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Austerity vs Government Spending Debate

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A reader disagrees with my assertion that austerity measures implemented by the Tory (and Lib Dem) government are negatively impacting the British economy:

We don't have an ideological government, we have a coalition. Also Keynesian economics does not have a great track record - the Swedes have moved away from it, as have Iceland and other countries are following suit, all trying to stop living beyond their means.

Keynesian economics has an excellent record of pulling countries in severe economic downturns around - the United States recovered from the worst financial crisis in its history in 1929 by a massive injection of government cash into the economy, and it also prevented another one by doing the same 80 years later. Conservatives seem to forget that the entire banking industry was saved with government money. Does this not count as a Keynesian response?

The fact is, in countries like the UK and US, the wealthy have been been bailed out by the government, while the rest of the country is being subjected to austerity measures to make up for the huge deficits. There is certainly a time and a place for government cut backs, but the Tory strategy of ripping up the welfare state and putting thousands of people out of work is simply dangerous.

Iceland was plunged into a giant fiscal crisis precisely because it deregulated its economy and banking sector (an excellent documentary 'The Inside Job' was made about it and is definitely worth checking out), so to argue that Keynesian economics doesn't work seems a little far fetched. Iceland did not move away from 'living beyond its means' - it went from being a stable socialist democracy to being a neo liberal paradise set up to benefit the banks and the mega rich. It quickly turned in to a complete nightmare and had to be bailed out by the IMF - another classic Keynesian response.