Sweden turns to Reagan’s economic reforms and it’s working

UPDATE – Sweden to lower corporate tax rate to attract new business and investment – LINK

Investors Business Daily: 

Economics: The president (Obama) has been accused of seeking to turn the U.S. into an Americanized Western European welfare state. If he insists on imitating one particular model, we suggest he follow the Swedish paradigm.

Sweden has a reputation as the prototypical cradle-to-grave socialist European nation, and the political left has long yearned for America to be more like the Scandinavian nation.

But it’s looking through a smudged window. With little notice, Sweden has changed.

The turnaround has been driven in no small part by the election of Fredrik Reinfeldt as prime minister in 2006. He took office in October of that year and by January of 2007, tax-cutting had begun. The Reinfeldt government also cut welfare spending — a form of austerity — and began to deregulate the economy.

That doesn’t sound like the Sweden that American Democrats hold up as the standard.

But as Finance Minister Anders Borg told the Spectator, the Reinfeldt government was simply continuing the last 20 years of reform.

Far from hurting Sweden’s economy, the changes have improved it. And they’ll likely help to protect it from the 0.3% economic decline now forecast for the euro zone in 2012.

Sweden fell into recession in 2008 and 2009, as did many developed nations. But it’s pulled strongly out of the decline, posting GDP gains of 6.1% in 2010 and 3.9% last year, when it ranked at the top in Europe’s list of fastest-growing economies.

U.S. growth over those same two years under Barack Obama’s Keynesian stewardship? It was less than half of Sweden’s — 3% in 2010 and an anemic 1.7% in 2011.

While the U.S. continues to struggle with its jobs problem — unemployment is at 8.1% here — Sweden’s jobless rate has fallen to 7.5%.

Not perfect, but 7.5% is far below the euro zone average of 10.2% and significantly lower than the rates in Spain (21.7%), Portugal (12.9%) and the United Kingdom (8%), countries that Borg noted were “were arguing for large temporary stimulus.”

Under Borg, Sweden handled the downturn in the most un-European way. “While most countries in Europe borrowed massively, Borg did not. Since becoming Sweden’s finance minister, his mission has been to pare back government. His ‘stimulus’ was a permanent tax cut,” Fraser Nelson wrote last month in the Spectator.

Borg strongly opposed the Keynesian solution, which the left continues to advance while it inveighs against an austerity that has yet to be implemented.

He also refused to resort to the trickery of a stimulus, instead cutting the taxes that he knew were hindering entrepreneurs from giving the economy the kick it needed.

The country needed innovators and capitalists — “the source of job creation,” says Borg — and he did what he had to, to attract new ones and to keep those already there from leaving.

During Sweden’s decline into a welfare state, it became, as Borg told the Spectator, “a textbook case of European economic sclerosis” punished by “very high taxes and huge regulatory burden.”

That lasted until the 1990s, when the nation realized it had to return to the market policies that had made it rich prior to the onset of its cradle-to-grave coddling.

How much further can Borg and Reinfeldt take their reforms? Will voters ask them to come back and complete the job?

After all, it’s not over. Though it continues to fall, Sweden’s government debt as a share of GDP is still too high at 38.4%. And while it’s dipped below 45% for the first time in decades, the country’s tax-to-GDP ratio is still far too steep.

Despite this unfinished business, Sweden is still moving in the right direction.

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About Chuck Norton

I write about politics, education, economics, morality and philosophy.
This entry was posted in 2012 Primary, Budget, Econ, Europe, Sweden, Taxes, True Talking Points and tagged , , , , . Bookmark the permalink.

1 Response to Sweden turns to Reagan’s economic reforms and it’s working

  1. rhemevans says:

    This is a wonderful point. This fantastical image of successful Scandinavian social states is certainly taking a hit. While Sweden is moving in the correct direction, I think it’s worth mentioning the issues involved with comparing a variety of Scandinavian social barometers to those in the U.S.

    I frequently hear rumblings of the United States’ failed educational system, and Norway always finds her way into the conversation as a model example of success. The issue I have with that argument is the criteria – most notably the Norwegian literacy rate.

    It’s an apples and oranges situation. Norway doesn’t find herself dealing with class rooms of children who speak Norwegian as a third language, and if she did, I can promise you the testing curve would be significant.

    Well done.

    Political Arena Editor Chuck Norton comments:

    Thanks for stopping by!

    How interesting that you bring this up. Norway is also doing some similar reforms as Sweden and it is paying off. In Sweden 90% of the people speak English. The Swedish language literacy was actually starting to shrink, so the government recently made Swedish the national language and is reinforcing Swedish with English and Finnish as second language.

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