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? 

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?

Lessons in Depolarization: let’s start now!

I have a friend who thinks the candidates from the other political party are “crazy”.  She sometimes starts a conversation that way.  “They’re all crazy!” she’ll say.  My response is that it depends on where you’re standing.

If you’re an Evangelical Christian who thinks the government should enforce your moral code, Ted Cruz doesn’t sound crazy.  If you think capitalism is evil and corporate greed is at the root of our nation’s problems, Bernie Sanders doesn’t sound crazy.  If you lost your factory job because your employer outsourced it to China, Donald Trump doesn’t sound crazy. 

Another friend – a self-proclaimed libertarian -- describes the hypocrisy of Republicans who espouse limited government by saying of the party’s candidates, “they think the only problem with government is they’re not running it”.  That one resonates with me, which is why the faux campaign button displayed here caught my attention.  They all indeed suck!

So, where do we go from here?

In an article titled “The 7 Habits of Highly DepolarizingPeople”, David Blankenhorn points out “[w]e Americans didn’t necessarily think our way into political polarization, but we’ll likely have to think our way out.”  Among the habits he counsels we develop is Habit #4:

“Doubt—the concern that my views may not be entirely correct—is the true friend of wisdom and (along with empathy, to which it’s related) the greatest enemy of polarization.” 

Do you ever doubt that your political positions are correct?

Here’s another thought…

Ever notice how people put you in a category based on one of your opinions.  In an online discussion, someone I’ve never met referred to me as a “right-wing tea bagger” because I challenged the wisdom of Bernie Sanders policy proposals.  Just because I hold one opinion embraced by many Republicans doesn’t mean I agree with them all. Again, Mr. Blankenhorn:

“Of all the mental habits that encourage polarization, the most dangerous is probably binary thinking—the tendency to divide everything into two mutually antagonistic categories.”

“Categories are abstractions,” he reminds us when describing Habit #5:  Specify.  When we fall into the “sloppy habit of categorical thinking,” he reminds us, “the result is personally and socially harmful.”

Blankenhorn got me thinking about my own polarizing behavior.  Had I not used the tactic of categorization when I body slammed Bernie Sanders in last year’s most-read post? (Let’s Understand Just What Socialism Means to Us)

Sanders would model our government after Scandinavian countries.  An examination of the economic models of Scandinavia would suggest that socialism is an inaccurate label.  Their highly globalized, free trading, free market capitalist economic systems would very much appeal to American conservatives. They’re not socialist at all.

Denmark, for example, ranks number 3 on the World Bank’s list of countries in which it’s easy to do business.  The rankings are a measure of the degree to which regulations hamper businesses.  The U.S. is 7th followed in order by Sweden, Norway and Finland.  CEOWorld magazine ranks Sweden and Denmark sixth and seventh respectively in their ranking of globalized countries.  The U.S. is number 34. 

In addition to free trade, Scandinavian countries have embraced policies that would be anathema to American progressives.  There is no minimum wage in these countries.  Wages are set through collective bargaining and vary by industry. 

Sweden has introduced a school voucher system to increase competition among primary and secondary schools.

They depart from the agenda of American conservatives as well.  Their social benefit programs are expensive and are supported by high taxes. 

So, in what category do we place the Scandinavian model?

Better question: how do we depolarize?   

In describing Habit #1 -- “criticize from within” -- Blankenhorn quotes Lincoln’s first inaugural in which he calls upon us to “find the better angels of our nature”.  He suggests we start by finding some common ground. 

We might find common ground in the writing of Hunter Lewis, thusly: 

“Politics, economics, morals, and manners all fit closely together. The kind of crony capitalist society in which we live encourages, indeed glorifies deceiving, cheating, taking advantage of the weak, putting yourself first. This kind of behavior always has and always will exist, but in past eras it has not often been extolled, as it is today, or covered up with a bare wink…”

Can we start there?

WHO WILL LEAD?

FOR SALE: 640 Million Acres

Remember that guy Cliven Bundy?  A few years ago he made headlines by protesting grazing fees on federally owned land in Nevada.  He hasn’t paid them for over 20 years.  The Bureau of Land Management, armed with a court order, showed up to evict his cattle.  He stood in front of the gates, armed with his personal firearms, accompanied by armed supporters, and challenged the Feds to a gunfight.  And, he won the day.  The government backed down.

The standoff over federal grazing fees

He was a conservative hero for a few days until his racist remarks had his political advocates distancing themselves from him.

But, here’s the thing.  He shouldn’t have been a conservative hero.  He should have been a liberal hero.

But, I am getting ahead of myself.

My last post (Let’s understand just what socialism means to us) excoriated democratic socialist Bernie Sanders and, by extension, his supporters and those who advocate his beliefs.  One reader called it a rant.  After rereading it, I had to admit he was right and apologized.  Another accused me of contributing to the demise of civil discourse.  Another mea culpa!

Notably, no one refuted the core of my argument – that capitalism is superior to socialism or even democratic socialism. 

Then I got an email from a friend on the left coast.  It included a link to a New York Times op-ed piece titled “Socialism, American Style”.  The article promotes the idea that state government ownership of real property serves the interests of conservative politicians.  How?  Charging fees for its use raises revenue and enables state governments to reduce taxes.  The authors provide examples of socialist enterprises in conservatively governed states including Alaska, Texas, Nebraska, Wyoming and Tennessee.

Like most punditry masquerading as analysis, the column gets the facts right but ignores alternatives that don’t fit the author’s bias.  What alternatives, you ask.

When commenting on fiscal matters, conservatives are fond of making analogies to household budgets or running a business. 

How’s this for an analogy?

If a business doesn’t generate enough revenue to cover its expenses – the equivalent to governments running a budget deficit – they often sell assets to raise cash.  The federal government owns over 640 Million acres of land or 28% of the area of the United States. 

So, here’s my challenge to conservatives and to conservative politicians, if any are listening:

            SELL THE LAND!

If you believe that private enterprise is the surest path to American prosperity, sell the land.  Private owners will convert it to its highest and best use.  It will generate more personal income for its investors.  They will reinvest it; they will spend it; and, it will boost economic growth.  If you believe in supply side economics, you should expect to generate more tax revenue without raising tax rates if the property is converted to a more economically productive purpose. 

The Federal land is estimated to be worth about $128Trillion.  The practice is most prevalent in the 11 adjacent states that constitute the American west, where the federal government owns 47% of the land. 

Sure, some of it houses military bases and government buildings.  But, most of it – including 85% of the land in Cliven Bundy’s home state – is wilderness.  We could pay off the federal debt with proceeds from the sale of only 15% of it.

Much of it is grazing land of the type that old Cliven, the conservative hero, was using to feed his cattle.  What would happen to that land if it were sold to a private owner?  No one can be sure.  Maybe the new owners would build condos or a health spa and resort.  Maybe they would grow genetically modified corn and feed the world’s hungry with cheaply grown food.

But, if that were to happen, Cliven would be out of business.  What would he do?  Lead a march on Washington?  After all, his government benefits will have been cut.  Aren’t we concerned about social outcomes?

The Wildlife News made this point succinctly, referring to him as “a freeloading, welfare rancher who has an inflated sense of entitlement.”

Like I said, Cliven should be liberal hero.

WHO WILL LEAD?