It's an interesting and very complex topic, but this article is little more than nakedly partisan mud-flinging. The crash proves nothing, except that modern economics is beyond the ken of modern man.
Your sentiments are interestingly similar to what a lot of Marxists/Communists had to say (not too many left though) when that 'failed':
That is, point to the Soviet Union & say: 'That was never true communism. So it failed. If it was truly a Marxist regime, this never would have happened.'
As I said, I wouldn't personally take this as a 'proof' of anything. But what seems inevitable is that this is causing a swing (in public opinion) away from deregulation of financial markets. I think it's very likely that there'll be a wholesale swing against the suite of things associated with 'libertarianism.' That's a shame in a way. Whether or not financial regulatory policies are optimal or not, has very little to do with the moral theories of libertarianism for example.
Anyway, there seems to be a big shift in the sway these ideas hold.
I fail to see how it is analogous to the blind Marxists who deny that every Marxist society was really Marxist. Our economy is evidently mixed. Our government controls the money supply and has an explicitly activist macroeconomic policy. Our financial markets are the most regulated markets in any industry except medicine. The two largest mortgage entities in the United States were formerly government agencies. There are plausible reasons why libertarians can deny that the credit crisis is due to markets that were too free.
A facile comparison based solely on the structure and not the content of the arguments of the libertarians and the Marxists is not fair.
For one thing, the concept of 'communism' according to Marx is a stateless, classless society. Since communist states were 'states' & ruled by parties which were very similar to a ruling 'class,' I thnk we can call this grounds for appeal.
The problem is underlying. Any political theory that needs to be implemented completely, can't be judged based on its components. This means that unless you have a perfect specimen, you can't draw conclusions about its validity from reality.
To the communist in question, abolishing individual ownership, collective production, land reform, command economy, etc. might fail, but that doesn't disprove communism. It doesn't even disprove those strategies. They are only expected to succeed within a perfectly Marxist state. The fact that a state would have been better off not implementing any of those policies, is no deterrent.
To the libertarian in question, deregulated financial markets, corporate autonomy, free markets, etc. etc. might fail, but that doesn't disprove libertarianism. It doesn't even disprove those strategies. They are only expected to succeed within a perfectly libertarian system.
The question is: would the US/Iceland/UK have been better off under more regulated financial markets? If your answer is 'yes, but...if only they were even more regulated & trade was unrestricted &..,' then the analogy is about as strong as these sorts of analogies can get.
The big difference: the USSR was a "communist" country in that it was ruled by the Communist Party, its leaders went around proclaiming it was a communist country, and most outside communist-sympathising observers would have said at the time that it was communist.
The US has never been a libertarian country, in that the Libertarian party has never been in power, its leaders have never gone around proclaiming it to be a libertarian country, and foreign libertarian-sympathising observers (e.g. me) would never have said it was libertarian.
The question is: would the US/Iceland/UK have been better off under more regulated financial markets?
Actually I think the question is: would the US/Iceland/UK have been better off under differently regulated financial markets? And the answer is almost certainly yes, which leads to the question of precisely what kind of regulation is most sensible. Simply saying "we need more regulation" is a terrible idea, since many possible new regulations are likely to be useless or counterproductive.
Our economy is very mixed. Large portions of private money, semi-private money, and government money were sloshing about in the financial sector prior to the credit crisis. Blaming "libertarianism" or "government" for it is silly. Deeper analysis and more careful thought is needed in dissecting the lessons from recent events in the market. Causal links must be proposed and evaluated.
Also, I personally don't claim that libertarianism can only work in an unadulterated form. I think rather free markets work pretty damn well now, and that most of them would work better without tinkering from central planners. I don't think you could design an economic order without macroeconomic fluctuations, free or planned. I also don't think any regulator will be smart enough to design an optimal regulation scheme, or that one necessarily exists for a dynamic economy.
What is interesting is public opinion. That seems to have swung away from deregulation. It is (rightly or wrongly) being blamed for this. In many circles (more so outside The States, I think), non-intervention is tolerated because it works, supposedly. A lot of people have accepted that while it is unfair, unsavoury, & generally unpleasant, but it works. Now it doesn't always work.
As far as the rest of the world goes, European economic courses focus on the evils of the market and Marxist models of class struggle, so they're pretty much a lost cause too.
I don't think that's fair. I think the public's opinion is being reflected from the sentiment in the public debate around the world. Politicians, central bankers, academics, big name investors, etc. The specifics of interventions (proposed laws for bailouts) have been supported by public figures usually on the libertarian side of the policy (eg Rupert Murdoch). It's true, they've still stuck to their respective positions: John McCain is still more of a libertarian then Obama, Hugo Chavez hasn't moved much, etc. Die hards are still dies hards. But, the whole debate has shifted left.
This is very likely to bring with it other changes. I complain about people looking at the political spectrum simplistically just like anyone else. Left on A shouldn't mean left on B. But in reality, these things seem to be associated.
You can construct lots of internally consistent ideologies that would be perfectly stable in a vacuum. The difficult part is making one that can survive when put into competition with other ideologies and still be benevolent. Any survival of the fittest type selection will tend to favor nasty traits such as xenophobia.
This knee jerk hysteria is exactly the same as the reaction to 9/11... A major shock to the system freaks people out because the work isn't conforming to (comfort-oriented) expectations and so they instantly look to someone who looks good who promises them a return to mindlessness.
The abrogation of responsibility by the many for their own lives and the arrogation of authority/magical-ability/etc. by the few (and the selling of that to increase power/profit at the expense of everyone else) is exactly the underlying mechanism that created the emergent, systemic failures.
An example people might want to look at is the examples in traffic management whereby busy, dangerous intersections have been redone so that there's less separation and therefore more required of all of the participants to pay attention.
I particularly like that example but there are plenty of other good examples from the driving and traffic world if you look around.
Sigh.
Do you not see how this leads directly to an argument against libertarianism?
Many individuals (and firms) made decisions that turned out not to be rational and did not suit their interests. In turn, this led to a collapse that has negatively impacted even those who did not make poor decisions. Arguably, this collapse could have been much worse without decidedly non-libertarian intervention.
In short, human beings, in aggregate, are not good enough decision makers for strong libertarianism to be a viable way to structure our affairs.
The abrogation of responsibility by the many for their own lives and
the arrogation of authority/magical-ability/etc. by the few[...]
That's a collective abrogation of responsibility by the public at large, not one by individuals within it.
The constituent members of the public do not have (or feel they have) the responsibility or power to effect any sort of macroscopic change to the economy.
Doesn't anyone else find it odd that the "educational" system in the US doesn't actually teach anything about how the political system really works? I.e., it's all the pablum puking pap of the simplistic notion of checks and balances and what not but doesn't actually get into how it's been gerrymandered over the centuries, how people manipulate the (non-) voters in so very many ways, and especially not how to approach, think, and act to responsibly and effectively participate? Sigh.
In that sense, it's not surprising that the public nominates someone to have that power and responsibility.
The public and the article.
I don't think we will make much progress in the field until we make and analyse many actual experiments. Even then I doubt that economics can be usefully understood. It is simply too complex.
I think the best chance of real progress (i.e. something other than rhetoric) is in simulation, or even better, massively multiplayer games. Eve Online is an interesting step in this direction.
I don't think the pendulum can swing any further that way without going over the top. People are probably much more cynical about government now than in most of modern American history. I don't think people will swing towards more statism and there's a good chance they'll swing towards libertarianism, even if only out of disgust with the current ruling elites rather than a philosophical libertarianism.
Two things that I think are critical: * true transparency (e.g., look at the CDS fiasco ("look, it's insurance but it's not!" and the complete lack of reporting) * rate limiters (e.g., look at how much the recent volatility is due to the frantic rushing around, the reaction to all of that franticness, etc. For the physics enthusiasts in the crowd think of the propagation of supernovae through a given volume of a galaxy)
More importantly, it is possible that most people are wrong on some particular question about a market. If so, a sudden discovery of the truth by the mainstream might lead to a desertion of this market.
Self-fulfilling rumours which trigger bank runs can be a distributed phenomena