How Sweden got its groove back

The soul of political punditry is to cherry-pick facts and weave them together to support a pre-conceived notion of what’s right or wrong about this or that.  Thusly, we have been lied into two wars by presidents of different political parties; religious conservatives have created a mythology called “creationism;” and, social democrats have become convinced that the Scandinavian socialist economy is an example of a superior system.

As it turns out, the fall of Saigon didn’t have a material effect on the global balance of power; Saddam didn’t have weapons of mass destruction; and, of course, we really did evolve from apes.  As for socialism… well, it hasn’t worked anywhere ever.  And, Scandinavian countries are not running on a socialist system.  Indeed, if you’re looking for evidence that the policies of social democrats don’t work, you need look no further than Sweden. 

Kudos to those who governed the country in the 1990’s for having the courage not only to understand that they screwed up by turning to socialism in the 1970’s but also for dramatically restructuring policy to ensure a turnaround in their fortunes. In a 1998 report of the Institute for Economic Studies at Stockholm University, Assar Lindbeck outlines the events leading to the near collapse of the Swedish economy and identifies the policies that led the country out of the darkness.  

“In the early 1970s, Sweden became dominated by large and centralized institutions and highly interventionist policies,” he tells us. “Important manifestations are (i) a drastic rise in government spending (to the interval 60-70 percent of GDP); (ii) a huge increase in marginal tax wedges (to 65-75 percent for most full-time income earners); (iii) an increasingly interventionist macroeconomic policy, in particular, in the labor market…” 

The results? “Policies… seem to have contributed substantially to reducing poverty, as well as to making the overall distribution of disposable income relatively compressed. In this sense, welfare-state policies basically attained established targets.” 

Sounds good, right? Just one little problem though.  Economic growth was much slower than the rest of Europe. Comparing Sweden’s growth to the industrialized countries in the Organization of Economic Cooperation and Development (OECD), Lindbeck goes on to say:

“While per capita GDP increased by altogether 52 percent in the OECD area as a whole during the period 1970-1990 (weighted average), it increased by only 40 percent in Sweden. During the period 1970-1997, the difference is even greater: 62 percent for the OECD and 42 percent for Sweden.” 

By the late 90’s – while the rest of the industrialized world was booming -- Sweden’s government spending was over 70% of GDP.  A tax on capital enacted in 1983 had reduced the amount tax revenue from that source. And, high marginal tax rates had reduced household income.  The results were devastating.  Total GDP declined 5% and unemployment increased to 13%.  

Today, tax reductions along with market-based reforms have placed Sweden among the elite in the global economy.  The government’s website points to its ranking in the Top 10 most competitive economies in the world according the World Economic Forum and the World Bank’s ranking designating Sweden as one of the easiest countries to do business with. 

By enacting a debt limit and reducing both government spending and government intrusion in the economy in the 1990’s, Sweden avoided the calamity of the global economic crisis in 2008.  With the lack of humility common to all governments, they point out:

“While governments with large budget deficits carry out austerity measures by increasing taxes and cutting public spending, Sweden has broadly avoided these difficulties. While Sweden remains a relatively highly taxed economy, the centre–right coalition government of 2006–2014 scrapped inheritance tax in 2005 and a wealth tax in 2007.”

Sweden remains a highly taxed nation and its redistributionist policies have reduced income inequality and created a social safety net that many admire.  Personally, I believe it’s easier to implement such programs in countries whose populations are not diverse.  Sweden has a population smaller than New York and it’s nearly homogeneous.  People whose reciprocal expectations are met are unlikely to resent those who rely on that safety net.  

But that may be changing. Noting Sweden’s historical openness to refugees, CBS News recently reported on the rise of populist political parties espousing anti-immigrant policies.  Using the slogan “Keep Sweden Swedish” the far-right Sweden Democrats increased their share of the vote from 5.7% in 2010 to 17.5% in 2018, according to CBS.  And, the New York Times reported last week that four years after the influx of refugees “growing numbers of native-born Swedes have come to see the refugees as a drain on public finances.”  The Times quotes a local council member from a rural Swedish town as saying, “people don’t want to pay taxes to support people who don’t work.  Ninety percent of the refugees don’t contribute to society.  These people are going to have a lifelong dependence on social welfare.  This is a huge problem.”

Five years ago, I wrote about my father’s journey from welfare to successful entrepreneurship (On social mobility:  confessions of a former yuppie).  It seems that Swedes’ view of the purpose of the social welfare system is much like ours.  Those who pay into a system meant to help people in times of need expect those who benefit to use it as a platform to become contributing citizens – not to rely upon it for life. 

WHO WILL LEAD? 

The Fourth Turning: how Millennials will save capitalism

In my last post (Let’s understand just whatsocialism means to us (redux)), I decried the misguided belief that socialism should displace the capitalist system in the industrialized West.  Old, white guys like me won’t be around to turn the tide against this trend.  It will be the Millennial generation that saves capitalism.

In Neil Howe’s book “The Fourth Turning: AnAmerican Prophecy – What the Cycles of History Tell Us About America’s Next Rendezvous with Destiny,” he outlines how four repeating generational cycles (or Turnings) determine social attitudes and ultimately govern the social contract. You can find a one page summary on his website.

Howe’s hypothesis will ring true to any student of American History as he traces the impact of events on rising generations and how each generation changes the social order. The WWII generation was in the driver’s seat for the most recent First Turning, the “American High” following WWII when the crisis of the Great Depression gave way to a period of prosperity characterized by high levels of trust in institutions. 

The Fourth Turning in this model is crisis. The Stock Market Crash of 1929 began the crisis that preceded the American High. Four generations later, Howe tells us, “Today’s Hero archetype youth, the Millennial Generation … show many traits similar to those of the G.I. youth, including rising civic engagement, improving behavior, and collective confidence.”  It is they who will develop a new social order in the wake of the financial crisis of 2008.

My contemporaries doubt this.  Like all generations of elders, we collectively take a dim view of youth that that we see as addicted to their smartphones and cowering in their safe zones.  But, I take a different view.  Studies by Big 4 accounting firm Deloitte show Millennials tend to develop values consistent with their elders once they form families.  And, they are also becoming entrepreneurs.  Their future success will be enabled by technologies their elders are, to some extent, ignoring like broadband, social media and 3-D printing.

Still not convinced? 

How about this? Businesses change their approach to the market when it’s in their best interests to do so.  Corporate values will shift as Millennials become their core customers.

In the post-industrial 21^th Century, it’s getting harder to succeed purely on the basis of what you produce.  Your innovation can easily be copied, produced in a low cost factory overseas and exported to any market.  In a world where nearly every consumer can compare prices and features instantaneously, the spoils will go to the lowest cost producer not the innovator. 

To succeed in the 21^st Century, corporations will have to “outbehave the competition…” according to Dov Seidman.  His book, “HOW: Why How We DoAnything Means Everything,” outlines how companies must engage all of the talents of their employees to extend enduring value to customers.  Those that succeed will be those whose behavior is aligned with its customers’ values.  They will accrue enterprise value by becoming internetworked with the communities they serve. To do so they must engage their employees by treating them fairly and giving them good reasons to be proud of what they do and where they work. 

Granted, my argument is highly speculative (or full of holes if you prefer).  The future is hard to predict.  I truly have no idea how Millennials will ensure our continued prosperity.  I simply know that every generation does so.

To buy into my argument one must have faith.  My personal faith is best captured in a quote from the late John McCain:  “Our shared values define us more than our differences.  And acknowledging those shared values can see us through our challenges today if we have the wisdom to trust them again.”

Leaders of the Fourth Turning will be those who can merge our values with our aspirations.  It is they WHO WILL LEAD!

Let’s understand just what socialism means to us (redux)

I first wrote a post with the above title in 2015 when Donald Trump was polling second to Jeb Bush and Bernie Sanders was in the same place in their respective primary races.  I felt then (as now) that the only thing worse than Trump in the White House would be the crackpot from Vermont.  I also thought, once the election was over, the idea that socialism might be a superior economic system would fade away.  But, it hasn’t. 

Frankly, I can’t believe we’re having this conversation in the most prosperous nation on earth. But, we are.  Last week, a local NPR talk show hosted representatives of the International Socialist Organization (ISO), with no opposing viewpoints on the panel, for a solid hour. 

I could write pages of rebuttal of their economic thinking (if it can be called that).  But, I would like to focus on just a few troubling aspects of their presentation. 

The Scandinavia myth.  The nations most cited as a model for those promoting socialism in the U.S. are Sweden, Norway and Denmark. There is only one problem with this analogy:  those countries are not socialist.  And, I am not the only one who thinks so.  The Foundation for Economic Education (FEE) points out that, “like all other developed countries, the means of production are primarily owned by private individuals, not the community or the government.”  (Italics mine)  FEE is a self-described “non-political, non-profit, educational foundation…”

The folks from ISO like to compare data points from the performance of those countries to the U.S.  That’s like comparing bicycles to oranges.  Scandinavian countries (and Germany) have benefited from the creation of the European Currency Union, which has made the Euro the single currency of those countries who have joined the union.  It has enabled them to benefit economically by boosting exports, especially to the countries of Southern Europe.  The profits from those international sales are then reinvested by privately owned, capitalist companies to innovate new or better products or to improve the efficiency of their production.

The U.S., by contrast, is a net importer of goods and services.  Why? Because, first, we are the most prosperous nation on Earth, enabling us to buy more stuff.  And, second, because we are a consuming rather than saving nation.  So, we must recapture capital differently than net exporters.  We attract Foreign Direct Investment (FDI).  The Bureau of Economic Analysis reports a positive flow of $269 Billion in 2017, slightly below the historical average. “As in previous years, acquisitions of existing businesses accounted for a large majority of it,” according to the BEA.  In other words, our economy attracts investors from other countries who are spoiled for choice.

The Poverty myth.  You can find a lot of conservative sources – from the Cato Institute to the American Enterprise Institute – that will describe the ways in which capitalism has reduced poverty.  I know because I’ve been reading them for years.  To create a more balanced perspective, I searched for and found a non-partisan group focused on the topic.  The Huffington Post describes the Borgen Institute as “an incredible non-profit organization… addressing poverty and hunger and working towards ending them.”  Borgen cites free market capitalism as a key driver in the effort to reduce poverty, citing data showing a reduction by half in industrialized countries between 1990 and 2010 (from 43% to 21%).  Meanwhile, they say, “China increased per capita income 13-fold since the beginning of its economic reforms in 1978.  The country pulled 680 Million people out of poverty between 1981 and 2010… In India, income rose three-fold after the country liberalized its markets.”

There can be no doubt that liberalization of trade and the spread of free-market principles have improved the prospects of hundreds of millions of people throughout the world. 

Innovation. All of the advances in technology, healthcare and efficiency have come from capitalist countries. The Scottish enlightenment began in the 1690’s when liberalization of the economy gave rise to a spurt of innovation from the steam engine to canal locks as entrepreneurs worked to improve economic conditions.  In colonial and early American, the shortage of labor drove innovation in the form of steel plows and the cotton gin.  Throughout history, such innovation has improved the economic prospects of nations that have allowed capitalism to flourish. 

Since WWII, innovative improvements in healthcare, information technology and lifestyle  – polio vaccine, computers, jet travel, air conditioning – have all come from capitalist countries.  Driven by motivation to earn a living free of the constraints of central planning, free-market capitalism always has and always will improve the lives of those who have the good fortune to live under its umbrella.

No discussion of capitalism can exclude the dark side in these politically correct times.  For many, income inequality (which is increasing in the U.S. by many measures) is the reason we should consider another approach to managing our economy.    We often frame these arguments in the context of the Top 1%, or even the Top 0.1%.  But, that doesn’t describe the challenge appropriately, in my view. 

Hedge fund billionaire Ray Dalio has produced a study that outlines the critical challenges of the United States economy by comparing the fortunes of the Top 40% to the rest.  While pointing out that it is dangerous to form opinions by relying upon averages, he nevertheless describes the conditions of the 40/60 in a few resonant data points.  “The average household in the Top 40% earns four times more than the average household in the bottom 60%,” he tells us.  The result is “[t]hose in the top 40% now have on average 10 times as much wealth as those in the bottom 60%.  That is up from six times as much in 1980.”

It’s popular in conservative circles to point to economic outcomes for those less fortunate as the result of people making poor choices.  Indeed, that trope resonates with me in a big way.  That said, we should all be concerned about trends that ultimately destroy the middle class families on which the stability of our economy relies.  As it continues, the interests of the middle class will become aligned with those of the working poor.  There are economic, political and social consequences that will result. 

In a future post, I will outline what I foresee as the shift that will ultimately save our nation from destruction.  Stay tuned!

WHO WILL LEAD?

Bartender, apologies for everyone

When people ask me about this blog, I tell them it's intended to piss off two kinds of people-- Republicans and Democrats.  Lately, I've been thinking that's too narrow. It's really intended to piss off two kinds of people -- men and women.

Last week's attempt to piss off women may have backfired (How to insult women). All of the comments and messages I received were from women and all were positive. Allowing for the possibility that I didn't hear from those were offended (a non-respondent bias in statistical terms), I would like to apologize for implying that women should differentiate between a few joking references to their gender and the rape culture that seems to permeate college campuses. (I was pleased that 30% of readers clicked to watch the included video.)

While I'm in an apologetic mood, I would also like to apologize to gun rights advocates for suggesting that we amend the Constitution following the Sandy Hook shooting (The US Constitution was designed to be amended) and for providing a legal brief to undermine the claim that individual gun rights are supported by the Second Amendment (The Right to Bear Arms: anAmerican Evolution).

Sorry to all of you who are “Feelin’ the Bern” for my assertion that, were Sen. Sanders proposals adopted, the US economy would be flushed down the toilet and for further suggesting that those who don't know that are either “ignorant or stupid”. (Let’s Understand Just What Socialism Means to Us) By the way, if you're disappointed Bernie won't be in the White House next year, you could always move to Venezuela. I suggest you pack a lunch.

To those who think we should build a wall along the Mexican border, I apologize for suggesting the opposite (Open the Border! Wait, It's Already Open!)

To all you Pro-lifers, I am sorry for exposing the unconstitutional and unaccountable practices of lawmakers and police who deprive women not only of their reproductive rights but also their freedom (Orphan Black, Margaret Atwood and a Woman’s Right to Choose).  And, while I am on the subject, I should also apologize for calling out Republicans for the hypocrisy of advocating that government stay out of our lives while supporting the agenda of the Religious Right (Strange Bedfellows: Conservatives and the Religious Right).

So long as I am talking to you, I should also apologize for suggesting that the subject of gay marriage is not about your religion.  It's about love.  (It's Not Religion... It's Not Politics... It's Personal)

To all you liberal New Yorkers, I would like to say I'm sorry for dissing our governor whose policies that purport to promote business are actually driving businesses to leave the state (The Hunger Games: not everyone is a winner). His ban on fracking doesn't help (Fracking, New YorkTaxes and Twitter).

 

To you climate change deniers, I offer my apology for saying that you haven't a leg to stand on (Kurt Vonnegut, Enrico Fermi and Climate Change).

To Europeans, who are whistling in the dark when it comes to dealing with Russian aggression, I apologize for comparing you to Chamberlain, the great appeaser (What’s Russia Really Up To?).

To those of you who think America is in decline, I apologize for espousing the view that America should be celebrated for its freedoms, including its model of economic freedom (The American Dream is Alive and Well).  What has failed us is the Blue State model of high taxes and overregulation.  Oops!  Sorry again!

While I am on the subject, I suppose I should apologize for the sacrilege of my claim that raising the minimum wage and expanding 60’s era anti-poverty programs are a waste of effort (Obama, SNAP and Conservative Americans).  Sacrilegious though it may be, I still struggle to understand how the programs that have led to more poverty in the 20^th Century will do any better in the 21^st.   Sorry.

 

And I am sorry for pointing out to labor union liberals that your model hasn't worked since the 1950's and it won’t work now (The Disunion of ‘dis Union).  Ditto to those married to our outlandishly expensive and closed-minded university system (When Will the University Bubble Burst?).

If you're among those who think that capitalism is evil, I am sorry for asserting that the only economic system that can generate the money needed to address society’s ills is free market capitalism (Time Travel and Our Social Welfare). Further, I should apologize for suggesting you have the luxury of complaining about our system because the system has improved your lives (otherwise you’d be too busy working to have the time to complain).

Now, if you detect a note of sarcasm in all these words of contrition, you're right on.

However, there is one group to which I offer my most sincere apology -- the 73,138 of you who have taken the time to visit my website, read, click and comment. 

Why am I apologizing to you?

Because...        I...         Am...    Done!

WHO WILL LEAD?