Sweden's Supply Side Success

Carpe Diem May 9, 2012

Professor Mark J. Perry's Blog for Economics and Finance

From the U.K. Spectator's report on the amazing success of supply-side economics in Sweden, and finance minister Anders Borg, the man behind it: "When Europe's finance ministers meet for a group photo, it's easy to spot the rebel "” Anders Borg (pictured above) has a ponytail and earring. What actually marks him out, though, is how he responded to the crash. 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. To critics, this was fiscal lunacy. Borg, on the other hand, thought lunacy meant repeating the economics of the 1970s and expecting a different result. Three years on, it's pretty clear who was right. "Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus," he says. "Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt." Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit. The recovery started just in time for the 2010 Swedish election, in which the Conservatives were re-elected for the first time in history. All this has taken Borg from curiosity to celebrity. The Financial Times recently declared him the most effective finance minister in Europe. "Everybody was told 'stimulus, stimulus, stimulus'," he says "” referring to the EU, IMF and the alphabet soup of agencies urging a global, debt-fueled spending splurge. Borg, an economist, couldn't work out how this would help. "It was surprising that Europe, given what we experienced in the 1970s and 80s with structural unemployment, believed that short-term Keynesianism could solve the problem." Non-economists, he says, "might have a tendency to fall for those kinds of messages." He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs. If cutting taxes for the rich encouraged risk-taking, then it had to be done. "In most cases, the company would not have been created without the owner," he says. "There would be no Ikea without [Ingvar] Kamprad. We would not have Tetra-Pak without [Ruben] Rausing. They are probably the foremost entrepreneurs we have had in the last few decades, and both moved out of Sweden." But they were not rich, I say, when they were starting out. "No, but they were becoming rich. If you have a high wealth tax and an inheritance tax, people emigrate because it becomes too costly to own a company. Ownership is a production factor. Entrepreneurs are a production factor. Yes, these people are rich and you can obviously argue that we want to encourage social cohesion. But it is also problematic if you drive out entrepreneurs from your country, because they are the source of job creation." Update: The chart below displays constant dollar GDP growth rates for Sweden vs. the U.S. from 2002 to 2011, and shows that Sweden's economy has outperformed the U.S. economy over the last ten years by 0.8% per year on average (OECD data here). Over the last two years (2010 and 2011), Sweden's real GDP growth has averaged 5%, or more than twice the U.S. average of 2.35%, and provides evidence that Sweden's supply-side approach to the 2007-2009 recession has been more successful than the demand-side Keynesian approach in the U.S.

Only in Sweden could they get a away with a (male) cabinet minister with a ponytail. :-/

I thought I was looking at Penn Jillette for a moment.This guy's great.Paul Krugman will not be pleased.Which makes Swedish Penn even better.

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I thought I was looking at Penn Jillette for a moment.Hahaha so did I!

"Scandinavian socialism" remains the absolute ideal for every bright-eyed OWS-er and college student in the US today. Reality, however, never was so rosy.

Let's see, rich people need more money to motivate them, and poor people on welfare are getting dismotivated because they get too much money, is that how it works?

Yeah, Hydra. people on welfare can reach their desired level of consumption without scraping their asses off the couch, then they're probably not going to, you know, become motivated to volunteer to go to work.If a producer works his ass off and the harder he works, the more risk he takes the less of it he gets to keep, he's probably going to be unmotivated to keep working, investing, innovating. What do you find so confusing about that, Hydra?

Hydra's comment is very interesting to see actually written out. It's odd to me that, through his sarcasm, he's saying that all people are motivated equally by identical stimuli...I'm guessing at some point in the last few years he's probably made statements urging others (that he considers to be ill-informed) to respect one's unique individuality.I've always wanted to know how big a group needs to be before the Hydras, Jons and Larrys start to think we should coddle the lazy. In other words; on an island after a shipwreck with 10 able-bodied people, and one does nothing (or very little) to help, even they would be unlikely to treat the motivationally-challenged person equally with those that work hard....right? Even they would know that couldn't last long before mutiny. Why does an increasing number of people change this attitude?

Government spending in Sweden rolls along at 50%+ of GDP. A rock star of supply side anti-keynesian Borg ain't.So spending declined by 2.1% of GDP from 2009 to 2011. Sheesh that seems like automatic stabilizers righting themselves.How many other OECD nations saw government spending decline as a percent of GDP since the abyss in 2009? Cyprus and Slovenia don't count.

I think you got me in the wrong group there Mike.I do not believe in coddling anyone and believe that hard work is what gets rewards and success.but I do believe in govt and I recognize that when you live under a govt that is elected by a majority - that you get things you do not like or agree with.the fact that many of the things that you rail about here are common across virtually all govts on earth does make me wonder who is not dealing with the realities at times.Some who inhabit these pages seem to be obsessed with what they see as bad, wrong govt as if the govt was some monolithic force for evil rather than the folks all around them that outvote them at elections.Mr. Paul got 10% of the Conservative vote.that pretty much sums up the strength of the libertarian voting bloc.In a representative govt - that's the extent of your influence.if you want to win - you have to convince more people AND you have make some serious compromises.you're simply not going to get rid of the entitlements... ain't going to happen and I'll agree with you up front that we have too many slackers sucking on welfare.and unemployment benefits..and yes Medicare and MedicAid.

here's something that should warm the cockles of your libertarian hearts...:-)The Greek Solution - No Govt

Sweden, more importantly, is also practicing nominal GDP targeting though its central bank. Sweden is a winner.

Nice link, Marmico. I passed it on to Russ Roberts at Cafe Hayek.I do notice gov't spending as a percentage of GDP is declining over the years in Sweden, though. Out of curiosity, how much would Swedish Penn have to cut to attain "Rock Star" status? Are there any other levels on the way to full "Rock Star"? Maybe he's working his way up.

Larry,I actually considered deleting the post and re-writing it without your name in it after I slapped it up here. You and I don't agree on too much, but I shouldn't have put your name in there. You don't strike me a crazed welfare-hugger and I apologize for insinuating as much.However, I'm not sure why I can't disapprove of something without being thought of as unrealistic. To paraphrase Thatcher, we're about to run out of other people's money...so people had better start behaving 'unrealistically'.

Mike - thanks. I just think we can talk about these things and possibly learn and understand each others positions better without getting into name calling and worse.I think you CAN DISAPPROVE and I would actually AGREE with you on a lot of it but I also look downstream as to how some of this might be resolved and that's when I look at some of what is being proposed and think.. "there ain't no way this is going to happen"..I tend to be a realist in terms of what actually plays out verses what folks believe or have an ideology about.but I do appreciate your sentiments and enjoy discussing issues with you...

Larry,We all believe we can foresee and judge based on beliefs of predicted behavior. I think what we all need to understand is that experiences in different communities within the same country (of this size) can be vastly different and one size doesn't fit all. Having worked in broadcasting for over 20 years, I feel like I have slightly different perspective than some....not because of the business end, but because the business tends to force employees to be very transient and very active in communities that aren't our own....and then figure out what makes them tick. It's different in every city I've worked. I think this makes my outlook somewhat different and, in some cases, probably difficult for others to understand why I think the way I do....I'll admit, sometimes it doesn't help that I have a hard time putting these thoughts into brief paragraphs. Maybe that bio will help you understand me a little better.

BTW, Larry...I think it was J. Murphy who posted, " I don't understand where the leap from 'limited' to 'no' government comes from...." (or something similar).I'm not an anarchist. I don't believe in "no" government. Strong rule of law is cornerstone of a healthy economy and civilization.Re: your Greek post....I sorta like gridlock from opposing views when things are going well....this is probably not the time for the Greek to have polar opposite, radical newcomers to run that dump through near-violent inaction.

Mike - I appreciate you sharing your background/perspective....and look forward to further discussions.

"I've always wanted to know how big a group needs to be before the Hydras, Jons and Larrys start to think we should coddle the lazy. In other words; on an island after a shipwreck with 10 able-bodied people, and one does nothing (or very little) to help, even they would be unlikely to treat the motivationally-challenged person equally with those that work hard....right? Even they would know that couldn't last long before mutiny. Why does an increasing number of people change this attitude?" -- MikeIf we held an election and Jon could secure the vote of the six laziest people by promising to redistribute the product of the four hardest workers, while assuaging any guilt by insisting that they have more than they need or are entitled to, well, you get the gist.""Democracy must be something more than two wolves and a sheep voting on what to have for dinner." -- James Bovard, Lost Rights: The Destruction of American Liberty (1994)I think the answer is three.

I wonder if in the USA people realize what a supply side policy would entail."¢Consumption taxes, and progressive consumption taxes to finance the military (alal Milton Friedman) "¢Wipe out the ethanol program."¢Radically curtail military-homeland security and VA outlays. Put vets on vouchers, wipe out military pensions for cash buyouts. "¢Pollution taxes"¢Eliminate the vast federal subsidy of rural areas, now a $100 billion a year boondoggle of fat."¢Cut welfare spending (although it is not a large part of federal outlays)."¢Raise Social Security retirement age"¢Adopt euthanasia for Medicare patients who are terminally ill and aged"¢Opening up our borders to immigrantsAn even tougher nut to crack are various obstructive state and local governments, who insist on licensing professions and trades, regulating whole industries such as alcohol, and limiting real estate development.In short, the likelihood of structural impediments being quickly torn down is zero. These are sacred cows of out political parties. As you can see, the GOP may even be worse than the D-Party.Below is list of largest federal agencies, by employment, that financed by income and capital gains taxes. Where should we cut?"¨"¨Defense 3,200,000Veterans Affairs 240,000 "¨Homeland Security 200,000Treasury 162,119 "¨Justice 124,870 "¨USDA 100,000 "¨DOT 100,000Health and Human Services 62,999 "¨Interior 57,232 "¨Commerce 41,711 "¨NASA 19,198 "¨EPA 18,879State 18,000 "¨Labor 16,818 "¨Energy 14,000 "¨GSA 14,000

Ben: Every freakin thing.

Some who inhabit these pages seem to be obsessed with what they see as bad, wrong govt as if the govt was some monolithic force for evil rather than the folks all around them that outvote them at elections.Those are the people that have managed to reverse a lifetime of statist propaganda. A good example of which is the vile novel and disgusting movies made from it, "Lord of the Flies", enormously popular in statist schools because it preaches that it's impossible for humans to interact without the guiding hand of the state.

Sweden's Supply Side Success

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