common wisdom said that very bad things would happen to them if they did not listen to the "smart" people
That's not true. The "smart people" understand Keynesian economics and said that pretty much any policy was better then austerity.
Unfortunately, there seem to be social pressures that seem to encourage the very thing that will make things worse during a recession. How many times have you heard things like "everyone is suffering and the government must share that pain and tighten its belt too"? In fact, the "smart people" are screaming to do the opposite!
IIRC the common wisdom at the time, was to put all of the private risk onto the public which is what was proposed, Iceland said no, you got yourselves into this mess and you are not going to spread that risk to the public. Austerity was the proposed solution, in other countries, only after the governments became saddled with the consequences of private risk taking, conveniently after the private risk takers where clear of the consequences of their speculation.
That's not true. The "smart people" understand Keynesian economics and said that pretty much any policy was better then austerity.
Unfortunately, there seem to be social pressures that seem to encourage the very thing that will make things worse during a recession. How many times have you heard things like "everyone is suffering and the government must share that pain and tighten its belt too"? In fact, the "smart people" are screaming to do the opposite!