Reply #23: There's a great article here re: Friedman and Iceland

[leftstreet]

Oct 20008

http://www.alternet.org/workplace/103525/iceland%27s_economic_meltdown_is_a_big_flashing_warning_sign/?comments=view&cID=1038826&pID=1038711#c1038826

Iceland's Economic Meltdown Is a Big Flashing Warning Sign

Iceland followed the prescriptions of a right-wing ideologue, and its economy paid a severe price.

Iceland -- better known for its geothermal hot springs, abundant fish, all-night raves and eclectic musicians such as Björk and Sigur Rós -- has now become renowned for something else: It is the first catastrophic, and perhaps most unlikely, casualty of the 2008 economic and financial meltdown.

Iceland is now essentially bankrupt after the government took over its three major banks to prevent them from failing. It owes more than $60 billion overseas, about six times the value of its annual economic output. As a professor at London School of Economics said, "No Western country in peacetime has crashed so quickly and so badly."

What on earth happened to get Iceland and its banking sector into such a state?

It turns out that Iceland, despite its coalition governments and Nordic social values, became a poster child for neoconservative economic policies inspired by Milton Friedman during the past decade. Friedman himself visited Iceland in 1984 and participated in what was described as a "lively television debate" with leading Socialists. This inspired a generation of young conservatives who came to power through the Independence Party in 1991 and have run its government through different coalitions since then.

Friedman may be dead now, but the economic and financial collapse of 2008 is becoming a real-life battleground of his theories against those of the other giant of 20th century economics, John Maynard Keynes, and their respective followers. Will financial market bailouts put the economy back on track, or are more extensive reform and a more active role for the government needed? Keynes' analysis was complicated and nuanced. The work for which he's best known, The General Theory of Employment, Interest, and Money, provided a theoretical basis for the economic reforms of the New Deal era -- investments in public works and deficit spending that helped countries recover from the Great Depression.