP is relative purchasing-power parity. This theory says that the movement of the exchange rate for a pair of currencies can be predicted by the inflation differential of those currencies over time. (So if Japan has zero inflation, and the U.S. 5% inflation over some period, the dollar should lose 5% of its value relative to the yen over that period.)

To look at relative PPP here, I ran the numbers for the ISK versus the dollar since the beginning of the decade, when there were around 72 ISK per dollar according to Landsbanki. I used the U.S. Consumer Price Index and the Icelandic Vísitala neysluverðs (the local CPI) to glean the inflation numbers. Since the beginning of 2000, the U.S. dollar has lost almost 26% of its value (meaning if a coffee cost a buck in 2000, today it would cost $1.26) and over the same period the poor, sad Icelandic króna has lost around 72% of its value (if a singed svið cost 100 króna in 2000... I'm sure you get the point). Running all of this through the relative PPP formula, the fair value of the ISK today, relative to what it was at the start of the decade, is 98 krónur to the dollar.

These two measures make admittedly pretty wide predictions for the fair value of the currency today, and the choice of the beginning of the decade for my analysis is somewhat arbitrary: if I had chosen a different starting point I could have come up with a very different number. But I think the take-home should be fairly clear: with a high-inflation currency such as our beloved króna, ever-increasing exchange rates relative to more stable currencies is the norm. And despite what the politicians (or your own desire for a golf trip to Scotland) might tell you, where the ISK is today might be just about right.

Sources: The Economist, Landsbanki Íslands, Hagstofa Íslands, U.S. Bureau of Labor Statistics

all the world's an iceland

Longtime IR reader Fellas sends in this interview with Marc Faber (PDF), international investment guru. We both liked Dr. Faber's quote regarding the Land:

I'm sorry to say I think the whole world is an Iceland. I think we have countries like Britain and Ireland and Switzerland that have problems similar to Iceland, though they're not as bad as Iceland.

So, foreign reporters, be careful when you write stories that look down on Iceland. The tsunami may have hit here first, but could be headed your way next.

While I am on the topic, I am quite tired of British/European politicians blaming the worldwide credit crisis on subprime mortgages, as if that had been the only bubble in town. "This crisis started in America," they say. Sure, but if it hadn't started there, it would have started somewhere else a few months later. Overzealous real estate developments in the former Eastern Bloc? Structured products in Germany? Irish construction boom?

blönduós blues

The northern Icelandic town of Blönduós, or "Blended Delta", is one of the most fascinating places in all of the Land. Just like its counterpart in the southern U.S., this delta is the cradle of Icelandic blues.

My buddies and I stopped there on the way north to Akureyri last weekend. Though it was only 9 o'clock on a Friday morning when our salt-spattered SUV pulled into the lot of the local N1 gas station, the place was already beginning to buzz. Inside, around a table to one side of the road-stop restaurant sat a circle of farmers, talking and drinking coffee from plastic cups. I went into the restroom and when I emerged, one of the farmers was beginning to unpack a guitar from a battered black case at his feet.

He started to tune up and pluck the strings with little twangs. I tried to look nonchalant, ordering up a couple of kleinur and a coffee at the counter. My friend nudged me and whispered, "That's Leadbelly Guðjónsson!"

Just then the man began to sing. It was gravelly and sweet, and the conversations around him died off one by one. He sang and then spoke in a funny dialect about the trials and tribulations of the northern farmer. And as he did this, the blúsfélag came alive around him. One by one, his sheep-farmer compatriots took out their own instruments from kuldagalli pockets or paper bags. One had a mouth harp, another a "fish scraper" made from an actual herring. And before our very eyes a magical music came to life.

We stayed for two or three songs, but quietly hanging back and not applauding. These blues farmers were in a little world of their own, and we felt privileged to have a glimpse into it. After we were back on the road, my friend told me that not only had I seen Iceland's Leadbelly, but also "Reverend" Ragnar, "Gus" Gustafsson, and Sheep-Bone Vilhjálmsson.

So next time you're on the road to Akureyri, stop in at the little N1 restaurant in Blönduós. You just might be as lucky as we were that day.