Iceland: consigned to economic history

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The FT has reported:

Iceland's prime minister and central bankers were holding emergency talks with pension funds and banks on Sunday as the country looked overseas for funding to shore up its crisis-ridden financial system.

It was last August that the tax-cheats lobby called the Center for Freedom and Prosperity issued a press release about the virtues of Iceland's low-tax, flat-tax economic model. The authors gushed:

The reforms in Iceland have yielded big dividends. Iceland is a rich and successful nation. Lower tax rates and supply-side policies have boosted growth, increased efficiency, and made the country more competitive. The three biggest reforms are the low corporate tax rate, the low-rate flat tax on capital income, and the intermediate-rate flat tax on labor income. The authors find considerable evidence that the first two reforms have been very successful. Indeed, they also find it is quite likely that the lower rates have generated significant Laffer Curve effects - meaning the government collects more revenue at a lower tax rate.

Three things are now very clear: first, you can't build an economy on the basis of supply side economics. Second, lax regulation kills an economy. Third, those who promoted these ideas are part of economic history.

It's a pity they will; have imposed so much pain on the world (and the people of Iceland will regret the day they were abused on this way for a long time to come) but I think it's safe to say that the sort of madness we've seen in Iceland, matched to some degree by the madness we've seen in Ireland will not happen again for a long time.