Iceland is demographically homogenous (over 90% Icelandic), and 64% of their population lives in one city. It is fairly easy for that kind of grouping of people to reach agreement on things because they have a lot of common interests, and a shared history and culture.

As you "scale up" in diversity, population, and geographic distribution the set of things people can agree on falls off dramatically.

I love how people like to explain things to me as though a wikipedia article presents something over actual knowledge and experience.

Iceland has a very divisive political system at the moment. The ruling government has been a coalition of the Progressive and Independence parties, roughly the european versions of the social conservative and pro-business factions of the Republican party respectively. Though it should be said that no one in Iceland really touches quite how regressive American social conservatives are. And, of course, being (sort-of) Scandinavian, there's a massively strong Social Democrat/Pirate/Left-green contingent in the Reykjavik area that can't stand the agenda of the main ruling parties.

Iceland doesn't function because they manage to get people to agree more than Americans do. There are something like 13 political parties in an average election, and they stand in bitter opposition to one another across a huge variety of issues. Iceland functions because they make their government function anyway. Nothing about being small makes it easier for two opposing parties to somehow figure out a way to get the damned bills paid. You could replace the entire American republic with Donald Trump and Barack Obama, and we'd get no more done than we do today, because the government isn't trying to solve problems. They're trying to preserve whatever problem is most plausibly the fault of the other party.