Economics writers for Market Watch speculate on whether Iceland’s “socialist” policies have fared better for its economy than capitalism has for America’s, and the comparative data seems to favour Iceland.
In an article for Market Watch, the state of both economies after the 2008 crash is compared.
By the time the bubble burst in the fall of 2008, Icelanders amassed debts amounting to 850% of their gross domestic product. By comparison, debt levels in the spendthrift U.S. had reached just 350%.
As Michael Lewis wrote in Vanity Fair, “Iceland became the only nation on earth that Americans could point to and say, ‘Well, at least we didn’t do that.’”
However, Iceland then drove the conservatives from power and replaced them with a leftist government comprised of social democrats and leftists with policies closer to those of socialists. At the same time, America put a Democrat in the White House. What effect did these decisions have on their respective economies?
Iceland’s general government deficit peaked at 13.5% of GDP in 2008; it is projected to fall to 2.7% in 2011 and attain a surplus of less than 1% in 2012.
By contrast, our deficit in the U.S. peaked at 11.3% of GDP in 2009 and is projected to remain relatively high — nearly 7% of GDP in 2012.
Iceland has also raised social-security tax rates, cut entitlement payments, and reduced wages of public employees — things we could never do (could we?)
Basically, Iceland’s budget bounced back remarkably from the Crash, arguably because it both raised taxes and cut spending.
Maybe Socialist Iceland can teach the socializing United States about the limits of government intervention in private markets. Not to mention Democracy.