The financial maelstrom afflicting much of Europe and the USA is a phenomenon without precedent. It hasn’t happened before. Not as pervasively, nor for as long. Shoots of growth appear, then wither. Some economies are “up”; others are on the brink of calamity.

The Oracle at Delphi pronounced Socrates to be the wisest of men since he alone knew that he did not know. Other sophists (today’s “experts”) were as ignorant as the rest, but they thought they knew.

Confusion has its blessings

There is no lack of expertise on how we got into this mess, nor on how to get out of it. Yet opinions conflict, and experts’ own views are at odds with what they said last year.

Confusion has its blessings. It allows for “blue sky” thinking and actions that break a mould whose only claim to sense is that it has been accepted for so long. Like a thousand year-old darkness that disappears when someone finds the light-switch.

Reality at last

Take Cuba, the world’s last bastion of communism. It has been dominated by the crazed ideology of the Castro brothers for over 50 years, enforced by geriatrics still wobbling about in their eighties. Free health and education worked while Russia paid for it, but Russia has emigrated to a different ideology, leaving Cuba to its own failing resources. Now, suddenly, business ownership, enterprise and private effort are encouraged. Someone found the light-switch and it will never be the same again.

Then Sweden. For over 50 years it was the model of how heavy taxes and huge state spending can bestow high living standards in a buoyant economy. Until it faltered. Unemployment soared, business champions like Volvo were taken over, the government and all its state policies were swept out. They now have Anders Borg, earring and ponytail flagrante, and his “outside-the-box” solution – lower taxes. Result? Budget surpluses for two years running, repayments of the national debt and growing employment. He found the light-switch.

Every period throws up its dominant phrase. Thirty years ago it was “compliance”, and an industry was born. Fifteen years ago it was “governance” and another industry was born. Five years ago everyone was talking about “sustainability” and we were astonished at its breadth of application – industrial growth, fuel, wind power, energy, carbon, agriculture, crops – natural resources in every form.

Yet when it comes to the economics of sustainable finance, we see the real answer to the Queen’s famous question (“if this thing is so big why did no-one see it coming?”): everyone – regulators, rating agencies, auditors, bankers – was looking the other way. While ridiculing the “butter mountain” of the EU’s Common Agricultural Policy, politicians were engulfed by another mountain: unsustainable debt.

Who needs bailouts?

The crisis, contrary to accepted wisdom, is not “global”. There are no collapsed banks in Canada, Australia, Sweden, South Africa or Israel. Regulatory systems in those countries are strict and effective, and their governments are not in thrall to the “markets”.

What are these markets anyway? Well, if government expenditure exceeds tax revenues the deficit has to be met by printing fake money or borrowing – inflation by any other name. The Treasury issues bonds carrying interest charges determined by the investment banks dominating the markets. If they anticipate default the interest rate is raised and default becomes self-fulfilling. If that country is a member of the eurozone devaluation is simply barred.

There is an alternative to bailout. Icelandic voters decided to “share the pain” by telling the country’s creditors simply to get lost. That’s it? That’s it! The country equivalent of corporate bankruptcy. It’s over, and a robust recovery will now begin.

It was the voters, note, not the politicians. A lesson for Ireland? And Greece? And Portugal? Since no one actually believes bailout debts will ever be repaid, the Icelandic solution seems shorter, sharper and, somehow, more honest!