A nice piece. By the way, here are some comparative unemployment numbers (experimenting with the OECD graphics; maybe not again):
I put in Estonia because it’s suddenly fashionable; for some reason the OECD didn’t have Latvia. Anyway, I think the interesting contrast is between Ireland and Iceland; remember, Ireland was supposed to be a role model.
I guess I should say some more about the relevance of the Icelandic sort-of miracle. For the most part, Iceland’s lesson is relevant to countries that experienced big capital inflows followed by a sudden stop — that is, the European periphery, not the US or the UK. What it demonstrated was the usefulness of devaluation (and therefore of having your own currency), and the case for temporary capital controls in an emergency. Also the case for letting creditors of private banks gone wild eat the losses.
Iceland did not engage in fiscal stimulus; it didn’t have to, given the kick from a huge depreciation of the currency. It did, however, have a quite effective program of mortgage debt relief that is a role model for countries like the United States.
And more broadly, Iceland is a dramatic demonstration of the wrongness of conventional wisdom in these times. Ireland did everything it was supposed to; nobody would describe it as “healing”. Iceland broke all the rules, and things are not too bad.