Economic reality is a creation of the imagination and is to be ignored
How would Paul Krugman, Brad DeLong, et al (that is, “many economists”) explain Sweden? Likely by denying reality.
While the rest of Europe and the United States have gone on massive spending sprees fueled by government borrowing and tax hikes, Sweden took a different approach. In the Spring 2012 Economic and Budget Policy Guidelines, the Swedish Government and its Finance Minister, Anders Borg, have laid out a plan that is focused on lowering taxes. Their rationale? “When indviduals and families get to keep more their income, their independence and their opportunities to shape their own lives also increase.”
So why didn’t Sweden hop on the stimulus bandwagon like the U.S. and much of Europe?
Anders Borg explains, “Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus… Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.” We have now seen that attempts at austerity within the Eurozone have met a similar fate: none of it was serious. As spending increases have been squandered, spending cuts have been a charade, failing to target the big government programs at the core of the debt crisis.
Stuck with the debt. Of course stuck with the debt assumes that there won’t be the Krugman favored “debt relief,” AKA default, haircuts, or massive inflation.
The lesson from Keynesianland: always a borrower be. And for the lenders that are required for the borrowers to borrow? There’s a sucker born every minute. And that sucker has a printing press and/or the ability to “buy” government debt.
Despite slow projected growth for 2012, Sweden is expecting annual GDP growth of over 3 percent starting next year, projected out through 2016 by which time their unemployment is expected to slide down to just about 5 percent. During this time the Swedish gross debt is expected to drop from 37.7 percent/GDP to 22.5 percent/GDP as a result of government surpluses. For comparison, US gross debt to GDP is well over 100 percent and climbing. All this success must be on the backs of the working class right? Wrong. Wages are slated to rise in Sweden by nearly 4 percent annually through 2016.
The recovery-by-stimulus model has failed across the board, and as Mr. Borg has pointed out, we are still stuck with the damage it has done. With the refusal of the Obama administration, Congress, and their European counterparts to accept serious spending cuts, maybe it’s time to try something that’s actually working.
Something that’s actually working. Imagine the possibilities.