One other thought: The fact the its so incredibly difficult to get rich in Denmark would seem to throw quite the monkeywrench into libertarian thinking on personal gain. If people shouldn’t work incredibly hard with negligible profit motives, then how can a system premised on high income taxes be remotely as successful as the Nordic tigers? I think some responsibility could be put on cultural cohession, the nordic work ethic, and that people living in these countries think about collective gains in a much more concrete way than say, Americans, might, but all of those would seem to throw water on free marketeer’s assumptions about what really drives people to pursue gain.

And we have a winner! Its more a matter of scale, I think.

Not to mention Iceland is pretty much a homogenous culture too, which I’m sure has an effect on people’s attitudes.

(A secondary effect of the NATO factor, incidentally, was that English became the de facto second language on the island — EVERYONE in Iceland speaks absolutely fluent English. This too has ripple effects on economic growth, etc.)

Just as it is invalid to compare continental European (or Japanese) economic performance in the mid- to late 20th Century to that of the U.S. without adjusting for who was paying for whose defense for 50 years, so too is it invalid to analyze Iceland without adjusting for its symbiotic relationship with the NATO generally and the U.S. specifically, even if it is now winding down in post-Cold-War world.

Presumably when cost of living is very high a welfare state looks much more appealing because the baseline of economic subsistence is such a large fraction of income. It may be that in terms of the ratio of per capita welfare spending to cost of living, Iceland isn’t nearly as welfarist as it seems. Worth checking the numbers, anyway.